Netflix may tap price hikes after success of password-sharing crackdown

FILE PHOTO: Smartphone with Netflix logo is placed on a keyboard in this illustration taken April 19, 2022. REUTERS/Dado Ruvic/File Photo

(Reuters) - Netflix's crackdown on password-sharing likely boosted subscribers by about 6 million in the third quarter and the streaming pioneer is expected to set the stage for price increases when it reports earnings on Wednesday.

The only profitable major streamer, Netflix has resisted joining rivals like Walt Disney in hiking ad-free prices this year and instead curbed password-sharing outside households to tap the more than 100 million viewers who use its service without subscribing.

"Netflix now closely resembles a utility in many markets," analysts at Bernstein said. "The challenge of being labeled a utility is how a maturing company continues finding growth."

It could hike prices after the end of the Hollywood actors strike, a media report said earlier in October.

Five months after calling a strike that plunged Hollywood into turmoil, the Writers Guild of America (WGA) last week approved a new contract with major studios.

Netflix, however, has weathered the strike well thanks to its larger international presence and strong content slate.

After a slow start for the ad plan launched last year, analysts said they expect Netflix will raise prices of its ad-free options in the coming months to nudge more subscribers to the other tier, where commercials help bring in more revenue per user.

So far, most viewers subscribing to Netflix after the password crackdown have opted for the ad-free plans, analysts said. Its standard plan with ads costs $6.99 a month, while the ad-free plans start at $15.49.

"Using these tactics, Netflix will likely double its ad-supported viewership next year," said Insider Intelligence analyst Ross Benes. He expects Netflix to show more ads to users over time, catching up with rivals.

The ad tier is expected to bring in some $188.1 million in revenue in the third quarter ended September, with subscriber additions of 2.8 million, according to Visible Alpha estimates.

Overall, Wall Street expects the streamer to post its strongest quarterly subscriber additions this year, according to LSEG data.

Revenue in the third quarter likely rose 7.7% to $8.54 billion, the fastest growth in five quarters, thanks to strong programming that included the latest seasons of "Sex Education" and "Virgin River".

(Reporting by Samrhitha Arunasalam in Bengaluru; Writing by Aditya Soni; Editing by Sayantani Ghosh and Devika Syamnath)

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