Netflix Earnings Miss Estimates as Password Sharing Crackdown Bites

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Netflix tumbled as lackluster revenue growth sparked concerns it could take longer for the video-streaming pioneer’s new money-making ventures to drive growth. The company added around 6 million subscribers in the second quarter – almost triple what Wall Street expected – thanks to a crackdown on password-sharing and the introduction of a cheaper subscription tier that comes with advertising. But it also warned that it’s running out of room to grow globally and will likely have to resort to more of these password-sharing crackdowns in the future.

It’s a sign that the streaming giant is realizing it can’t keep growing at the breakneck pace it has in the past, and it needs to find other ways to make money to support the new content it’s putting out. That’s because it takes a lot of money to produce and market the movies and TV shows that Netflix is known for, and it can only keep those prices up so long before the cost of production starts eating into profits.

That’s why it’s so crucial for the company to continue to find new sources of income, and it has been working on several new monetization efforts. Last year, the company started requiring people to pay extra if they use an account for someone outside of their household. It’s also begun charging more for some of its overseas plans. The company aims to turn those extra dollars into profits to invest in more new content.

In the second quarter, Netflix also introduced a new pricing tier allowing customers to stream its HD and 4K service simultaneously. It needs to be clarified how many customers will upgrade to the new tier, but it is a way for Netflix to get more money out of current users rather than trying to lure in new ones.

The company also shifted how it reports its results, moving away from total subscriber counts to focus more on how much viewers watch and assess its performance in specific markets. That’s a move that should help investors better understand the company’s overall financial health, as well as its success in individual regions.

In an email to subscribers this week, Netflix explained how the password-sharing crackdown will work in the U.S. The company will soon require that people who share an account with friends and family in the country buy their own account for $8 more monthly. Netflix will also begin limiting viewing access to one device per household on some accounts.

Investors will observe to see if the password-sharing crackdown works as planned. Netflix has survived customer backlash, like when it began charging for its first streaming service in 2011. However, this move could be more complex because many existing users already share accounts for free. A major hiccup in the plan could send shares tumbling again.

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