Why Netflix delayed its password sharing crackdown

By Clare Duffy, CNN

Netflix on Tuesday said it will move forward with a broad rollout of its paid account sharing option in the second quarter, after having delayed it during the prior quarter.

Netflix began clamping down on password sharing in four additional countries earlier this year, but opted not to expand more broadly after it “found enough improvement opportunities” from early launches.

The delayed timing, announced in the company’s latest earnings results, may have added to the company’s challenges in growing its subscriber base during the March quarter.

The company reported a net increase of 1.75 million global streaming subscribers, up nearly 5% from the same period in the prior year, but below the more than 3 million Wall Street analysts had expected.

Netflix said it has seen a “cancel reaction in each market when we announce the news” about the paid sharing option, but then it sees “increased acquisition and revenue.” By delaying the rollout, however, Netflix said “some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2.”

Tuesday’s earnings report marks the first for new co-CEOs Greg Peters and Ted Sarandos, after founder Reed Hastings handed over the role and became executive chairman in January.

It was a crucial quarter for Netflix, as the company seeks to grow a number of new revenue opportunities following rocky performance last year, including shedding 200,000 subscribers in the year-ago quarter, which sparked a major selloff. The company has also been working to grow its new ad-supported subscription offering, which launched last year.

“Engagement on our ads tier is above our initial expectations and, as expected, we’ve seen very little switching from our standard and premium plans,” the company said in its Tuesday subscriber letter.

Netflix reported revenue of around $8.2 billion for the quarter, up nearly 4% from the same period in the prior year and in line with analysts’ projections. The company’s quarterly income fell 18% to $1.3 billion.

Netflix said it expects revenue to grow by nearly 5% to $8.2 billion during the three months ended in June, but projects quarterly profits to fall by more than 19% from the same period in the prior year.

The report comes days after Netflix bungled what was supposed to be its second-ever live show — the season 4 “Love is Blind” reunion — and had to apologize to frustrated fans and tape the special for streaming. Unlike its streaming rivals, Netflix had long been resistant to live streaming because of its high costs. But, facing steeper competition, Netflix has started to experiment with the format, one it apparently has not yet perfected.

Netflix also said Tuesday that it would officially wind down the DVD rental service that made it a household name this fall.

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