Shares of the streaming video service Netflix plunged more than 20 percent in after-hours trading on Tuesday after the company reported a rare but significant decrease in paying subscribers.
Officials at Netflix said the company ended with 200,000 fewer subscribers at the end of its most-recent quarter. Prior to Tuesday’s report, the company had projected it would end the quarter with an increase of 2.5 million subscribers.
Company executives blamed password sharing among its paying customers. The complaint reversed a position held by the company’s own chief executive, who embraced password sharing as a way for family members to watch Netflix content.
Netflix charges $10 a month to access its shows and movies in standard definition, which is similar in quality to movies on a DVD. Its base subscription price of $15.50 a month allows customers to stream content on two devices at once and bumps the quality up to high definition. A pricier, $20 a month tier unlocks content in ultra-high definition (UHD/4K) and allows users to watch on four devices at once.
The company has raised its subscription prices on customers in the United States at least once per year over the last eight, according to a recent analysis by The Desk. Netflix’s high-definition tier has seen the majority of the year-over-year price increases; the company raised the rate of its cheapest subscription offering for the first time in 2019.
The rate increases came as Netflix vowed to spend billions of dollars to produce original television shows and movies for the streaming service. In 2018, Netflix said it would spend $8 billion producing original content. That figure more than doubled last year.
Earlier this year, Netflix executives said the company would raise its subscription prices to offset the cost of producing original content for the streamer.
The service faces increased competition from cheaper streaming options like Amazon Prime Video ($10 a month with Prime Membership), the Walt Disney Company’s Hulu ($12 a month for commercial-free access), Comcast’s Peacock ($10 a month with no ads) and Warner Bros Discovery’s HBO Max ($15 a month for ad-free access), all of which have made similar investments in original content.
Rather than reducing its expenditures, Netflix seems to be taking a different approach: Cracking down on the password sharing trend that helped the service become dominant in the first place.
Netflix has already tested this method in some Latin American countries where subscribers are being asked to pay extra if they want to share their account with people outside their immediate household. Freeloading users are able to transfer their watch lists and account activity to their own subscription if a paying customer doesn’t want to fork over more cash to keep them on their account.
In a letter to shareholders, Netflix executives said the company was testing various methods to reduce password sharing among its customers. The company said around 100 million extra households are accessing Netflix content without paying. The company currently has 222 million subscribers.
“Sharing likely helped fuel our growth by getting more people [to use] Netflix and enjoying our service,” a Netflix spokesperson wrote in the letter to shareholders published on Tuesday. “We’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households.”
Going forward, Netflix officials say they see very little growth domestically. Instead, the company sees international markets as the key to grow subscribers over the long-term.