Netflix is ​​taking advantage of its good results to further increase its prices

Netflix's bet is succeeding, beyond analysts' hopes. By ceasing to tolerate the abusive sharing of passwords allowing access to its platform, the Californian giant has forced a significant segment of Internet users, until then illegal, to pay to continue watching its series.

The Los Gatos (California) firm thus managed to increase the number of its paying subscribers by almost 11% during the third quarter. The jump corresponds to 8.8 million additional accounts...unheard of since the start of the Covid pandemic, an exceptional period when millions of confined people occupied their days non-stop watching series like The Crown. Greg Peters and Ted Sarandos, the co-presidents of Netflix, draw two conclusions from this success. The first is that they can immediately increase their prices, for customers who want to enjoy the service without advertising. The American, British and French markets will therefore see their prices rise.

Second conclusion: we must continue to tighten the criteria for sharing passwords. There are still groups of customers who abuse this practice and who have not yet been sanctioned. Unlike rival platforms, such as Disney and Discovery, Netflix had not increased its prices in a year. For the Hollywood giants who are late converts to the “streaming” model, the increases are all the more necessary as they continue to accumulate losses in this new activity. Netflix, on the other hand, reported a 20% increase in its net profits for the third quarter to nearly $1.7 billion. The video-on-demand pioneer's operating margins exceed 22%. Wall Street greets the news with a 13% increase in Netflix's share price on the over-the-counter market, after the Nasdaq close.

It is important to emphasize that Netflix, like its competitors, seeks to adapt its prices and its service to the wealth of its customers. We cannot demand the same monthly amount from an Internet user in India or Peru as from a subscriber in Switzerland or the United States. Thus, despite an increase in the number of its subscribers, Netflix notes that the average income obtained from each account has fallen by one percent compared to last year. In a market that is increasingly saturated in rich countries, most of the growth is now in less wealthy countries where subscription plans must be less expensive. The use of formulas that include advertising has become necessary for growth in order to limit price increases and increase the number of subscribers.

The strike by American screenwriters and actors is naturally a disaster for Netflix, as for other platforms. The releases of new series next year will clearly be affected. On the other hand, in the immediate future, the suspension of production since the spring results in significant reductions in costs. Netflix had planned to spend $17 billion on new productions this year. This amount is now revised to around 13 billion.

“We want nothing more than to resolve this conflict and get back to work,” says Ted Sarandos. The writers have been hard at work again for a few days. At the end of nearly five months of strike, they won a collective agreement that was more advantageous from their point of view, particularly on the issue of profit sharing from successful series. On the other hand, the conflict with the union of 160,000 actors has just hardened and negotiations are at a standstill.