Netflix reported its third-quarter earnings this week, exceeding expectations and recording its most profitable quarter in the company’s 27-year history. This is only the latest in a series of “wins” for the streaming giant, as they have enjoyed two years of sustained growth and profitability after a blip two years ago when it lost subscribers in two consecutive quarters.
Since that time, Netflix has carried out a series of initiatives that prioritized profitability over subscriber growth. Before then, the focus of the company had been increasing its subscriber count. The last two years have ushered in a new era in streaming, both at Netflix and across the industry overall.
Netflix’s first significant change in direction came in the Fall of 2022 when Netflix launched an ad-supported tier of service. This represented a stark reversal for the company, whose CEO Reed Hastings had previously said would never bring advertising onto its platform.
However, the cheaper ad-supported package allowed the company to maintain its budget-sensitive customers while earning new revenues from advertising. This was viewed as a net new frontier in revenue, given the inevitable slowdown in new subscriber growth. Their ad-based service now has 25 million users.
Six months later, Netflix rolled out its long-rumored and infamous password crackdown, restricting the ability for subscribers to share their account information with other non-paying users. At the time, this was seen as a risky move, with the potential to alienate some paying subscribers and their non-paying friends and family.
However, the impact was headed in the opposite direction, with a significant number of the non-paying watchers choosing to sign up for their accounts so they could continue watching Netflix programs. The result was an increase in subscribers and profitability.
In addition to these two successful programs, Netflix has taken further steps to adjust their pricing levels and invest in bringing live events to their platform. Investors have supported these new directions, with the share price increasing 420% from its low point in 2022.
Competing streaming services such as Max and Disney+ have followed Netflix’s lead in most of these areas, and seen some of their successes as a result. Netflix is set to stop reporting its subscriber counts beginning in 2025, with its financial results speaking for itself.
