Netflix’s Strategy Shift Raises Concerns: Will Ending Password Sharing Impact Growth?

Shares of Netflix fell on Friday as its plan to stop sharing subscriber numbers from 2025 stoked growth concerns, with analysts warning that rivals could follow the move by scraping a key metric on the health of the streaming industry. Subscriber additions have long been watched by investors and Wall Street analysts to gauge how companies including Netflix, Walt Disney Co and Warner Bros Discovery are faring in the streaming war. But after three quarters of blockbuster growth in subscribers, streaming giant Netflix said late Thursday that it would stop reporting the numbers to focus more on revenue and profitability.

“Industries tend to work together and if one of the leading players decides it’s better for investors to evaluate performance on different measures, rivals may adopt the same logic,” said Dan Coatsworth, investment analyst at AJ Bell. The move comes as some analysts worry about how Netflix plans to maintain growth after its password-sharing crackdown, which helped it add 9.3 million new customers in the first quarter. There are signs that streaming growth in the US is saturating as it is set to halve in 2023, data from research firm Antena showed in February.

“While this is partly a sign of Netflix’s unrivaled market share, it also raises questions about the streamer’s ultimate ceiling in the current landscape,” said Brandon Katz, entertainment industry strategist for Perot Analytics. Netflix stock fell 7.3% to $565.85, its biggest drop since July, after its revenue forecast for the second quarter fell short of estimates. If losses persist, its market valuation will drop by about $19 billion. Netflix has said it plans to accelerate future growth by working to improve the variety and quality of its entertainment and to scale its advertising business. Wolf Research said the streaming giant could enter bidding for NBA media rights, marking a major shift from its strategy of focusing on sports entertainment – content such as the Formula One docu-series ‘Drive to Survive’ and WWE.

“Netflix jumps from subs to tie-up (and less advertising) at key moment: NBA media rights sale. Will Netflix spend $1-3B for some NBA media rights? We think so. Sports is the biggest piece of the pay TV pie, And Netflix can accelerate the globalization of sports brands.”