The markets have had a sluggish year, and streaming stocks have not been among the few categories to avoid the pain. Disney (DIS -1.46%) and Warner Bros. Discovery (WBD -4.28%) have seen significant drops in their valuations. Netflix (NFLX -0.48%) has also experienced a decline in its stock price since the beginning of 2022, but there are some signs that the company is still a good long-term bet.
Netflix is cracking down on account sharing
The first quarter of 2022 was dismal for Netflix, as its subscriber base started to shrink. Management said it would start cracking down on users who share their account logins with people outside of their household -- something investors had long wanted the company to do. Netflix has not disclosed how many subscribers are sharing their logins, but a study by Leichtman Research Group published earlier this year indicated that 33% of U.S. Netflix accounts are used by multiple households.
Netflix has rolled out two pilot schemes, both designed to charge users extra for the privilege of sharing their account details with others. The first test is operating in Chile, Costa Rica, and Peru, where some customers are being asked to pay an extra fee if the company detects that an account is being used in more than one location. The second program monitors the Netflix app on smart TVs across Argentina, the Dominican Republic, El Salvador, Guatemala, and Honduras. Again, if the company finds a login is being shared across two households, the accountholder will be subject to an additional charge.
Netflix has yet to discuss how those tests are going, or what monitoring tools and fee structures it is leaning toward. But if sourced reports from The New York Times and others are to be believed, Netflix customers in the U.S. who share accounts could start to see extra charges added to their monthly subscription payments before the year is out.
From the perspective of investors, Netflix's move to capture this extra income is a positive. There is, of course, a risk that those subscribers may be irked at being asked to pay more -- particularly after the company's price hike this past summer. But there's also the prospect that a large fraction of those customers will opt to stop sharing the accounts, which could in turn lead many of the former freeloaders to sign-up for their own Netflix accounts.
An ad-supported tier is on the way
The other part of Netflix's plan to stimulate user growth is to introduce an ad-supported tier. The company is yet to reveal just what subscriptions to this new plan will cost or when it will be made available, but from what it has shared, there are reasons for stakeholders to feel positive about its prospects.
Netflix has signed a partnership with Microsoft, which will provide the underlying ad technology for the new tier. Microsoft will also handle the ad sales (perhaps a reflection of the fact that the streamer understands it's a novice in the advertising arena). However, Netflix has said the arrangement allows it the "flexibility to innovate," suggesting that it not only expects to learn from the partnership, but also to iterate over time.
Netflix's move into the ad-supported streaming space will not be without its challenges. There are already a plethora of established free-to-watch ad-supported services like Tubi and Amazon's (AMZN 0.01%) Freevee, and Disney is launching an ad-supported Disney+ plan in December. But should Netflix offer enough to consumers -- and hit the right price point -- there's every chance its subscriber numbers will start heading in the right direction again.
