Netflix reclaims its crown: Shares soar as subscribers flock back to streaming giant

This time last year it felt as if Netflix had lost its lustre.

The television streaming service – a stand-out winner during the pandemic – was still reeling from its first fall in paying subscribers in more than a decade.

In total, more than a million switched off in the first half of 2022, leaving the company at a crossroads – as the competition was stepping up, the lockdown boom was coming to an end.

Netflix needed to convince its customers that it was not only better than its rival streaming services but also worth the cost in an increasingly uncertain economic climate.

Fast-forward a year and Netflix appears to have well and truly carved out a comeback.

Fightback: Netflix shares are up more than 35% so far in 2023, as the streaming giant continues to claw back customers with hits such as The Crown (pictured)

And while the shares fell 50 per cent last year, they are up more than 35 per cent so far in 2023, though remain down some 40 per cent since their pandemic peak in 2021.

The turnaround strategy was not without risk.

Many feared that a clampdown on password sharing – an area it traditionally turned a blind eye to – could backfire and spark a mass exodus.

But the decision to make it more difficult for users to share their log-in with family and friends instead pushed many freeloading viewers into signing up themselves.

Indeed, Netflix revealed late on Wednesday that it added 8.8m new subscribers over the last three months, far better than expected and up from 2.4m in the same quarter last year.

Unsurprisingly, this was met with a huge sigh of relief on Wall Street, with shares jumping more than 16 per cent when trading resumed yesterday.

Another bet that also appears to have paid off is the streaming giant’s push into advertising.

This was another contentious area for a company that was set up as a disruptor for traditional television – a place where you didn’t have to watch adverts and could sit through a whole series without waiting for the TV guide to come through the letterbox.

Bosses launched the advertising option late last year, providing a cheaper service for more thrifty consumers who were willing to put up with commercial breaks in exchange for a smaller fee.

It also brought in a whole new revenue stream for the 26-year-old business as companies paid to get their adverts in front of Netflix viewers.

Management is in bullish mood. So much so that it is now hiking prices on both sides of the Atlantic. 

The bet is that clamping down on password sharing did not cause a mass exodus – quite the reverse – and neither will this.

In the UK, a basic subscription will rise by £1 to £7.99, with premium memberships increasing by £2 to £17.99. For subscribers who watch with adverts, the price remains at £4.99.

‘Netflix’s turnaround is complete,’ declared Ben Barringer, an analyst at Quilter Cheviot. 

‘They now guide their sales growth to be back in double digits, and there is no reason it cannot kick on from here and cement its place at the top of the film and TV hierarchy.’ 

Indeed, despite the disruption in Hollywood because of the ongoing actors’ strike, Netflix appears to be insulating itself by penning licensing deals for older hit shows.

This summer, Warner Bros Discovery’s HBO network agreed Netflix could stream shows such as Six Feet Under, Ballers and Band of Brothers.

NBC Universal also licensed legal drama Suits to the rival streamer in July, with viewers flocking to watch Meghan Markle in her pre-royal days.

Fiona Orford-Williams, an analyst at the Edison Group, said increasing the licensed content was ‘obviously a quicker and cheaper option’ but said the group ‘will still need the tent-pole, prestige projects to keep its brand halo shiny’.

Netflix seems to have this ‘halo’ covered, at least for now, with new bumper shows such as Beckham, which notched up 3.8m views in its first week in Britain.

And it is now planning a push into live sports, though the success of its first event, The Netflix Cup, which will see professional golfers team up with Formula 1 racing drivers for a golf tournament next month, remains to be seen.

Relative to some of its competitors, however, Netflix appears to have emerged from the industry’s recent woes stronger than before.

Disney Plus has been shedding subscribers in recent quarters despite its large catalogue of films and heavy investment in new content. 

And Warner Bros Discovery is bracing for a £400million hit to its full-year profit as the strike by Hollywood actors affects production.

‘Netflix is entering 2024 as a cleaner story,’ said Justin Patterson, an analyst at KeyBanc Capital Market.