Netflix’s Growth Play & Zaz’s New Era

Netflix co-C.E.O. Ted Sarandos.
Netflix co-C.E.O. Ted Sarandos. Photo: Tommaso Boddi/Getty Images for Netflix
Julia Alexander
February 28, 2023

Recent coverage of Netflix’s ongoing financial adventure has focused on its crackdown on password sharing—a generational love language for some 100 million users who currently aren’t paying for the service. The old-as-time password-sharing phenomenon has led to revenue leakage, of course, which costs Netflix billions of dollars each year. During the good old days of streaming, Wall Street analysts seemed to believe then-C.E.O. Reed Hastings’ bromides that this was all fine and well, and served as some form of discovery marketing. Now the Street wants to discover that missing revenue, and stat.

Most of the leakage is abroad. Of those freeloaders, 30 million are in the U.S., and 70 million are international. Various strategies are emerging to bring these customers into the business. Outside of its new ad tier, Netflix isn’t cutting prices in the U.S. and Canada, where the company presumably believes that its value proposition is fully recognized, and the elimination of password sharing will lead to conversion. Top European territories aren’t seeing huge slashes, either, probably for the same reason. Last week, however, Netflix also began experimenting with a lighter-touch strategy to soften the blow of the international crackdown, particularly in developing markets: slashing prices and offering meaningful discounts.  

The discounting is occurring in the Middle East, parts of Africa, Latin America, and the Asia Pacific region—all markets where Netflix is trying to accelerate growth. Since the average revenue per user (ARPU) in these regions is already pretty low, offering further price reductions won’t meaningfully impact overall averages across the business. At the very least, it seems like a worthwhile experiment. With flexible pricing, in particular, Netflix gets to test the power of discounting against password-sharing crackdowns before introducing these strategies in more established markets.