Netflix has seen a rise in subscribers and a boost to profits as a result of its crackdown on password sharing.

The streaming platform added 9.33 million new memberships during Q1, 7.5 million more than the same time last year, with take-up of its ad-funded membership up 65% compared to last quarter. This takes its total subscriber base to just shy of 270 million.

At the same time, revenue was up 15% to $9.4bn (£7.6bn) in the three months to 31 March, while net income increased by 79% to $2.3bn (£1.85bn) compared to the same quarter in 2023.

On the Q1 earnings call, Spencer Neumann, Netflix’s chief financial officer, said the company is “building a much more durable and healthy foundation for revenue growth” across a larger base of paid members. He said this new foundation will create a “strong and scaled, highly engaged audience” for it to build into its advertising over time.

Starting with the first quarter of 2025, Netflix has said it will stop reporting paid quarterly membership and revenue per subscriber. From next year it will use engagement as a key metric and its “best proxy for customer satisfaction”, in addition to financial metrics such as revenue and operating margin.

Why we focus on engagement is because we believe it’s the single best indicator of customer satisfaction with our offering, and it is a leading indicator for retention and acquisition over time.

Theodore Sarandos, Netflix

Netflix said it was important to talk about membership growth in the “early days” when the company had little revenue or profit as it was its strongest indicator of future potential. Since generating “very substantial profit and free cash flow” and developing new revenue streams like advertising, the company believes it is the right time to remove this number from its reporting.

“Why we focus on engagement is because we believe it’s the single best indicator of customer satisfaction with our offering, and it is a leading indicator for retention and acquisition over time,” said Theodore Sarandos, co-CEO and director.

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Understanding engagement

Two years ago, the company estimated more than 100 million people were using an account for which they didn’t pay. Mid-last year, the platform began cracking down on UK users sharing passwords and began retiring its basic plan in the UK and Canada.

The crackdown is already having an impact, and Gregory Peters, co-CEO, president and director, said the next engagement report will show “some impact” on the overall absolute view hours.

The company wanted to do an “apples-to-apples view” of engagement, so it examined the population not impacted by paid sharing.

“In Q1 of 2024, the hours viewed per account were steady with the [same quarter a] year ago. So that’s a pretty good sign that our engagement is holding up, and it sort of cuts through the noise around paid sharing,” he said.

Innovation in product and marketing

Netflix said innovation will be key in its product and marketing going forward, as it looks to fuel fandom and improve the way subscribers discover content.

Netflix describes its own platform as its “most direct promotional tool”, with trailers generating more than 6 billion impressions each month. This is more than 40 times what they get on YouTube.

It highlighted functions like ‘remind me’, which alerts users when a show is released, and helps to turn “interest into action”. It also believes its personalised recommendations are “much more effective” at finding audiences than the “techniques used in traditional entertainment”.

“It’s how shows like Squid Game and Lupin, or films like Society of the Snow and Troll go viral – reaching much bigger audiences than would ever have been possible in the past,” it said.

Away from the platform, Netflix says the weight it gives to different campaigns depends on the genre, the size of the potential audience and the buzz it thinks it can generate.

Some campaigns will be event-driven and have “significant paid marketing support”, while social media is also a “key part” of how it drives fandom for its titles, it said.

Live events

The company also noted its investment in live events. With TV viewing less than 10% in every country, Netflix says it has “plenty of room to add value for our members and grow our share of viewing” by adding more live comedy, sports, competition shows, and music.

Sarandos pointed to the live boxing match between Jake Paul and former heavyweight champion Mike Tyson, which it believes will become a “must-watch event this summer”.

“We believe that these kind of ‘eventised’ cultural moments are just that kind of television that we want to be part of winning over those moments with our members as well,” he added.