Netflix subscriber growth slows as gains from password-sharing crackdown subside

Netflix has reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year.

Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

The Los Gatos, California, company earned 2.36 billion dollars (£1.81 billion), or 5.40 dollars per share, a 41% increase from the same time last year.

Revenue climbed 15% from a year ago to 9.82 billion dollars (£7.54 billion).

Netflix management predicted its revenue will rise at the same 15% year-over-year pace during the October-December period, slightly better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth.

Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year.

That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people to watch its popular service without paying for it.

Netflix’s gains were also propelled by a low-priced version of its service that included adverts for the first time in its history.

The company is still only getting a small fraction of its revenue from the two-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholders, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including adverts has become its fastest-growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its line-up of scripted TV series and films with live programming, such as a Labour Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewers during the current quarter with a November 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation-turned-boxer, and two National Football League games on Christmas Day.