Remember when Netflix was the scrappy underdog that killed Blockbuster? Those days are long gone. The streaming giant that once declared it would never run ads and turned a blind eye to password sharing has completely flipped the script. In 2022, Netflix shocked subscribers by introducing an ad-supported tier and began systematically booting freeloaders off shared accounts.
Fast forward to 2025, and these controversial moves aren’t just working—they’re fundamentally reshaping Netflix’s entire business model and driving its valuation to levels analysts once thought impossible for a maturing streaming service.
The Password Crackdown
Netflix’s password sharing problem was an open secret for years. By 2023, over 100 million households worldwide were streaming Netflix without paying a dime, essentially getting free entertainment while the company footed the content bill. When Netflix finally cracked down in May 2023, starting with pilot programs in Latin America before rolling out globally, the internet erupted. Social media overflowed with threats of cancellation and nostalgic memes about the “good old days” of sharing accounts with college roommates and ex-partners.
But here’s what actually happened: people paid up. Despite the outcry, Netflix added 5.9 million subscribers in the second quarter of 2023 alone—its biggest quarterly gain in years. The company introduced a $7.99 “extra member” option for account holders who wanted to keep sharing legally, while unauthorized users faced a simple choice: get their own account or stop watching. Throughout 2024, this strategy continued paying dividends as millions of former password borrowers converted to legitimate subscribers. Wall Street took notice, with Netflix’s stock climbing as revenue per user increased substantially without requiring massive content investments.
The Advertising Gamble That’s Paying Off Big
When Netflix launched its ad-supported tier in November 2022 at $6.99 monthly, skeptics questioned whether viewers would tolerate commercials and whether advertisers would pay premium rates for a platform without live sports. Reed Hastings had spent years insisting Netflix would remain ad-free, making the reversal feel like desperation rather than strategy.
Two years later, the ad tier has become Netflix’s secret weapon. By early 2025, over 40 million users will have chosen the cheaper, ad-supported option, and Netflix is commanding advertising rates that rival traditional television. The company partnered with Microsoft for ad technology and Salesforce, then began securing high-profile advertising deals with major brands willing to pay premium CPMs for Netflix’s engaged, binge-watching audience. Unlike traditional TV, Netflix can serve personalized ads based on viewing habits, making campaigns more effective and justifying higher prices.
The real brilliance emerged when Netflix started producing ad-friendly content and strategically placed its biggest releases on the ad tier, slightly delayed from premium launches, creating a value hierarchy that makes business sense. This advertising revenue—projected to exceed $5 billion annually by 2026—represents high-margin income that dramatically improves Netflix’s profit picture without requiring proportional content spending increases.
The 2025 Valuation Impact
These dual strategies have fundamentally altered how Wall Street values Netflix. The company is no longer just a content subscription service burning cash on shows and movies. It’s become a diversified entertainment platform with multiple revenue streams, improved unit economics, and a pathway to sustained profitability that justifies premium valuations typically reserved for Big Tech companies.
