Netflix gets ready for account-sharing crackdown

Netflix is about to end password-sharing early this year as it sees the practice as a major problem eating into subscriptions. From a business standpoint, it’s only rational – however, there’s also the risk of an angry exodus of consumers.

2022 has been a stormy year for Netflix. First, it lost quite a few subscribers but then bounced back with a bang – the number of subscriptions is growing again, and the streaming company is investing in ever more original content.

As of the third quarter of 2022, Netflix had approximately 223 million paying subscribers. However, the firm openly admitted back in April that more than 100 million viewers watched the service using passwords they have borrowed from family members or friends, including over 30 million people in the US and Canadian markets.

“Account sharing as a percentage of our paying membership hasn’t changed much over the years, but it means it’s harder to grow membership in many markets – an issue that was obscured by our COVID growth,” Netflix said in a letter to shareholders.

And it has now been decided that the problem needs to be dealt with. According to the Wall Street Journal, even though Netflix has been coming up with new ideas on how to urge freeloaders to pay up, more aggressive moves are now planned.

People might not like the crackdown at all, Netflix viewers and industry professionals told Cybernews. Consumers have other quality platforms to choose from, and not all of them restrict password-sharing.

On the other hand, an argument could be made that the company simply enforces its own terms of service – they have long said that the paying subscriber should keep control of the devices that use the account and not share passwords. Besides, Netflix simply needs the money.

How this will work

One could, of course, also travel back to 2017 when Netflix was still young and tweeted out, “Love is sharing a password.” Well, it seems that the definition has now changed – Netflix wants a different kind of love.

At a company gathering in early 2022, Co-Chief Executive Reed Hastings told other senior executives that the pandemic, when people were rushing to fill their time with streaming subscriptions, had masked the extent of the password-sharing issue, and that they had waited too long to deal with it.

Now, as the Wall Street Journal describes it, Netflix is going to control password-sharing with the help of tracking IP addresses, device IDs, and account activity.

The company is hoping more people will start their own subscriptions and thus boost revenue. Also, the idea is for people to pay $3 a month more if they want to keep sharing their passwords,

Already in March 2022, when Netflix started to test monetizing password sharing in Latin America, analysts at Cowen, an investment bank, said that the streaming giant could add $1.6 billion in global revenue. The effort could generate $721 million in revenue in the US and Canada alone.

How would that work? It’s important to note that Netflix is not planning to block users who borrow passwords – in Latin American countries, Chile, Costa Rica, and Peru, the so-called freeloader is prompted to enter a verification code for their device.

The said code is sent to the primary account owner and must be entered within 15 minutes. You can watch Netflix then, however, you might keep getting prompts until the account owner pays an extra monthly fee – a sort of a license to share.

Risky but necessary

Jason Moser, a Senior Analyst and Lead Advisor at The Motley Fool, a private financial and investing advice company, told Cybernews he thought Netflix’s move was rational and, actually, unavoidable.

“If management’s estimates are correct and they are indeed leaving a potential 100 million paying subscribers on the table, I don’t see that Netflix has a choice here. Netflix’s business is about fueling its content engine in order to keep subscribers coming back for more, which requires money, and lots of it,” Moser said.

“There will likely be some subscribers who defect, but my suspicion is they would be minimal given the platform’s status as a core entertainment offering today. Assuming management is thoughtful about pricing, there is plenty of opportunity here to tack on additional subscriber revenue via either a shared offering or now, its ad-supported tier.”

Annie Morris, Editor in Chief of Made in CA, an online magazine, also thinks that the plan to crack down on password sharing is the right bet – yes, the risk is huge, but this needs to be done.

“It’s necessary if they want to continue growing their subscriber base and remain competitive in the streaming video market. By stopping password sharing entirely starting in 2023, Netflix will be able to focus on building up its own brand as well as creating original content that viewers will want to watch,” Morris told Cybernews.

"I don’t see that Netflix has a choice here. Netflix’s business is about fueling its content engine in order to keep subscribers coming back for more, which requires money, and lots of it,”

Jason Moser, The Motley Fool.

Fairness is what Anton Giuroiu, Chief Executive of Architecture Lab and an avid Netflix viewer, wants from Netflix. Giuroiu is adamant that subscribers who are willing to share their passwords should pay more than those who don’t.

“Netflix is cracking down on this practice. It lets us know that they care about every single person who uses their service, not just those who are willing to break the rules for convenience's sake,” Giuroiu said.

Users might not simply accept change

The big question now is whether Netflix will be able to monetize password sharing or all these users will simply go elsewhere. After all, the competition in the video-streaming space is already very intense, and the choice is certainly there.

Rikki Lee Travolta, Writer and Producer of the Polish Cooking Show on PBS, is one of those unhappy about the upcoming change – as slow and gradual as it probably will be. Travolta has orphaned his mother, son, and girlfriend on all of his streaming accounts.

“Making a drastic change to a streaming platform, like eliminating the ability for family members to share a Netflix account, could tremendously backfire. Netflix is no longer the end all provider of streaming content. HBO MAX, Amazon Prime Video, Disney+ and so many others are now offering just as much new and classic content as Netflix does,” Travolta told Cybernews.

“If password sharing is outlawed, so to speak, I predict that people will respond by reducing the number of subscriptions they have rather than paying additional money to keep those subscriptions.”

Travolta also thinks that Netflix's ad-supported tier might suffer if the change is implemented: "Advertisers pay based on the promise of reaching the most viewers possible. Eliminating password sharing will mean that far less viewers will be seeing those ads on Netflix. As such, Netflix won’t be in a position to demand as high rates from potential advertisers."

Statistics should worry Netflix, even though the company’s decision to monetize password sharing is undoubtedly supported by surveys, too.

For instance, The Motley Fool’s report in May 2022 revealed that 53% of Americans thought it was too expensive to pay for all the content they wanted to watch. Unsurprisingly, 57% of respondents wished their shows were all on one platform.

Meanwhile, eMarketer, a market research company, said that only 27% of US Netflix subscribers would stay on the platform if it began charging them extra for sharing it. Nearly half of the respondents said they would be very likely to cancel their subscription.

That’s why some doubt that users will simply sit back and accept higher prices – competition is ready to snatch those subscribers away and further erode Netflix’s dominance in the streaming market. One could even say any victory on this front would be a pyrrhic one.