Netflix is betting that a crackdown on password sharing will reverse declining revenues and shaky subscriber numbers. The company has historically never enforced its one account per household policy. Now, by making members pay to share their subscriptions with people living in other homes, Netflix is cashing in on all those users they’ve missed all these years, right?
Well, it may not be that simple.
Netflix — where co-founder and now former CEO Reed Hastings once said, “Sharing passwords is something you have to learn to live with” — told investors last year that password sharing contributed to the streamer’s first loss of subscribers in more than ten years. After months of testing in Latin and Central America, Netflix finally brought paid sharing to Canada, New Zealand, Portugal, Spain and now the US. Under the new rules, Netflix wants users to pay an additional $7.99 per month to allow only one person outside their household to access their subscription.
Many questions remain about how Netflix will actually implement this – and whether it will actually help improve the company’s bottom line. Netflix has warned its investors several times in the past about a “cancellation response” when talking about paid sharing, meaning that some people will cancel their subscriptions in response to the rollout in their location. It has already seen that kind of reaction in Spain, where data from analytics group Kantar showed the streamer lost 1 million users after the crackdown.
But for Netflix execs, the “improved overall revenue” will eventually outweigh those lost subscriptions. In its latest earnings report in April, Netflix said it was “satisfied with the results” of its crackdown on password sharing in Canada, New Zealand, Portugal and Spain, while adding that its subscriber base in Canada is now “growing faster.” than in the US.” While Netflix assures investors that the results in Canada are a “reliable indicator” of what’s to come here, Dan Rayburn, a streaming media expert and industry analyst, tells WebMD. The edge “that’s not a fair comparison” as the number of subscribers and households in both countries are just “so different”.
Netflix also doesn’t account for the number of subscribers who choose to reduce their subscriptions rather than cancel them altogether, something Rayburn says is also a major problem for the company. Without password sharing, Netflix’s more expensive subscriptions lose some of their value, as some users may only subscribe to these subscriptions for the benefit of allowing several people to watch Netflix simultaneously from different devices – and in different households.
While the $15.49 per month Standard plan lets you watch Netflix on two devices at once, the $19.99 per month Premium plan allows for up to four simultaneous viewers. The shift to password sharing may mean that some users choose to go for the $9.99 per month Basic plan instead of canceling their plan, which allows users to watch Netflix on only one device at a time. This potential trend could come as a blow to Netflix’s average revenue per user (ARPU), which reached $16.18 in its latest earnings report. “The cancellations will hurt, but the downgrades will hurt, too, because Netflix can’t make up for that with advertising,” explained Rayburn.
“All streamers face the same dilemma of how to deal with password sharing”
Whether or not paid sharing hurts Netflix’s balance sheet, it could have huge ramifications for the entire streaming industry. Other companies, such as Disney, Warner Bros. Discovery and Paramount are likely watching how consumers react to Netflix’s crackdown on password sharing. If all goes well, other services may want to follow suit, similar to how we saw several streamers jump on the price hike last year.
“All streamers face the same dilemma when it comes to password sharing,” said Paul Erickson, the director of Erickson Strategy and Insights. The edge. “Everyone is going to look at this to see if its signals are deduced from how Netflix is handling this, how the American consumer is reacting, or how they are reacting and pushing through themselves.” With a streamer as big as Netflix starting paid sharing, there’s always a chance it will become an industry standard. Erickson says he sees paid sharing as “part of the maturation” of the streaming industry, noting that “it had to be fixed at some point, and it’s happening now.”
Aside from Netflix’s investors, I don’t think anyone is happy with this change, especially since Netflix is the only service that users have to pay extra for. It’s far too early to say how many subscribers the streamer will lose due to the change, how many will choose a cheaper plan, or how many will actually buy add-on accounts. But Netflix should be careful about making the change. After all, it doesn’t want to alienate all the paying customers that helped put the service in front of more eyes Through share their passwords.