Netflix could screw up password sharing for everyone

Netflix is ​​betting that a crackdown on password sharing will reverse declining revenue and faltering subscriber numbers. Historically, the company has never enforced its one account per household policy. Now, by making members pay to share their subscriptions with people living in other houses, Netflix is ​​going to take advantage of all those users that they’ve been missing out on all these years, right?

Well, it may not be that simple.

Netflix, where co-founder and now former CEO Reed Hastings once said “password sharing is something you have to learn to live with,” told investors last year that password sharing contributed to the first loss of subscribers in more of a decade. After months of testing in Latin and Central America, Netflix has finally brought paid sharing to Canada, New Zealand, Portugal, Spain, and now the US. Under its new rules, Netflix wants users to pay an extra $7.99 per month to allow only one person outside of your household to access your subscription.

Many questions remain as to how Netflix will actually implement this, and whether it will really help increase the company’s bottom line. Netflix has warned its investors about a “cancellation reaction” several times in the past when it comes to paid sharing, which means that some people will cancel their subscriptions in response to the launch in their locations. It’s already seen that kind of reaction in Spain, where data from analysis group Kantar found the streamer lost 1 million users after the crackdown.

But for Netflix executives, “improved overall revenue” will ultimately outweigh lost subscriptions. In its latest earnings report for April, Netflix said it was “pleased with the results” of its crackdown on password sharing in Canada, New Zealand, Portugal and Spain, adding that its subscriber base in Canada “is now growing faster than the rest of the world. TO US.” While Netflix assures investors that its results in Canada are a “reliable indicator” of what will happen here, Dan Rayburn, a streaming media expert and industry analyst, says the edge “That’s not a fair comparison,” as the number of subscribers and households in the two countries is simply “very different.”

Netflix also doesn’t take into account the number of subscribers who will choose to downgrade their plans rather than cancel them entirely, which Rayburn says is also a big problem for the company. Without password sharing, the more expensive Netflix plans lose some of their value, as some users may only sign up for these plans just for the benefit of allowing multiple people to watch Netflix at the same time from different devices and in different homes. .

While Netflix’s standard $15.49/month plan allows you to watch Netflix on two devices at once, the $19.99/month premium plan allows up to four simultaneous viewers. The shift towards password sharing could mean some users will opt for the basic $9.99 per month plan instead of canceling their subscription, which allows them to watch Netflix on only one device at a time. This potential trend could deal a hit to Netflix’s average revenue per user (ARPU), which stood at $16.18 in its latest earnings report. “Cancellations will hurt, but downgrades will hurt too because Netflix can’t make up for that with advertising,” Rayburn explains.

Whether or not the paid swap ends up hurting Netflix’s bottom line, it could have huge implications for the entire streaming industry. Other companies, including Disney, Warner Bros. Discovery, and Paramount, are likely looking to see how consumers respond to Netflix’s crackdown on password sharing. If all goes well, other services may want to follow suit, similar to how we saw a number of streamers jump on the price gouging bandwagon last year.

“All streamers face the same dilemma of how to deal with password sharing,” says Paul Erickson, director of Erickson Strategy and Insights. the edge. “Everyone is going to take a look at this or take note of how Netflix is ​​handling this, how the American consumer is reacting, or how they are reacting and moving forward themselves.” With a streamer as big as Netflix entering the paid exchange, there is always a chance that it could become an industry norm. Erickson says he sees payshare as “part of the maturation” of the broadcast industry, noting that it “had to be resolved at some point, and it’s happening now.”

Outside of Netflix investors, I don’t think anyone is happy with this change, especially since Netflix is ​​the only service that makes users pay more. It’s still too early to tell how many subscribers the streamer will lose to the switch, how many will choose a cheaper plan, or how many will actually buy additional accounts. But Netflix has to be careful how it implements the change. After all, you don’t want to alienate all the paying customers who helped put the service in front of more eyes. by sharing your passwords.