Cable Tech

Netflix starts to crack down on password sharing

Netflix's lax attitude about password sharing is starting to change as the streaming giant grapples with slowing subscriber growth and rising competition.

Netflix's Standard and Premium plans allow for separate profiles and multiple streams. But the company believes that these options "have also created some confusion about when and how Netflix can be shared" – particularly when it comes to sharing credentials outside the subscribing household – Chengyi Long, director of product innovation at Netflix, explained Wednesday in this blog post.

Netflix added 8.28 million streaming subs worldwide in Q4 2021, below an expected 8.5 million.
 (Source: Netflix)
Netflix added 8.28 million streaming subs worldwide in Q4 2021, below an expected 8.5 million.
(Source: Netflix)

But rather than going after the issue with a hammer, Netflix is taking a more limited approach with two new features that will be initially tested in Chile, Costa Rica and Peru:

  • Add an Extra Member: Subs on Netflix's Standard and Premium plans will be able to add accounts for up to two people they don't live with – each with their own profile, personalized recommendations, login and password. This option will cost almost $3 extra per month in the three test markets.
  • Transfer Profile to a New Account: This feature enables subscribers on Netflix's Basic, Standard and Premium plans who share their account to transfer profile information, either as a new account or as an "Extra Member" account. That capability will enable customers to keep their viewing history, personalized viewing lists and personalized recommendations.

Netflix has been working on these options for about a year, and will be testing them in Chile, Costa Rica and Peru in the coming weeks, Long noted. "We'll be working to understand the utility of these two features for members in these three countries before making changes anywhere else in the world," Long said.

Netflix has yet to break out the financial impact of password sharing, but Long said the practice limits Netflix's "ability to invest in great new TV and films for our members."

While limiting the tests to three non-core markets and the use of a method that avoids severe measures such as account suspensions, Netflix's decision to target password sharing in a subtle way follows an earlier test of an account verification system that also took aim at the practice.

Netflix's latest set of tests also emerge as the company grapples with a slowing pace of subscriber growth after enjoying significant spikes during the early phases of the pandemic. Netflix added 8.28 million streaming subs worldwide in Q4 2021, a smidge below the 8.5 million it was expecting. Netflix expects to add 2.5 million subs in Q1 2022 and end the period with 224.34 million subs worldwide.

"I think Netflix needs the subscribers, they need additional growth, particularly as they've seen a decline in the growth of subscriptions," Brett Sappington, director of research at Interpret, said.

Although Netflix has not announced plans to expand its test to other markets, this set of tests in three smaller markets "does mean that they're looking closely at how they can drive new revenues and new subscriptions," Sappington said.

According to Interpret's "VideoWatch" research, 18% of Netflix subscribers in the US said they share streaming service passwords with other households. That study, based on a survey of 9,000 consumers in late 2021, also found that 9% indicated that they split the cost of a streaming subscription with another household and share the password.

Change of heart?

It wasn't all that long ago that Netflix seemingly encouraged password sharing, believing it turned more people onto the service and even got some of them to subscribe. "We love people sharing Netflix," CEO Reed Hastings said at the 2016 CES. "That's a positive thing, not a negative thing." But with billions of potentially lost revenues at stake, it appears that Netflix is starting to change its tune.

Sappington believes that Netflix's tiered structure, which allows for more multiple streams at the higher levels, has encouraged some subscribers to share their credentials. Netflix's Premium tier, which costs $19.99 per month, enables subs to watch the service on four different devices at the same time, but does specify that only people who live in the household are authorized to use the account.

"But I think consumers legitimately look at that and say I'm already paying the maximum amount per month, so I can have these extra logins," Sappington said. "For a long time, it's like their business model almost encouraged that kind of activity because consumers were already paying for it as part of their subscription."

With Netflix exploring ways to crack down, Sappington wonders if such policies, if they became widespread, could cause some Netflix subscribers to downgrade to a less-expensive tier.

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— Jeff Baumgartner, Senior Editor, Light Reading

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