Netflix captions at the Nasdaq MarketSite in New York, USA, on Friday, January 21, 2022.
Michael Nagle Bloomberg | Getty Images
Netflix surprised the world this week by announcing that it plans to finally tackle the common practice of password sharing.
More than 100 million households use a shared password, Netflix said Tuesday, including 30 million in the United States and Canada.
But the video streamer doesn’t plan to just freeze those shared accounts. Instead, the company will probably prefer to charge an additional fee for these accounts used by many people outside the home.
Netflix’s plan to capture this lost revenue will begin by sending a signal to account holders whose passwords are used by other households.
The company has already begun testing this feature in Peru, Costa Rica and Chile. For accounts that share a password between addresses, Netflix charges an additional fee for adding “sub-accounts” for up to two people away from home. Prices are different for each country – about $ 2.13 per month in Peru, $ 2.99 in Costa Rica and $ 2.92 in Chile, based on current exchange rates.
The company also allows people who use a shared password to transfer their personalized account information to either a new account or a profile, which allows them to keep their viewing history and recommendations.
“If you have a sister, let’s say she lives in another city, you want to share Netflix with her, that’s great,” said Chief Operating Officer Greg Peters during the company’s earnings conference. “We’re not trying to stop this sharing, but we’re going to ask you to pay a little more so you can share with her so she can benefit and value the service, but we’re also getting the revenue from this viewing.”
Netflix has not said how much revenue it expects to generate from implementing its global sharing strategy, although Peters said it estimates it will take about a year to implement pricing of its sub-accounts worldwide.
A study by research organization Time2Play suggests that about 80% of Americans who use someone else’s password will not receive their own new account if they cannot share the password. It does not examine how many current account payers would be willing to pay more to share with others.
Peters also suggested that the company could still change its pricing or further revise its testing strategy.
“It will take some time to understand this and strike the right balance,” he said. “So, just to set your expectations, it is my belief that we will go through about a year of repetition and then implement all of this so that we can launch this solution globally, including in markets like the United States.”
Unanswered questions
Netflix’s plan is unprecedented. No major streamer has ever shared passwords. Other owners of streaming services, such as Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount Global are unlikely to set their own plans until they review Netflix’s password-sharing reforms.
Some account holders will no doubt be surprised to receive news from Netflix that their passwords are being shared. It is also unclear how long Netflix will allow those who view a shared account to maintain access if the primary account holder chooses not to pay the additional fee.
In addition, Netflix will need to step lightly on defining sharing passwords to avoid misidentifying people as abusers, such as family members who temporarily live away from home.
The reluctance to act against this group of users would probably save millions of people from Netflix’s repression – at least in the beginning.
“They will start with serial bullies,” said LightShed Partners media analyst Rich Greenfield. “If you have 15 people using your account, it’s pretty easy.”
The company is also unlikely to want its employees to get into disputes over what is classified as a home account and what qualifies as a sub-account. Challenging these definitions can be ugly for both employees and customers who have seen Netflix as the best brand in its class.
But Netflix knows who you are, Greenfield said, whether you use your own custom account or not.
Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was that it just wanted more views on its content, which in turn would create noise and lead to real subscriptions. This strategy seems to have paid off. Netflix subscriptions have been growing every quarter for more than 10 years – until the last quarter.
In 2017, the Netflix corporate account tweeted “Love shares a password.”
Now the company will be happy if you stop doing it.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Netflix will test an additional fee for sharing passwords
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