Netflix will soon end password sharing, posing a challenge for both viewers and the streaming giant, Co-CEO Ted Sarandos told senior executives at a company gathering outside Los Angeles.
According to Sarandos, more than 100 million Netflix subscribers now use passwords borrowed from family members or friends to access the service. Netflix has stated that it will end this arrangement in 2023 and will charge people who share accounts to do so. The company expects to begin implementing the change in the United States early this year.
Netflix’s crackdown risks eroding the company’s years of goodwill and infuriating customers, who have a plethora of other streaming services to choose from.
“Make no mistake, I don’t think consumers will love it right away,” Sarandos told investors in early December, adding that it was up to the company to ensure users saw value in paying for the service. Netflix has refused to comment to the Daily Mail.
It’s a dramatic shift for a company that previously tweeted, “Love is sharing a password.” The initiative is part of Netflix’s response to slowing growth, particularly in the United States.
After years of opposition, Netflix has changed its stance on displaying advertisements in content. In November, a $6.99-per-month ad-supported tier was introduced, with the goal of attracting new users looking for a cheaper alternative to more expensive ad-free plans.
Netflix terms of service
The terms of service for Netflix have long stated that the person paying for the account should retain control of the devices that use it and not share passwords, but the company has never strictly enforced the rule. Defining who should be allowed to share passwords has proven difficult. Should college-bound children be permitted to share their parents’ password? What happens when users have a second home or travel frequently?
This year, Netflix updated its customer service pages to state that accounts should only be shared by people who live together. According to the company, its rules will be enforced based on IP addresses, device IDs, and account activity.
According to people familiar with the situation, Netflix has discussed gradually increasing the pressure on password sharing in order to mitigate consumer backlash. According to people familiar with the situation, some product executives warned against making the service too complex and unfriendly to consumers, a practice referred to internally as Comcastification, a dig at the cable giant. Netflix has always positioned itself as a viable alternative to cable providers, which bind viewers to cable boxes and contracts.
According to people familiar with internal discussions, Netflix considered allowing users to rent pay-per-view content through their subscriptions, as Amazon Prime Video customers can, because it could make users wary of sharing their login information with others who might run up their bills. According to the people, the company ultimately decided against that tactic, in part because product executives were concerned that it would detract from the service’s simplicity.
Confronting password sharing
With 223 million global subscribers and a market cap of around $128 billion, Netflix is the first in the industry to confront password-sharing, but it won’t be the last, investors and media executives say. Other streaming competitors are also losing money, and the pressure to make money and keep growing may eventually force services like Disney+, HBO Max, and Paramount+ to reconsider password sharing.
According to Cowen Inc. analysts, Netflix’s effort could generate an additional $721 million in revenue next year in the United States and Canada, where there are approximately 30 million sharers.
The estimate is based on a survey that asked consumers who share the account of someone they don’t live with how they would react if Netflix required them to pay $3 per month to continue sharing, as well as people who would pay more to start their own new accounts.
“It’s a boost, and it can definitely help,” said Neil Macker, senior equity analyst at Morningstar. He believes the company is underestimating the extent to which the change will cause customers to cancel their Netflix subscriptions.
Gina Mazzulla, 53, of southeastern Pennsylvania, is a longtime Netflix subscriber who shares an account with her parents. They text each other to coordinate because the $9.99-per-month plan only allows for one stream at a time. She stated that if Netflix forces the issue, she might pay a few dollars more for sharing, but it would depend on the cost.
“Is my life going to be drastically altered or different if I stop watching Netflix? No, “She stated.
While Netflix has not announced its plans for the United States, it has been conducting tests in Latin American countries, which is one of the regions with the highest rate of password sharing. Netflix allows subscribers to pay to share accounts with up to two people outside of their homes in those tests.
Rather than preventing password borrowers from accessing someone else’s account, Netflix prompts them to enter a device verification code. The code is sent to the account’s primary owner and must be entered within 15 minutes.
Paying Netflix for sharing
According to people familiar with the tests, the password borrower can watch Netflix after entering the code, but may continue to receive prompts until the account owner pays an additional monthly fee to add a sharer. According to the sources, Netflix is considering similar plans for the United States.
Netflix has received consumer complaints about its efforts in Latin America, but many users, according to some, are still willing to pay for sharing.
According to people familiar with internal discussions, one major challenge for Netflix is determining when an account holder is traveling and accessing the service from another location, such as a second home or hotel, versus when another individual borrows their password.
According to the sources, Netflix also discussed how to deal with families in which children spend time at both of their parents’ homes. One approach being considered by the company is allowing subscribers to notify Netflix if they are moving to a different geographic location for an extended period of time.
People in markets such as India frequently watch Netflix on their mobile phones and stream it over cellular networks, according to people familiar with the situation. When users stream over shared Wi-Fi or wired broadband connections, Netflix has a more difficult time determining who lives in a household.
Selling stolen passwords
In 2019, Netflix saw the warning signs of password sharing. In the second quarter of that year, the company reported a rare loss of US subscribers, and while top executives thought it was a blip, they asked researchers to look into why growth was slowing. Password sharers were discovered to be among the perpetrators by that team.
According to people familiar with the discussions, Mr. Hastings was eager to limit the practice, but it quickly became clear that doing so would be difficult.
According to current and former employees, the company has dealt with organized, fraudulent password sharing for years in countries such as Colombia. In those operations, people sell cards that contain stolen passwords or are linked to accounts set up for the scheme.
Netflix executives realized that any crackdown would have to address the large amount of more benign sharing between family members and friends in order to be effective.
As the pandemic accelerated the company’s growth in 2020, the effort waned as a source of concern. When movie theaters, arenas, and restaurants closed, users turned to Netflix for at-home entertainment, and the company added nearly 16 million new subscribers in the first quarter of that year alone. The focus of company leaders shifted to Covid-related workforce safety and production shutdowns.
Netflix began testing messaging with some members in early 2021 that said, “If you don’t live with the owner of this account, you need your own account to keep watching.” The language sparked negative press attention and consumer backlash. Netflix never communicated with its entire user base.
Lower-priced ad tier
Netflix has not announced a launch date or pricing for its password-sharing service in the United States in 2023. Mr. Sarandos suggested in December that the company’s ad-supported tier could play a role in the effort to reduce password sharing. He described the lower-priced ad tier as a “softer landing” for people who are paying for Netflix for the first time or who are financially strained.
According to people familiar with the situation, executives have discussed charging account sharers in the United States a fee that is only slightly less than the cost of its $6.99 ad-supported plan. Instead of asking the account owner to pay a sharing fee, this could encourage password borrowers to sign up for their own subscription and have full control over the account.
Netflix’s initial goal is to assist users in reducing their own sharing without forcing the issue.
Borrowers who want to start their own subscription can transfer their existing profiles, which include their viewing history and preferences, to a new account. Netflix stated that this would be beneficial during “life changes.”
The company has already provided primary account holders with a dashboard that shows which devices are currently logged in. Some users are unaware that others are sharing their account.
The dashboard enables them to detect unusual logins and log out anyone who should not be logged in.