Netflix may be ruining password sharing for everyone

Netflix is ​​betting that a password-sharing crackdown will reverse its declining revenue and faltering subscriber count. The company has historically never enforced its policy of one account per household. Now, by paying members to share their subscriptions with other housemates, Netflix will be cashing in on the users they’ve been missing out on all these years, right?

Well, it can’t 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 streamer’s first loss in subscribers in more than a decade. After months of testing throughout Latin and Central America, Netflix 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 let just one person outside their household use their subscription.

Many questions remain about how Netflix will actually implement it — and whether it will actually help increase the company’s bottom line. Netflix has warned its investors several times in the past of a “cancellation reaction” when talking about payment sharing, meaning some people will cancel their subscriptions in response to the rollout in their locations. It has already seen such a response in Spain, where Data from analytics group Kantar found that streamers 1 million users lost after crackdown.

But for Netflix execs, “improved overall revenue” will eventually outweigh those lost subscriptions. at the end of income report In April, Netflix said it was “pleased with the results” of its password-sharing crackdowns 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 reassures investors that its results in Canada are a “reliable indicator” of what will happen here, streaming media expert and industry analyst Dan Rayburn points out ledge “It’s not a fair comparison,” because the numbers of customers and households are “so different” in the two countries.

Netflix also doesn’t take into account the number of subscribers who would choose to reduce their plans rather than cancel them altogether, which Rayburn says is an even bigger problem for the company. Without password sharing, Netflix’s more expensive plans lose some of their value, as only a few users can subscribe to these plans, as multiple people can simultaneously watch Netflix from different devices and in different households. .

While Netflix’s $15.49 per month Standard plan lets you watch Netflix on two devices at a time, the $19.99 per month Premium plan allows up to four simultaneous viewers. The shift towards password sharing may mean that some users will opt to cancel their subscription rather than go for the $9.99 per month Basic plan, which allows users to watch Netflix on only one device at a time . This potential trend could jolt Netflix’s average revenue per user (ARPU). which settled at $16.18 in its final income report. “The cancellation would hurt, but the downgrade would hurt too because Netflix can’t do that in advertising,” Rayburn explains.

Whether or not paid sharing hurts Netflix’s balance sheet, it could have huge implications for the entire streaming industry. Other companies like Disney, Warner Bros. Discovery and Paramount are looking to see how consumers respond to Netflix’s password-sharing crackdown. If all goes well, other services will want to follow suit, similar to the way we saw many streamers hop on the price hike bandwagon last year.

“All streamers are faced with a way of dealing with password sharing,” said Paul Erickson, principal at Erickson Strategy & Insights. ledge, “Everyone is going to take a look at it or take their cues from how Netflix handles it, how the American consumer reacts, or how they react and position themselves.” With a streamer as big as Netflix getting into paid sharing, there’s always a chance it will become an industry norm. Erickson says he views payment sharing as “part of the maturation” of the streaming industry, noting that “it had to be resolved at some point, and it’s happening now.”

Aside from Netflix investors, I don’t think anyone is happy about this change — especially since Netflix is ​​the only service paying users extra. It’s still too early to tell how many subscribers streamers will lose from the change, how many will opt for cheaper plans, or how many will actually buy add-on accounts. But Netflix has to be careful how it implements the change. After all, it doesn’t want to alienate all those paying customers who helped keep the service more eye-catching. By sharing their passwords.