Netflix to ‘end’ password sharing: The plan, and the problems in it

Netflix has since taken down the new protocols, claiming that “For a brief time … (an) article containing information that is only applicable to Chile, Costa Rica, and Peru, went live in other countries”.

However, a crackdown on password sharing is impending, in the US and the rest of the world.

Stunted growth of Netflix’s subscriber base

Password sharing has long been a concern for Netflix, a concern it has put off in order to keep customers happy. According to the company’s own assessment, roughly 100 million people use the service without paying for it themselves – they “borrow” passwords from friends and family.

Since the streamer saw a boom in its subscriber base during the pandemic, it did not feel the need to act on password sharing. However, 2022 was particularly brutal for the company.

In its 2022 Q1 financials, Netflix announced that it lost over 200,000 subscribers due to fierce competition and Russia’s invasion of Ukraine. It would later go on to suspend services in Russia, losing a total of 700,000 subscribers. Its Q2 financials were even worse, with the company losing nearly 1 million subscribers in the period – the report led to a 26 per cent drop in Netflix’s stock prices – wiping out around $ 40 billion in value.

While the next quarters were slightly better, then Netflix CEO Spencer Neumann said during the company’s earnings call that they’re “still not growing as fast as they’d like.”

The solution? “Kill” password sharing

While Nertlix’s terms of service have long said that the person who pays for the account should keep control of the devices that use it and not share passwords, the company has never enforced the rule strictly.

However, in its quest to find new avenues to grow in an increasingly stagnated market, the company identified putting an end to password sharing as a viable solution. In Netflix’s estimation, this would immediately lead to an influx of new paid users who were thus far enjoying its services using someone else’s account.

Some immediate complications

One of the reasons why the company has never cracked down on password sharing is because of multiple complications it raises. First, who can share? Can kids off to college use their parents’ Netflix account? What about long-distance couples? Enforcing a ban on password sharing will require Netflix to draw a line somewhere. Either the line is going to be extremely arbitrary or it is going to be fairly absolute, i.e. no one can share. Both run the risk of alienating its users.

Second, how does Netflix identify when the password is being shared? Does it base its assessment on the user’s physical location, IP address, or something else? What if a paying subscriber wants to access their account from a location other than their home?

These are just a few complications that any move to end password sharing will have to deal with and there are no simple answers. The question remains, will Netflix provide users with “enough value” to offset this inconvenience and added costs?

Outrage on all fronts

So far, users have not reacted favourably. Many have threatened to stop using Netflix and shift to other streaming platforms.

Notably, a big complaint is that Netflix is destroying the very model that made it a desirable alternative to illegal streaming sites or pirated content. While people were willing to pay a certain amount, Netflix might actually lose many users as alternatives are literally a Google search away.

Remember how services like Netflix discouraged piracy because they were more convenient?

Gotta admit, needing to request a code to use Netflix on something like a hotel TV for only seven days at a time doesn’t exactly sound convenient https://t.co/lsLdTrCk94

— Adam Conway (@AdamConwayIE) February 1, 2023

Users are especially peeved with Netflix’s “u-turn” on this issue. Earlier, Netflix would often promote password sharing. A tweet that has gone viral since the company’s announcement to end the practice said “Love is sharing a password”.

Love is sharing a password.

— Netflix (@netflix) March 10, 2017

However, Netflix itself did expect opposition to this move. “Make no mistake, I don’t think consumers are going to love it right out of the gate,” new Netflix Co-CEO Ted Sarandos told investors in early December. Only time will tell whether the company will be able to power through with the move amidst the sheer scale of the backlash.

The plan ahead

To mitigate customer reactions, Netflix has decided to end password sharing gradually, going from market to market. Currently, Netflix has already been testing this in South and Central America. Customers have to pay an extra fee if they use their Netflix account for more than two weeks outside of their primary residence, which is around $3.While the pricing will vary from market to market, modalites can be expected to be similar.

Alongside, Netflix will also ramp up its production of original content to compete with other streaming platforms. That is how it will provide its users with “enough value” to retain them and convert non-payers to payers. Co-CEO Greg Peters told Bloomberg that “they (Netflix) would definitely like to win all of them (dissatisfied customers) back by delivering content like Glass Onion every week.” The company has already introduced many premium features like spatial audio to provide a better user experience – and “value” – to the user.

However, regardless of how many new shows Netflix launches and all the features it introduces, the bottomline is that Netflix is going to get much more expensive for most people. While the company has been experimenting with more cost-efficient plans, including ones that contain advertisements, password sharing has always been a way to keep costs low for users.