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Netflix Crackdown Underscores Streaming Costs and Competition

Netflix's latest move to charge for password sharing highlights the inherent risks for streaming services to balance cost increases with customer satisfaction.
Netflix Crackdown Underscores Streaming Costs and Competition

The Announcement

On March 16, Netflix issued a statement on its website that stated over the next few weeks, it would launch and test new features for its members in Chile, Costa Rica, and Peru. For $2.99, members could add sub accounts for up to two people they don't live with - each with their own profile, personalized recommendations, and login and password. Netflix justified the new feature with the excerpt below.

Netflix Statement Excerpt: We’ve always made it easy for people who live together to share their Netflix account, with features like separate profiles and multiple streams in our Standard and Premium plans. While these have been hugely popular, they have also created some confusion about when and how Netflix can be shared. As a result, accounts are being shared between households - impacting our ability to invest in great new TV and films for our members. We’ve been working on ways to enable members who share outside their household to do so easily and securely, while also paying a bit more. We recognize that people have many entertainment choices, so we want to ensure any new features are flexible and useful for members, whose subscriptions fund all our great TV and films.
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The Backlash

Although the change wasn't aimed at the United States, the implication was clear, and the backlash from users was swift. "Netflix is most popular in the United States with younger consumers who support password sharing much more than older generations," according to TIME's Megan McCluskey, who references a 2021 survey that found "millennials and Gen Zers are twice as likely to both share their streaming passwords with non-paying friends and family and accept free access to others’ accounts themselves."

Netflix is Cracking Down on Password Sharing (Megan McCluskey - TIME)

Excerpt from TIME: Netflix’s announcement is making some users take a closer look at which streaming services are actually providing them enough value. As studio-owned services like Paramount+ and Peacock pull their content off juggernauts like Netflix and Hulu to build up their own streaming libraries, the spread of popular TV shows and movies is increasing. This movement has coincided with Netflix and Hulu raising their prices, creating a dilemma for users with tighter budgets.

Dade Hayes writes in DEADLINE, "With subscription growth flattening, Netflix has recently phased in rate increases in order to continue funding its $18 billion in annual programming spending." The password sharing costs Netflix billions in lost revenue, but "there is no small degree of risk in taking actions that could be seen as too punitive on customers," Hayes says.

One-Third Of U.S. Netflix Subscribers Share Their Passwords (Dade Hayes - DEADLINE)

Excerpt from DEADLINE: The password conundrum, of course, faces all streaming players. Newer Netflix challengers like Disney+ and HBO Max have taken a fairly laissez-faire approach to sharing, as have incumbents Amazon Prime Video and Hulu. But with programming costs ballooning, companies appear to be edging closer toward taking a stand. Netflix co-CEO Reed Hastings last year said the company would test various approaches, but would not roll out anything that seems to “turn the screws” on subscribers.
Photo by Souvik Banerjee / Unsplash

The Net Effect

J. Clara Chan and George Szalai note in their article for The Hollywood Reporter, "According to [research service] Enders Analysis’ Tom Harrington, it may be difficult for other streamers to follow Netflix as easily in monetizing account sharing, even if it does seem inevitable. Other streamers do not have this strength, with churn much higher and value more tenuous, but this is the direction of travel that they want, will and need to go."

Netflix Tries to Monetize Password Sharing, But Will It Work? (J. Clara Chan and George Szalai - The Hollywood Reporter)

Excerpt from The Hollywood Reporter: Wall Street observers see the added account-sharing fee as an easy win for Netflix, given that few paying subscribers will unsubscribe because of the optional added fee. “Of, say, the 15 to 20 percent of users that are getting the service for free, some will subscribe or bolt on to the account they are currently leeching off. Few of the paying subs will unsubscribe, with their immediate value remaining the same,” explains Harrington. “A clampdown will be a net positive for Netflix.”