Netflix signage next to the Nasdaq MarketSite in New York, U.S. on Friday, January 21, 2022.
Michael Nagle | Bloomberg | Getty Images
Netflix surprised the world this week, saying it was finally planning to tackle the rampant practice of password sharing.
More than 100 million households use a shared password, Netflix said on Tuesday, including 30 million in the United States and Canada.
But the video streamer doesn’t just plan to freeze those shared accounts. Instead, the company will likely favor setting additional fees for accounts used by multiple people outside the home.
Netflix’s plan to capture this revenue loss would begin by sending an alert to account holders whose passwords are being used by other households.
The company has already started a test of this feature in Peru, Costa Rica and Chile. For accounts that share a password between multiple addresses, Netflix charges an additional fee to add “sub-accounts” for up to two people outside of the home. The price is different in different countries – around $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 profile information to a new account or sub-account, allowing them to retain their viewing history and recommendations.
“If you have a sister, say, who lives in another city, you want to share Netflix with her, that’s great,” chief executive Greg Peters said on the company’s earnings conference call. “We are not trying to stop this sharing, but we are going to ask you to pay a little more so that we can share with her and that she gets the benefit and the value of the service, but we also get the revenue associated with this viewing.”
Netflix didn’t say how much revenue it expects to generate from implementing its worldwide sharing strategy, although Peters said he thinks it will take about a year. to bring their sub-account pricing into service globally.
A survey by research organization Time2Play suggested that around 80% of Americans who use someone else’s password wouldn’t get their own new account if they couldn’t share the password. . He did not survey 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 prices or revise its testing strategy.
“It will take some time to sort this out and find the right balance,” he said. “And so, just to set your expectations, I think we’re going to spend about a year iterating and then rolling all of that out to get this solution launched globally, including in markets like the United States.”
Netflix’s plan is unprecedented. No major streamer has ever cracked down on password sharing before. Other streaming service owners, such as Disney, Warner Bros. Discovery, Comcast’s NBCUniversal, and Paramount Global, probably won’t set their own plans until they look at Netflix’s password-sharing reforms.
Some account holders will no doubt be surprised when they receive news from Netflix that their passwords are shared. It’s also unclear how long Netflix would allow those watching on a shared account to retain access if the primary account holder chooses not to pay the additional fee.
Additionally, Netflix will need to be careful in defining password sharers to avoid falsely labeling people as abusers, such as family members temporarily living away from home.
A reluctance to act against this group of users would likely save millions from Netflix’s crackdown, at least to begin with.
“They will start with the serial abusers,” said Rich Greenfield, media analyst at LightShed Partners. “If you have 15 people using your account, it’s pretty easy.”
It’s also unlikely that the company wants its employees to be mired in disputes over what counts as a personal account and what counts as a sub-account. Challenging those definitions could get ugly for employees and customers, who have so far viewed Netflix as a premium brand.
But “Netflix knows who you are,” Greenfield said, whether or not you use your own personalized profile.
Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was that it simply wanted more eyeballs on its content, which in turn would create buzz and lead to genuine subscriptions. This strategy seemed to pay off. Netflix subscriptions grew every quarter for over 10 years – until the last quarter.
In 2017, Netflix’s corporate account tweeted, “Love shares a password.”
Now the company would like you to stop doing that.
Disclosure: Comcast’s NBCUniversal is CNBC’s parent company.
WATCH: Netflix will test additional charges for password shares