Netflix could ruin password sharing for everyone

Netflix is ​​betting that a crackdown on password sharing will reverse its falling revenue and faltering subscriber base. The company has never enforced a one-account-per-household policy in the past. Now that Netflix is ​​charging its members to share their subscriptions with people living in other households, it’s going to capitalize on all the users they’ve been missing out on over the years, right?

Well, maybe it’s not that simple.

Netflix – where once said co-founder and current CEO Reed Hastings “Password sharing is something you have to live with,” investors said last year password release contributed to the streamer’s first loss of subscribers in over a decade. After Months of testing across Latin America, Netflix finally brought paid sharing to Canada and New Zealand, Portugal, Spain and now the USA. Under the new rules, Netflix will require users to pay an additional $7.99 per month to allow just one person outside of their household to access their subscription.

Many questions remain about how Netflix will actually execute on this — and whether it will actually help the company grow its bottom line. Netflix has warned its investors several times in the past of a “cancellation response” when it comes to paid sharing, meaning some people will cancel their subscriptions in response to the rollout at their locations. Such a reaction has already taken place in Spain, where Data from analytics group Kantar revealed that the streamer lost 1 million users after the raid.

But to the Netflix executives, the “improved overall revenue” will ultimately outweigh the lost subscriptions. in his last result report In April, Netflix said it was “satisfied with the results” of its crackdown on password sharing in Canada, New Zealand, Portugal and Spain, 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’s about to happen here, says Dan Rayburn, a streaming media expert and industry analyst The edge “It’s not a fair comparison” because the number of subscribers and households in the two countries is just “so different”.

Netflix also doesn’t account for the number of subscribers who choose to cut back on their plans rather than cancel them altogether, which Rayburn says is also a major concern for the company. Without password sharing, Netflix’s more expensive plans lose some of their value, as some users may subscribe to these plans solely for the benefit of allowing multiple people to watch Netflix from different devices at the same time — in different households.

While Netflix’s $15.49 per month Standard plan allows you to watch Netflix on two devices simultaneously, the $19.99 per month Premium plan allows up to four simultaneous viewers. The shift toward password sharing could see some users opting for the $9.99-per-month Basic plan rather than canceling their subscription, which allows users to only watch Netflix on one device at a time. This potential trend could negatively impact Netflix’s average revenue per user (ARPU). which was at $16.18 in his last results report. “The cancellations will hurt, but the downgrades will hurt too because Netflix can’t make up for that with advertising,” Rayburn explains.

“All streamers face the same dilemma of how to handle password sharing”

Whether or not paid sharing ultimately hurts Netflix’s bottom line, it could have a huge impact on the streaming industry as a whole. Other companies like Disney, Warner Bros. Discovery, and Paramount will likely want to see how consumers react to Netflix’s crackdown on password sharing. If all goes well, other services might want to follow suit. Similar to how we’ve seen several streamers jump on the price hike bandwagon last year.

“All streamers face the same dilemma of how to handle password sharing,” said Paul Erickson, director at Erickson Strategy and Insights The edge. “Everybody’s going to look at that, or be guided by how Netflix is ​​dealing with it, how the American consumer is reacting, or how they’re reacting and pushing themselves forward.” When a streamer as big as Netflix gets into paid sharing, there’s always a chance that it becomes the industry standard. Erickson says he sees paid sharing as “part of the maturation” of the streaming industry, noting that “at some point, the issue had to be resolved, and it’s happening now.”

Outside of Netflix investors, I don’t think anyone is excited about this change — especially since Netflix is ​​the only service that requires users to pay extra. It’s far too early to say how many subscribers the streamer will lose as a result of the change, how many will opt for a cheaper plan, or how many will actually purchase additional accounts. But Netflix needs to be careful about how it implements the change. After all, it doesn’t want to upset all those paying customers who helped bring even more attention to the service from share their passwords.

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