• by Karlene Lukovitz  @KLmarketdaily, March 12, 2021

After turning a blind eye toward unauthorized password sharing for years, along with most of the rest of the streaming industry, streaming king Netflix — faced with ever more intense competition — is carefully moving to begin curbing the practice.

The world’s largest SVOD has begun testing a combination warning/signup system targeting users who appear to be outside of a legitimate subscriber’s home or family members, but using that subscriber’s login credentials.

As these viewers are identified by Netflix’s system, a warning pops up, requesting that they verify that the account by inputting a verification code to be sent by Netflix by email or text, reports GammaWire, which also originally captured the warning screenshot above. Alternately, the user is given a “verify later” option.

The test, which isn’t limited to any particular country, “is designed to help ensure that people using Netflix accounts are authorized to do so,” a Netflix spokesperson confirmed to The Verge.

Those unable to verify account ownership within a certain time frame will be blocked from accessing Netflix content unless they create their own accounts.

So far, the number of affected users “seems to be relatively small, and most seen commenting on the test online mention that they simply pressed ‘verify later’ and the warning has yet to return a second time,” reports GammaWire.

Furthermore, some legitimate account owners may help borrowers thwart the system by relaying them the verification codes.

Still, the pop-up is bound to make some dent in promiscuous password sharing by making those confronted with it wonder if they might face some legal repercussion (although no such threat is made in the test messaging).

Even more important, if successful, the message may move some or many to take up the offer to “Start your own Netflix for free today” via a 30-day-free-trial.

The test is also designed to help improve Netflix account security, by using two-step verification to block those who have obtained passwords fraudulently.

Netflix’s terms of service state that the account owners can’t share access with people “beyond [their] household.” Netflix has also set limits on simultaneous streaming, but has not declared a limit on the number of devices that can log into a single account.

One aspect that’s unclear so far is how Netflix will draw the line on the password warnings, given that its terms don’t state that “household” means physical household, and family members do in some cases access a household account from outside the home.

But Netflix is clearly working on those specifics.

With its U.S. growth prospects limited by saturation, and intense pressure from investors to continue to deliver on worldwide subscriber and revenue growth — even as Disney+, Amazon Prime Video, HBO Max and others ratchet up the competition — Netflix has apparently decided to try to put the brakes on its longtime view of outside-the-household password sharing as a good thing, from a marketing standpoint.

While Magid has estimated that up to a third of Netflix users share their passwords with at least one other person, and Parks Associates estimated that the practice cost the streaming industry $9 billion in 2019 alone, Netflix co-CEO Reed Hastings has been among the top streaming executives who have publicly stated that allowing password sharing has proved a highly effective marketing-by-sampling “strategy.”

Speaking at CES in 2016, Hastings confirmed that those who share someone else’s Netflix account frequently end up subscribing themselves.

And back in 2014, then-HBO-CEO Richard Pepler expressed the same thinking, calling password sharing a “terrific marketing vehicle for the next generation of viewers” that was “not material at all” to HBO’s business growth” and helped present the brand to “more and more people” who could then become “addicted” to the service.

But it’s possible that the boom in streaming and streamer options has begun to alter the short- or longer term financial viability of using widespread unauthorized password sharing for subscriber acquisition purposes, at least for Netflix. Although Netflix still reigns with 203 million paid users worldwide, Disney+'s feat of reaching 100 million in well under two years, along with pumped-up investments by Amazon and others, may be making this the time for Netflix to fully optimize the ROI for its costly, high-quality original programming.

The financial equation — including the potential costs of pushing some prospects to try other pay-for or free, ad-supported services instead — will no doubt determine how much heat Netflix will be willing to take for reining in credential sharing.

But one thing is certain: Competitive services will be carefully watching to see if Netflix rolls out the effort, with hopes of snatching up some of the cut-off Netflix freeloaders, or perhaps emulating the crackdown.