Faced with slowing growth and pressure to cover skyrocketing original content costs, Netflix has informed subscribers it's starting to introduce added monthly fees for sharing passwords with people outside of their own households.
In a blog post on Wednesday, Chengyi Long, the streaming giant’s director of product innovation, said it will test two new ways of paying for account-sharing over the next few weeks, starting with subscribers in Chile, Costa Rica and Peru.
Members in the Standard and Premium plans will be able to add extra members—up to two people from outside their physical households, each with a separate profile, logins, passwords and personalized recommendations — for additional monthly fees that will vary by region. The initial fees are $3 per month in Costa Rica, 2,380 CLP in Chile, and 79 PEN in Peru.
Alternately, members on the Basic, Standard and Premium plans can ask those outside their households who are sharing their accounts to transfer profile information to a new account or an extra member sub account while retaining their viewing history, My List and custom recommendations.
“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,” wrote Long. “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. So for the last year, 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.”
Streaming pioneer Netflix has turned a blind eye to outside-household password sharing since its inception, prioritizing user growth and the goodwill-building benefit over lost revenue.
But Netflix is now facing a far more competitive environment, and slowing subscriber growth in North America and other developed markets, and is fighting back by doubling down on its already industry-leading investment in original content.
At the same time, the company is under growing pressure from investors to grow revenue and reduce losses. Netflix still had more than $18.5 billion in debt as of September 2021, and is facing stiffer competition in international growth markets, as well as North America, leading to slowly eroding global share of market. Netflix shares have lost half their value since their peak in mid-November 2021, and as of early Thursday morning were down about 40% year-to-date.
About one in 10 (11%) of Netflix subscribers share passwords, according to a survey conducted in January by S&P Global Market Intelligence’s Kagan research unit. That was down slightly from the 12% and 13% rates found in 2020 and 2019, respectively.
Nor has Netflix been alone in largely turning a blind eye to the outside-household password sharing practice.
Last March, Citi analyst Jason Bazinet estimated that paid streaming services were losing about $25 billion per year in unrealized revenue as a result — including about $6 billion for Netflix alone.
Netflix has wanted to curb the practice for some time, but has feared backlash in the form of subscriber cancellations, given that subscribers have come to view sharing as part of the value proposition.
The last time Netflix took action in a public way — also a year ago — subscribers stormed social media with objections and threats of cancellations.
That social melee came despite a careful test approach that involved showing an on-screen message to users identified by Netflix’s system as using login credentials outside the subscriber’s home. Message: “Start our own Netflix for free today. If you don’t live with the owner of this account, you need your own account to keep watching. Join free for 30 days”...
Netflix also recently implemented its first North American price hikes since October 2020.
The company has also been under increasing pressure from analysts to launch a reduced-price, ad-supported tier to drive subscriber volumes and add a revenue stream.
Thus far, Netflix executives, including co-founder/co-CEO Reed Hastings, have cited the increasing complexities and risks of gathering and using consumer data for advertising purposes, among other reasons, for eschewing the ad-supported video-on-demand (AVOD) route.
But earlier this month, Netflix CFO Spence Neumann, while continuing to say that an ad-supported offering is still not in the company’s plans at present, caused buzz by qualifying that statement with “Never say never.”
“We’re focused on optimizing for long-term revenue, big profit pools” through a globally scalable subscription-based model that emphasizes growth through offering customers the best-possible choice and experience, he said.
But “it’s not like we have religion against advertising,” and if at some point Netflix determined that an AVOD offering would fit its strategic goals, it would not rule out the option, he said.