Netflix lost 1 million users in Spain in little over a month after discontinuing free password sharing there in early February, according to a Kantar study based on surveys of household streaming habits.
Two-thirds of the lost users had been accessing Netflix free by using a paid subscriber household’s password. To share a password with another household, subscribers in Spain must now pay a monthly fee of €5.99 ($6.57).
Churn nearly tripled in the quarter compared to the previous period, and nearly half of those dropping the service said they will not pay for it.
There was no strong demographic skew among those dropping the service, signaling a broad rejection of the crackdown, according to Bloomberg. Further, 10% of remaining subscribers said they plan to cancel the service in Q2 — well above the average for previous quarters.
“There are of course inherent risks with clamping down on password sharing, particularly when back in 2017 Netflix was seen to be actively encouraging it,” said Dominic Sunnebo, global insight director at Kantar Worldpanel Division. “Some users were expected to be lost in the process, but losing over 1 million in a little over a month has major implications for Netflix and whether it decides to continue with its crackdown globally. Monitoring the next few quarters to see how many of these consumers decide to re-subscribe will be vital to Netflix strategy in this space.”
Netflix presents a very different, much more upbeat picture.
The world’s largest streamer began what it calls its “paid sharing” program in Latin America last year and started to roll it out in Canada, New Zealand and Portugal, as well as Spain, in February.
Netflix had originally planned to roll out paid sharing in the U.S. and the rest of the world in the first quarter, but announced in its Q1 earnings release in mid April that it would delay the full rollout until sometime in the second quarter, saying it wanted time to incorporate learnings from the existing markets to further improve the experience for members and the results.
However, the company said it is “pleased” with the results of the program thus far, and is confident that the inevitable subscriber churn after paid sharing is implemented will be temporary, until formerly free users establish their own accounts.
“We see a cancel reaction in each market when we announce the news,” Netflix stated. “In Canada, which we believe is a reliable predictor for the U.S., our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the U.S.”
Netflix added just 1.75 million new global subscribers in Q1, instead of the 2.4 million expected by analysts. It lost 400,000 subscribers in Latin America, and added only 100,000 in North America, after losing nearly 1 million in its biggest market last year. But it added 1.46 million subscribers in Asia-Pacific in the quarter, after lowering its prices in India and some other countries in the region.
The company is projecting accelerated membership growth, as well as revenue, by this year’s second half, driven by the paid sharing and the launch of its ad-supported tier.
Now focused on growing revenue and profitability rather than user numbers, Netflix saw revenue rise 4% in Q1, although operating margin was 21% compared to 25% a year ago.