Netflix is entering uncharted territory as it tries to turn password sharers into paying customers.
After a historically rough quarter in which the streaming giant lost 200,000 subscribers—and forecasted losing 2 million more in the quarter ahead—the company says it will crack down on users who share their accounts with people outside their homes. The company has been testing “Extra Member” plans in Chile, Costa Rica, and Peru, and it now aims to bring similar initiatives to other countries over the next year or so.
Until now, every major on-demand streaming service has relied on softer mechanisms to minimize password sharing. While a service might limit how many devices can stream at the same time, no other services have tried to hinder out-of-home access and upsell password sharers on paid plans.
In doing so, Netflix will have to navigate all kinds of thorny issues around access control and pricing that haven’t yet existed in the world of streaming TV. Getting it wrong could scare off existing customers and fail to generate meaningful revenue.
If Netflix is serious about cracking down on password sharing, here are all the questions it will have to answer first:
HOW WILL NETFLIX PREVENT PASSWORD SHARING?
Netflix hasn’t gone into specifics about how it will enforce its password-sharing crackdown in major markets such as the U.S. TechCrunch’s Sarah Perez reports that Netflix will use “IP address, device IDs, and other information” to determine if persistent sharing is happening outside of the account holder’s home, but it’s unclear how much remote access would trigger a response from Netflix.
We also don’t know what that response will look like. Will the sign-in process become more cumbersome for password sharers, with more automatic sign-outs or two-factor authentication prompts? Would Netflix ever try to block users from the service outright? If the enforcement measures are light enough, the supposed crackdown could end up being more like a fishing expedition.
HOW WILL NETFLIX DISTINGUISH PASSWORD SHARING FROM TRAVELING?
Comparing the IP address and device IDs of the account holder with remote users makes sense as a basic enforcement measure, but it also raises the question of how Netflix will accommodate travel. Would a two-week AirBnB vacation be enough to trip Netflix’s password-sharing alarm? Will users with summer or winter homes need extra accounts? And what happens if you move? Will Netflix offer a way to update your home address, the way some live TV streaming services do now?
Stricter enforcement of password sharing brings up a lot of messy edge cases and potential to annoy legitimate account holders. It’s unclear how Netflix will address those situations.
HOW MUCH WILL NETFLIX PASSWORD SHARING COST?
In Costa Rica, Chile, and Peru, Netflix has been testing an “Extra Member” subscription at prices ranging from roughly $2 to $3 per month. Those subscriptions allow up to two people to access an existing Netflix account with their own logins and profiles. The company also offers a profile migration tool for password sharers who decide to pay for their own accounts.
But Netflix hasn’t said what password-sharing plans will cost outside of those countries, including the U.S. market, where subscriptions are more expensive. Setting prices too low might only encourage people who are currently paying full price to switch to the new cheaper option, a counterproductive end result from Netflix’s standpoint. And setting them too high could drive customers away. It’s another tricky balance the company will have to strike.
WHEN DOES THE CRACKDOWN START IN EARNEST?
Sharing your Netflix password isn’t going to get harder right away. On the company’s latest earnings call, COO Greg Peters touched on the challenges that tougher enforcement might bring, noting that it would “take a while to work this out and get that balance right.” He added that Netflix would “go through a year or so of iterating” before deploying its countermeasures.
That leaves a lot of wiggle room for timing, and we may see the company test different approaches and prices in different markets before settling on anything concrete.
HOW WILL OTHER STREAMERS RESPOND?
This last question isn’t for Netflix, but for its competitors. As a whole, the streaming industry has long resisted draconian attacks on password sharing due to the many potential issues involved, and Netflix itself once seemed content to live with password sharing as a reality of the streaming business.
If Netflix can demonstrate a boost in revenue from a tougher stance on password sharing, other streaming services such as Disney+, HBO Max, and Paramount+ could follow. After all, they may eventually run into the same market saturation and subscriber growth issues that Netflix is facing now.
Then again, if the crackdown doesn’t move the needle, or it prompts a widespread backlash from customers who have a harder time accessing the service they’ve paid for, other companies could use their more lenient stances as a competitive advantage.
The one thing we know for sure about Netflix’s password-sharing crackdown is that the streaming world will be watching closely to see how it shakes out.