Password Sharing: Are Netflix, HBO Missing $500 Million by Not Cracking Down?

Netflix Streaming
Courtesy of Netflix

Subscription VOD players, fighting for market share, don't have easy fixes to stop cheaters

Netflix, HBO and other Internet video-subscription providers are theoretically leaving megabucks on the table from customers nefariously sharing login info with nonpaying users. So why aren’t they aggressively trying to block the millions of freeloaders gorging on “Game of Thrones” or “Orange Is the New Black”?

Illicit password-sharing would appear to be a serious issue for subscription VOD players: The practice will cost the sector upwards of $500 million worldwide in 2015, according to a recent report from research firm Parks Associates.

It’s certainly a striking claim. About 6% of U.S. broadband households use an over-the-top video service paid by someone living outside of the household, the firm estimated. Unauthorized password-sharing is most rampant among consumers 18-24, with 20% of OTT users in that age bracket binge-watching on someone else’s dime, Parks says. The data is based on a consumer survey of 10,000 U.S. broadband households conducted in Q3 2014.

But the reason subscription-video services are not moving to actively stamp out password sharing, at least for the time being, is that they don’t want to screw up the customer experience — especially as they’re in growth mode, adding new subscribers every month.

First, think of it along the lines of the tech-biz maxim “it’s not a bug, it’s a feature.” Netflix and HBO Now are specifically designed for multiple (authorized) members of a household to watch on several different screens at once. Is a college kid piggybacking off mom and dad’s Netflix account out of bounds? It’s a gray area. But anytime-anyplace multistream capabilities are a core part of why people love SVOD services. And the goal is to encourage as much usage per account as possible, because that drives up the perceived value of the subscription, so such “virtual households” are tolerated.

The real problem is, SVOD providers really can’t block unauthorized users if they have a legit password without instituting an additional form of authentication. Netflix and HBO want to make it as easy as possible to watch their streaming services; if they started asking for your mother’s maiden name or some other proof you’re entitled to the goods, customers would get irritated.

Look, HBO is not going to require a fingerprint scan or Social Security number before you can watch the latest “True Detective” episode. SVOD services could do heavy two-factor authentication for a preset number of devices per account, but again, that would stunt users’ ability to stream on any Internet-connected thing with a screen (e.g., from your in-laws’ smart TV on Thanksgiving).

That said, Netflix has effectively taken password-sharing into account in its pricing strategy. Since 2013, it has offered a “family plan” with up to four concurrent streams for $11.99 monthly (versus two streams for the standard $8.99 service). Sure, that’s designed for families — or, say, four cheapskate buddies who can get Netflix for $3 each. HBO, for both the standalone HBO Now and HBO Go cable add-on services, provides up to three simultaneous streams per account.

Technically, sharing passwords with anyone outside your household violates SVOD providers’ terms of service, which specify that access to the services are only for personal use and “nontransferable.” (Note that for Hulu or Dish Network’s Sling TV, password sharing isn’t as much of concern because they provide just a single concurrent stream per account to subs.)

Execs at Netflix and HBO have regularly insisted that password-lending scofflaws are not a big concern. And then there’s this: Many password “borrowers” passwords may eventually become paying customers. A 2013 study found that 41% of HBO freeloaders and 33% of Netflix non-subscribers said they’d be willing to pay for their own accounts in the next six months.

To be sure, the industry is closely watching to see if password sharing becomes worse. HBO reserves the right to “change the maximum number of simultaneous streams and/or registered devices per account that you may use at any time, in its sole discretion,” according to the cabler’s terms of service for HBO Now. Netflix has similar verbiage on its subscriber agreement.

Right now, though, in the scramble for market share, putting up with password-sharing cheaters is a cost of doing business that Netflix and HBO don’t have an easy way to solve.

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  1. Matt says:

    My girlfriend and I share an account. We save a bit of money by doing this, but the main benefit is that we can jump between profiles on a device without having to log out and back in. If they do force us to get our own accounts, at least let us link a profile to multiple accounts.

  2. Thomas Hawk says:

    A big part of the value of Netflix for our household is that my wife and I can watch a movie or tv show in our room at night but that my 3 middle school and 1 high school kids can also watch TV shows and movies in their rooms at night.

    If my daughters have friends over and want to stream a movie in the attic, my wife and I can still watch something else in the living room.

    We pay for a cable subscription, and internet connection with comcast, as well as Netflix, Showtime, and HBO at the moment and I feel like we pay our fair share for content.

    My biggest problems with my current setup.

    1. Having to reauthenticate over and over and over again on our AppleTVs is a huge hassle. The technology should be smart enough to know that I am a paying customer, without making me go to the web and re-nenter a code from my appleTV, log into Xfinity, etc. This is the most negative part of our current customer experience. Thankfully this is only a problem with HBO, Showtime, CNBC, etc. and not Netflix.

    2. It sucks that AMC (which I pay for as part of my cable subscription) will not let me stream their content to my Apple TV. Although we have cable boxes on two of our TVs (living room, attic) why should I have to pay for yet a third cable box just to stream AMC content to my bedroom TV on my AppleTV. It’s almost enough to make me cancel AMC and just pay for the shows I want from there on demand.

    3. FX actually plays commercials on their streaming content on the AppleTV. That is so lame. At least with my cable box I can fast forward the commercials. Having to watch them as part of streaming experience blows.

    4. I wish Netflix, HBO, Showtime, FX, AMC, would all just merge into one big company and let me subscribe to all of the content, easily and conveniently with one monthly fee.

  3. Brown Noise says:

    Schoolboy Johnny will just download any movie he wants from bittorrent rather than dealing with any annoying bs HBO and Netflix throw at him.

  4. Kenny says:

    While I find it very annoying and inconvenient, I believe Spotify has nailed it. Say I have a Spotify account and two devices. If I sign in to Device A, start playing music, then later on sign in to Device B and start playing music, it will bring up a message saying that device A is already controlling the account. It then gives me the option to continue controlling with Device A or switch to Device B. If I switch to Device B, it will then continue playing whatever music was playing on Device A.

    With a Spotify subscription, you can be logged in to as many devices as you want, or at least 2 from what I’ve tested, but only one can be active at a time. If I give someone my info and they log in to play music while I’m listening to Spotify, my stream will stop and theirs will start. Or vice versa. This doesn’t stop you from sharing your account, but it does discourage it, as it can’t be used concurrently. Someone being able to just interrupt your music remotely is definitely a deterrent for sharing passwords.

  5. Raymond Gross says:

    It seems to me this is a non-issue. If these services all limit the number of simultaneous streams that a user can access and factor that into the pricing, then does it really matter whether one of those simultaneous streams is being accessed by you and your son at college, your girlfriend or one of your drinking buddies?

  6. Lisa says:

    Word-of-mouth is still the best advertising either of these companies get. HBO understands that piracy actually spreads their brand further than anything. And $500 million isn’t that cool. You know what’s cool? That movie the Social Network, which I watched on HBO that I paid for.

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