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How Netflix, HBO May Benefit From Illegal Password-Sharing

A respectable number of users who sample service free are likely to subscribe within six months

HBO Go Milkshake

There may be good reason HBO and Netflix have professed little concern over customers who lend subscription passwords to those who don’t pay the monthly fees to access their programming.

While execs have said their own internal data suggests such activity is minimal — contrary to growing media attention — a new survey indicates password-sharing may be more pervasive than they are letting on — and that it might even be a good thing.

Market researcher Ipsos OTX MediaCT found that more than a third of subscribers to both Netflix (40%) and HBO Go (36%) admitted they have shared their log-in information with another person. The survey was conducted in early June with 1,076 respondents.

Those figures might seem higher than either company might want you to believe. As recently as May 30, HBO CEO Richard Plepler, at an investors’ conference, downplayed password-sharing as “almost non-existent.” Netflix CEO Reed Hastings has made similar statements, but recently unveiled a “family plan” for $12 per month that will provide multiple accounts under one subscription plan later this summer.

But with regard to reports of subscribers sharing with those outside the family, Hastings said in April, “We really don’t think there is much going on.”

There’s been little research to shed light on just how pervasive a practice password-sharing is, but Ipsos was able to find more than a few respondents willing to admit they were watching without subscriptions, which is technically a federal crime punishable by as much as a year in prison.

While 6% of non-HBO subscribers surveyed admitted to illegally copping passwords, that number grew to 17% for non-Netflix subs. Perhaps that’s why Netflix is moving a little bit faster than HBO to offer a subscription functionality that’s aimed at curbing the practice, though it is by no means an impediment to continued sharing.

But arguably the most interesting Ipsos finding was the level of non-subs who were considering paying for subscriptions after having experienced the services for free. Forty-one percent of HBO non-subs said they were willing to fork over fees within the next six months, while 33% of Netflix non-subs said they were ready to pay, as well.

Of course, those people are just expressing an intent to pay; they haven’t actually done so. Moreover, the numbers are rather small given the size of the sample; HBO Go’s 41% amounts to only 24 respondents.

But those stats could still provide a small clue as to why neither HBO nor Netflix is sweating the fact that they’re essentially giving away their product to some segment of the marketplace: Enabling freeloading could be a counterintuitively savvy promotional tool for getting potential customers hooked on a product they wouldn’t otherwise sample.

However, it could just as easily be argued that this market segment won’t ever pay for a subscription. Worst-case scenario: paying subs who opt out in order to use someone else’s passwords.

But if that’s occurring, there’s no sign of it in either HBO or Netflix’s subscriber tallies, neither of which is in decline, by the latest measures. HBO added 50,000 U.S. subs in the fi rst quarter of the year, according to SNL Kagan, while Netflix’s subs rose by more than 2 million over the same period. Netflix is slightly ahead of HBO in domestic subscriber s, 29.17 million to 28.8 million.

Of course, not all HBO subs are necessarily using HBO Go; in fact, it’s just a fraction of the base.

If Wedbush Securities analyst Michael Pachter is correct, Netflix has a huge freeloading audience; he estimated in April there could be as many as 10 million users who access the streaming service via someone else’s password.

Neither Netflix nor HBO are the only companies who have to worry about password-sharing, but they are the ones who have taken the most visible stance on the matter.

And they’re not afraid to share the information.