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Why Netflix ‘Crackdown’ on Password Sharing Won’t Actually Put an End to Illicit Account Borrowing

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Beginning next year, Netflix will start nagging customers to pay extra if it detects that they’re sharing their account with individuals outside their household — in violation of the streamer’s terms of use.

But users determined to continue flouting Netflix’s password-sharing rules won’t face any draconian repercussions for now: The company will not terminate someone’s account even if they’re sharing passwords, nor is Netflix likely to impose additional fees without a customer’s consent.

In early 2023, Netflix plans to roll out “a thoughtful approach to monetize account sharing,” expanding beyond its initial test markets in Latin America, the company said in October. That will encourage password-sharers to create sub-accounts (“Extra Members”) and pay for people outside their households. Recent headlines about the initiative — “The End of Netflix Password Sharing Is Nigh” (Wall Street Journal) and “The End of Free Netflix Password Sharing Is Coming” (CNET) — have made it seem like the company will starting enforcing the no-account-sharing rule with punitive measures. In fact, Netflix’s password-sharing-monetization plan is essentially based on the honor system.

Netflix hasn’t disclosed what an Extra Member sub-account would cost in the U.S. or other new markets. In Chile, Costa Rica and Peru, that fee has been 23%-29% of the Netflix Standard two-stream plan, which suggests that in the U.S. the cost of sub-accounts could be $3.50-$4.50 each. In the three test markets, Netflix has notified members who appear to be sharing their account outside their household (detected based on data such as IP addresses, device IDs and account activity from devices signed into the Netflix account) about the new payment options. Netflix also has prompted users to verify their credentials by sending a verification code to the primary account-holder.

And if customer don’t pay up for password piggybackers? All signs indicate that the most aggressive Netflix intends to get in the first iteration of the paid-sharing rollout is to keep prodding violators with email reminders and notifications.

The company’s help page on password sharing currently says, “Netflix will not automatically charge you if you share your account with someone who doesn’t live with you.” That’s unlikely to change in the near future. If Netflix were to automatically levy new fees for account sharing, besides angering customers — who have engaged in password-sharing for years with Netflix’s wink-and-a-nod approval — it would attract scrutiny from regulators over potential anti-consumer billing practices.

The fact that Netflix’s monetization strategy for password-sharing is on an opt-in basis highlights uncertainty about how much incremental money it will reap from the so-called “crackdown.” The company is eager to develop new revenue streams as core subscriber growth has slowed (and actually shrank in the first half of 2022). In addition to paid-sharing monetization, Netflix this year hustled to launch a new, cheaper ad-supported plan in November; that appears to be off to a relatively slow start.

Netflix has estimated that passwords are being shared in violation of its rules with more than 100 million non-paying households worldwide — but obviously, it won’t be able to convert all of that activity into revenue. Wall Street firm Cowen has estimated that Netflix’s paid-sharing program could add nearly 15 million paid sharers and 1 million new members in the U.S. and Canada in 2023, representing some $721 million in incremental revenue in the UCAN region annually (5.1% over previous analyst estimates). That’s based on a Cowen consumer survey, conducted in August 2022, asking password-sharers if they would pay an extra $3/month; 50% of respondents said either they or the primary account holder would do so. Needless to say, however, there’s a difference between what people say they will do and what they actually do.

Meanwhile, Netflix has rolled out additional features designed to encourage password-moochers to do the right thing and pay for legit account access. This fall, it added the ability for subscribers convert user profiles into separate new accounts and a dashboard to let users log out individual devices remotely.

“We would never roll out something that feels like ‘turning the screws'” on people who share passwords, Reed Hastings, Netflix’s co-CEO and co-founder, said on the company’s Q1 2021 earnings interview. “It’s gotta feel like it makes sense to consumers, that they understand.” Of course, Hastings once insisted that Netflix would not launch an ad-supported plan, so — never say never.

VIP+ Survey: U.S. Netflix Users Favor Password Sharing