Netflix’s Password Crackdown Will Be Tougher Than It Seems
Netflix is looking to increase average revenue per user.
The streamer suggested that last week when it announced two new options aimed at generating revenue from consumers who currently access Netflix on someone else’s dime.
Over the next few weeks, Netflix will allow subscribers of its Standard and Premium plans in three countries (Chile, Costa Rica and Peru) to add accounts for (up to two) people they don’t live with. The streamer will also allow subs on its three plans (Basic, Standard and Premium) to transfer their profile information to an entirely new Netflix account or Extra Sub account (i.e., the new accounts meant to monetize Netflix freeloaders).
Like other Netflix tests, this experiment may not end up being rolled out globally. The streamer in March 2021 ran a test that nudged users to verify that they indeed lived with the subscriber of the Netflix account that they were using, for example.
In the latest experiment to monetize password sharers, Netflix may send a verification code to a subscriber to verify a device that’s being used to access that subscriber’s account in another location. Netflix will use information including IP addresses and device IDs to determine when one account is being used by more than one household.
In the countries of Chile, Costa Rica, and Peru, it’s likely that Netflix’s new nudges to discourage password sharing will result in some revenue it wouldn’t have otherwise received. For example, someone who is freely using someone else’s account in one of those three countries right now may not want to burden the rightful account owner by asking them to verify the device from which they are streaming Netflix. In that case, the person not paying for Netflix might feel inclined to chip in for an Extra Sub account.
This is positive when you consider nearly 36% of Americans said they share their Netflix account login with relatives, per an Advertising Research Foundation survey of U.S. adults fielded in H2 ‘21.
Moreover, it’s likely that some Netflix users in those three countries have people freely using their accounts that they don’t know about, for example. In those instances, the rightful Netflix account owner could simply not verify the devices that the moochers are streaming from, and the moochers would be forced to get their own accounts (or stop accessing Netflix).
At the same time, there are also probably many people who share Netflix passwords who are close and don’t mind communicating when an account verification needs to be done. Keep in mind that once an account holder verifies a device, that device won’t need to be repeatedly verified (at least in this iteration of the test).
So in the testing regions, moochers don’t really have a massive hurdle to clear to continue getting access to a Netflix account for free.
A more severe (and likely backlash-inducing) step to minimize password sharing would be to simply further limit the number of screens that can use one Netflix account at the same time on certain tiers. In the U.S., the number of screens one Netflix account can be watched on at once is 1, 2 and 4 for Basic, Standard and Premium accounts, respectively.
Netflix is looking for ways to generate more revenue from its existing customer base as sub growth has become choppier in recent quarters. For example, Netflix in 2021 added 18.2 million subs globally, but just 5.5 million of those subs were added in H1 ‘21.
This helps explain why the streamer most recently in the U.S. raised prices in January. That price increase was the first for U.S. customers since October 2020; earlier in March, Netflix raised prices for all of its plans in the U.K. and Ireland.
Additional revenue will help fund the aggressive spending Netflix looks to put toward content. Wells Fargo predicts Netflix will spend $19.3 billion on content in 2022 on a cash basis, for example.
However, it’s possible that Netflix looks to reevaluate how quickly it ramps up content spend if there is a string of quarters where it consistently falls short of subscriber expectations.