Why a Password-Sharing Crackdown Won’t Help Netflix Much

Why Password-Sharing Crackdown Won’t Help Netflix Much
Illustration: VIP+; Adobe Stock

After years of tolerating and even encouraging password sharing, Netflix finally seems poised to crack down on the rampant practice among its subscribers.

The company has accelerated plans to roll out a new pricing strategy aimed at cutting off freeloaders by the end of the year, The New York Times reported Tuesday. Pressure is on the streamer to change course after its subscriptions declined for the first time in a decade last month. 

In March, before the Q1 results were announced, the streaming giant had started testing a plan to let subscribers in three countries — Chile, Costa Rica and Peru — add accounts for up to two people outside their household for an added surcharge. 

Now Netflix seems to be hoping this strategy will help put it back on the growth track. The company estimates more than 100 million households worldwide are using someone else’s account and cited password sharing as one of the four main reasons for the stall in membership in its April letter to shareholders.

“This is a big opportunity as these households are already watching Netflix and enjoying our service,” the letter states. “While we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”

But it’s already becoming clear that a password-sharing crackdown won’t be the fix Netflix is hoping.

Yes, the strategy could provide some additional revenue for Netflix. The proposed price hike to allow password sharing is, in theory, a smart move that would let the widespread practice continue while squeezing a few extra dollars out of subscribers. Some customers will undoubtedly pay a small fee not to have to change their behavior.

Others, however, will not. Netflix already raised prices earlier this year, and with inflation at a 40-year high and a recession all but certainly on the horizon, it’s worth considering how many subscribers would balk at another monthly fee increase. A recent report from Kantar noted that Netflix’s January price hike had a significant effect on subscriptions, with the higher cost cited as the reason for 15 percent of Q1 cancellations and nearly 30 percent of planned Q2 cancellations. 

Going by Netflix’s forecast that it will lose another 2 million subscribers in Q2, that’s nearly 600,000 people who currently don’t think the service is worth the price they’re paying.

Until recently, Netflix steadily raised the cost of subscriptions while growing its customer base at the same time. Now it’s clear the game has changed. Streaming viewers are growing more cost-conscious, evinced by the growing rate of churn among subscribers and the slowdown in new sign-ups overall. Kantar’s report indicated new streaming subscriptions have stalled in the U.S. and the number of services each household subscribes to has leveled off. The continuous growth the industry has been chasing no longer looks likely to persist.

Netflix must also be hoping that some of those freeloaders can be converted into full-paying subscribers, but if this picture is accurate, those hopes look naive at best and delusional at worst. Many of those viewers have long since grown accustomed to accessing Netflix’s library for free; how many of them will pay record-high prices to continue accessing it, particularly with a dwindling supply of buzzy hits and many of the most in-demand titles soon ending their runs? 

"Ozark" has just concluded; "Stranger Things" and "The Crown" will follow within a year or so. It will be easy enough for savvy consumers to subscribe for a month, binge season two of "Squid Game" and cancel their subscriptions again.

The fact of the matter is Netflix faces both an unfriendly economic climate and the long-impending consequences of an unsustainable business model. Changing course will take not only time but a bold overhaul of the way Netflix does business. The company’s leaders seem to know they have a lot of problems to address, but no one should be pretending that a crackdown on password sharing will fix much of anything.