Sunday, February 25

Netflix warns password sharing crackdown is coming

Reed Hastings, CEO of Netflix, attends a press conference in Mexico City, Mexico.

Hector Alive | Getty Images

Today could be a dark day for your ex-boyfriend’s brother.

Netflix, the world’s largest streaming video company, warned a global crackdown on password sharing is coming. It seems like a serious warning this time, and it could mean an end to the rampant practice of borrowing a family member’s or friend’s — or loose acquaintance’s — login information.

Netflix said it estimates more than 30 million US and Canadian households are using a shared password to access its content. The company said more than 100 million additional households were likely using a shared password worldwide.

In its quarterly shareholder letter, Netflix acknowledged it has purposefully allowed generous out-of-home password sharing because it helped get users hooked on the service. But with competition from Disney, Warner Bros. Discovery, Paramount Global, NBCUniversal, Apple TV+, and other streamers eating into its growth, Netflix said it wants the millions of households sharing passwords to start paying.

“Our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds,” Netflix said in its letter. “Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets — an issue that was obscured by our COVID growth.”

Netflix reported a loss of 200,000 paid subscribers in the first quarter ended March 31 — the first time in more than 10 years Netflix has lost subscribers during a quarter. The company projected it will lose 2 million more subscribers in the second quarter.

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The streaming platform currently has 222 million subscribers worldwide. It enjoyed booming growth during the pandemic, but that customer arises has subsided — and now turned negative — as Covid-19 quarantines have largely lifted.

Planning the crackdown

Netflix has lived with password sharing because the company was, in the words of co-founder and co-CEO Reed Hastings, “doing fine” without taking any strong actions.

“In terms of [password sharing]no plans on making any changes there,” Hastings said in 2016. “Password sharing is something you have to learn to live with, because there’s so much legitimate password sharing, like you sharing with your spouse, with your kids …. so there’s no bright line, and we’re doing fine as is.”

Netflix has built a consumer friendly brand over the years, and allowing password sharing has helped with that image.

“Sharing likely helped fuel our growth by getting more people using and enjoying Netflix,” the company said in its shareholder note. “And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams.”

But times have changed. And when the growth stops, attitudes tend to change.

Earlier this year, Netflix began testing different ways to curb password sharing in Chile, Costa Rica and Peru. If Netflix follows the model it laid out in those countries, Netflix will charge extra to accounts that share passwords out of home.

Netflix didn’t outline a global strategy yet but suggested global changes will come “in the short-to-mid term.”

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Disclosure: Comcast is the parent company of CNBC and NBCUniversal.

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