Netflix is poised to crack down on account sharing
The free-viewing party is over at Netflix.
The streaming company plans to crack down on password-sharing next year, including by rolling out “sub-accounts” that allow members to give people outside their households access to their service.
Netflix added 2.4 million subscribers during the third quarter, it said Tuesday, a big lift for a company that watched its once-dominant foothold crumble earlier in the year: It was hemorrhaging subscribers within the overstuffed field of competitors and giving up a chunk of its business as it backed out of Russia.
But the company’s financial results pleased Wall Street, sending its stock soaring in after-hours trading.
“We’re still not growing as fast as we’d like,” Netflix Chief Financial Officer Spencer Neumann said on a call with investors Tuesday. “So we’re building momentum. We’re pleased with our progress, but we know we’ve got a lot more work to do.”
Now the company is poised to change its strategies, including by exploring lower-cost plans with advertising and trying to wring money out of the 100
million households that use Netflix through shared log-in credentials and do not pay for the service. Here’s how that might play out for consumers.
Q: Why has Netflix had a rocky year?
A:
The streaming service lost 700,000 subscribers when it, like dozens of corporations, pulled out of Russia after the invasion of Ukraine. But that dropoff coincided with broader viewership declines as pandemic-era restrictions have receded and consumers increasingly have sought out other entertainment options.
At the onset of the pandemic, Netflix gained 16 million subscribers in the
quarter ending in March 2020 and 10 million in the April-to-June period. But growth slowed as coronavirus restrictions were lifted around the country and people sought entertainment outside their homes.
Netflix came roaring back in its third quarter, however, adding double the number of subscribers it had forecast and beating revenue expectations.
Q: What does this all mean for consumers?
A:
Netflix plans to crack down on password-sharing, including making people pay more to use the same account across different households. Beginning in early 2023, the streamer said this week, many people who share accounts will be able to transfer their profiles (including shows they’ve watched and recommendations) to new users. And account-holders who share their passwords with people outside their households will make “sub-accounts” to pay for them.
In March, Netflix began trials in Chile, Peru and Costa Rica that allowed members to pay about $3 to add sub-accounts for users who do not live with them. It also allowed users in those countries to enable others who share their accounts to transfer profiles and viewing history.
It said this week it would roll those features out “more broadly” early next year.
“Given we’ve just rolled out the features test in three countries, we first want to see how these features go, which will inform us how we continue to monetize account sharing moving forward elsewhere,” Kumiko Hidaka, the director of technology communications for Netflix, told The Washington Post in an email earlier this year.
Restricting users’ ability to share passwords could force some to pay for their own accounts — but it also might drive others to simply give up on Netflix and turn to any of the myriad streaming options.
Greg Peters, Netflix’s chief operating officer, said the company’s job is to “better translate” the value of nonpaying consumers into revenue while respecting households’ desires for flexibility.
“If you’ve got a sister, let’s say, that’s living in a different city, you want to share Netflix with her, that’s great,” Peters said during an earnings call with reporters earlier this year. “We’re not trying to shut down that sharing, but we’re going to ask you to pay a bit more to be able to share with her and so that she gets the benefit and the value of the service, but we also get the revenue associated with that viewing.”
Neil Begley, a senior vice president with Moody’s, said that if Netflix can make money from about half of the 100 million households that are not paying to use its services, it stands to make as much as $1.8 billion. He didn’t think the policy shift would cost Netflix any business, only help with its cash flow.
“If somebody has been borrowing someone’s password pretty actively, it’s hard to say that they should be angry now at what the company’s doing. It’s never been a free service,” Begley told The Post. “I don’t think people will begrudge the company doing this now, particularly when they see the stats.”
Q: Are prices increasing again?
A:
Not in the near future, Hidaka told The Post in April, given that the company raised prices in January.
Instead, Netflix is trying to increase its price spread by offering lower-cost plans with some ads.
The company will launch its ad-supported plan, called Basic, next month in a dozen countries, including the United States and Britain. The tier will cost $6.99 in the United States, and viewers will see four to five minutes of ads each hour, the company said.
Many of the same Netflix shows will be available, but the company said some will be excluded because of “licensing restrictions.”
“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” chief executive Reed Hastings said in a call with reporters earlier this year. “And allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense.”