As shares plunge, Netflix takes aim at password sharing, ads

SAN FRANCISCO— An unexpected drop in subscribers sent Netflix shares into freefall Wednesday, forcing the company to consider experimenting with ads and— hold onto your remote— cracking down on millions of freeloaders who use passwords shared by friends or family.

The surprising net loss of 200,000 subscribers rattled investors, who had been told by the company to expect a gain of 2.5 million subscribers. Netflix shares sank 35 percent on the news, falling to their lowest level since early 2018.

Netflix estimates that about 100 million households worldwide— or roughly one out of every three households using its service— are streaming for free. “We’ve just got to get paid at some degree for them,” co- CEO Reed Hastings said during a shareholder call Tuesday.

Netflix has already been experimenting in Latin America with programs that use a soft touch to convince the unsubscribed to sign up. In Costa Rica, for instance, Netflix plan prices range from $ 9 to $ 15 a month, but subscribers can create sub- accounts for two other individuals outside their household for $ 3 a month. On Tuesday, Hastings suggested that the company may adopt something similar in other markets.

Just how Netflix will erect barriers remains unclear, and Hastings indicated that the company probably will spend the next year assessing different approaches. In one test last year, Netflix prompted viewers to verify their accounts via email or text.

Some current subscribers say even a gentle nudge to reduce password sharing might push them to sign off.

Alexander Klein, who lives near Albany, N. Y., has subscribed to Netflix since 2013 and shares his account with his mother- in- law. While he likes the service, a string of price increases and the loss of licensed shows has annoyed him— and any password- sharing crackdown might be the last straw.

“If they start cracking down on password sharing and I’m stuck paying the full $ 15 ( a month) just for one person watching at a time, that’s frustrating,” he said. “If they decided to do that I’d likely cancel.”

Netflix is bracing for more subscriber losses even before it attempts to weed out freeloaders. The company predicted its customer base will shrink by another 2 million subscribers by the end of June. That would still leave Netflix with 220 million worldwide subscribers, more than any other video streaming service.

Despite some fears that a Netflix crackdown on password- sharing could encourage other streaming services to follow suit, experts say that’s not likely.

“I think we would see competitors take different strategies here,” said Raj Venkatesan, a professor of business administration at the University of Virginia. “Some will follow the lead of Netflix and crack down on password sharing. Others will use this as a differentiator and promise simplicity by saying you can have one password for the family.”