Netflix, and the password problem

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Netflix is about to begin its crackdown on password sharing that it first announced in 2022 – and it’s a pivotal moment for the streaming market.

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Presumably with a deep breath and a bit of a gulp, Netflix finally confirmed what it’s been kicking down the road for some time this week: that its crackdown on password sharing is going to begin in earnest this July.

In the latest instance, it sounds as though this policy is going to be fully rolled out in the US this summer, which is where some trial work on it had been taking place (and it’s also been trying out the changes in New Zealand and Australia, as well as some parts of Europe, and Canada). It’s inevitable however that the plan will be in time extended to reach the UK and other territories, and that’s when Netflix’s latest gamble will be properly tested.

That Netflix is looking to do this is nothing new. It revealed the news in response to it going through its first drop in subscribers last year, as it looked for fresh ways to make cash. The firm remains the most popular streaming service it’s worth reiterating, with around 230 million subscribers around the world. The vast majority are paying a monthly fee, which keeps the electricity bill paid at Netflix HQ. But with the need to continually grow, Netflix has been exploring its business to work out where it can find a bit more cash.

It’s done cutbacks. It’s changed the way it approaches its films. It’s introduced a lower-cost, part ad-funded tier. And now it’s targeting its userbase. It’s password time.

Netflix

While the company was growing at the pace it was, sharing passwords wasn’t a problem. One person had an account, and if they handed the password to a couple of mates, well, it’s all growth isn’t it? For Netflix, as it sought to muscle its way into the film and TV space, the more eyeballs the merrier. There was ceiling room for growth, and it was for a long time a long way ahead of its competition.

Well, that competition is snapping eagerly at its heels, and there’s an inevitable limit to how much fast growing you can do. Disney+ may be bleeding cash for Disney at the moment, but there’s a clear long term strategy that the firm is betting will pay off, where it dethrones Netflix, permanently. Amazon and Apple meanwhile are both spending more and more on cinema releases to bolster the profile of their respective services. Studios such as Lionsgate, Universal and Paramount each have streaming services of their own, and there are dozens now to choose from.

As we sit in a cost of living crisis, and an era where a lot of Netflix original films have turned out to be what you could politely describe as ‘filler’, audiences have started to vote with their cancel buttons. Hence, the need to reverse ferret a little, and crack down on shared accounts.

But it’s a risk, and Netflix knows it. Especially as it experiments more and more with advertising, where high viewing figures prove really rather helpful.

Its first attempt at exploring a crackdown on password sharing appeared online at the end of January, and it’d be fair to say it went down like a rather noxious fart in a particularly small vehicle. As it was outlined at the time, the change that Netflix was planning to bring in would require someone to log into their account on a home broadband service at least every 31 days, else they’d be deemed away from the location where the subscription.

To give a real world example, I have an offspring at university at the moment, who uses the family Netflix account. But unless he pops home during term time at some point, presumably to get his washing done while he’s here, Netflix is going to want some more money for his access to the service. The fees involved haven’t been formally announced, but it’d be fair to expect it to be a few extra quid a month. At least at first.

Here, for no reason at all, is a Tweet that Netflix sent out in March of 2017. I’m amazed it’s not deleted it.

Love is sharing a password.

— Netflix (@netflix) March 10, 2017

Now it’d be daft to not concede that password sharing is a thing. Heck, it’s been actively encouraged even, although it would have happened anyway. Netflix though estimates that nearly one in three households share their password, amounting to around 100 million users who aren’t paying for the privilege of watching The Ridiculous Six. The company must have taken a view that even if it gets money out of, say, 10% of those people, that’s going to be worth the pushback it gets.

The pushback has been significant though, but how much of that is just social media noise? That said, it doesn’t help that at the upper tiers, Netflix is already about the most expensive of the big streaming services. Yet the bigger problem I’d suggest it faces with its password crackdown – which, in truth, we might grumble about, but then most of us will move on – is that it’s doing the pathfinding alone.

For such a crackdown to be genuinely effective, I’d suggest that is needs to be collective. In the land of social media, it’s interesting that serial narcissist Elon Musk’s plan to get people to pay for verified accounts on was widely scoffed at, then Facebook said soon thereafter that it was going to give the same thing a try. I’d imagine that Disney in particular is watching what happens here with interest: it could use a few extra quid too, but does it – as the upstart competitor – want the badwill that comes with going first on such a crackdown policy?

Whilst Disney puzzles that out, Netflix clearly felt the heat from the first draft of its own plans. As the BBC reported this week, the shared subscriber policy is being introduced “a few months later than expected, as it tweaks the offering in response to feedback, like making sure users can access their accounts easily while travelling”. Will the 31 day restriction hold? We don’t know yet, but there’s bound to be something in the final shape of what’s happening to get on people’s whatsits.

But Netflix is also going into this with its eyes open. It’s told its investors that it expects account cancellations as a result of the policy shift. It’s entirely feasible that total subscriber numbers will decrease, but with the Netflix hope that this is offset by getting more revenue from those who stick around. Evidence it’s gathered from its rollout in Canada suggests the downside for its is negligible, at least at first.

Yet this is still a risk. Unlike Apple and Amazon, Netflix’s business has been built on debt, and that debt needs servicing. It’s profitable, to the tune of over $1bn in three months, but also vulnerable. And it knows it.

It’s testing times, and there’s a sense that a bullet is being bitten here. As the streaming market matures, the back end of 2023 may well define just how the biggest services operate in the months ahead. Netflix may be going first here, but the ramifications are potentially far broader.

Get your popcorn, get ready to stop sharing your passwords: the show is about to begin…