Netflix will crack down on password sharing next year — here’s how it will work

Netflix Inc. executives on Tuesday detailed their plans to crack down on users who share their accounts on the streaming service, which is expected to be available early next year.

In a letter to shareholders in connection with its third-quarter earnings report, Netflix NFLX,
-1.73%
Executives said they would offer those currently using other people’s accounts an option to transfer that profile to their own subscription. They also offer account holders the ability to set up “sub-accounts” and pay more to let others use their Netflix service.

Earnings News: Netflix Sees Streak of Subscriber Drops, Stock Climbs 15%

“We have found a thoughtful approach to monetizing account sharing, and we will begin to roll that out more broadly from early 2023,” the letter reads. “After listening to consumer feedback, we will offer borrowers the ability to transfer their Netflix profile to their own account and sharers to more easily manage their devices and create sub-accounts (“Additional Member”), if they want family or friends to pay.”

The approach is similar to the tests Netflix conducted in Latin America after executives announced earlier this year that they would try to stop password sharing. This test gave viewers the option to watch Netflix in a specific home, but subscribers had to pay an additional $2.99 ​​for each new home someone would be streaming from a specific Netflix account.

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Netflix executives have long acknowledged the reality of consumers sharing their passwords and allowing others to access the streaming service without paying, but said they’re not concerned about the practice. That changed earlier this year after the company reported its first year-over-year drop in subscribers — executives said at the time they expected about 100 million households would access the service without paying, while the service had about 222 at the time Millions had paying subscribers.

Third-party studies have also shown that the practice is widespread. According to a 2021 Aura survey, 53% of Americans admit to sharing credentials with people outside of their main household.

So far: Here’s what you need to know when sharing a Netflix account

The crackdown on password sharing is part of an overhaul Netflix executives began publicly after reporting disappointing results in April amid a wave of streaming competition from companies including Walt Disney Co. DIS,
+1.18%,
Apple Inc. AAPL,
+0.94%
and other. That includes rolling out a cheaper, ad-supported tier, expected to roll out in some countries in the fourth quarter, which executives suggested in Tuesday’s letter, to retain users who accessed the service through someone else’s account.

“In countries with our cheaper ad-supported plan, we expect the profile transfer option to be particularly popular with borrowers,” they wrote.

However, there are concerns that Netflix could face a backlash from consumers after years of allowing the practice of password sharing to grow.

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“Netflix’s decision to crack down on password sharing has the potential to create a significant revenue stream,” Third Bridge analyst Jamie Lumley said in an emailed statement Tuesday. “However, our experts are skeptical about the chances of success, both from a technical point of view and with regard to the user pushback that has already occurred [Latin American] markets.”

In an interview with executives Tuesday afternoon, Greg Peters, Netflix’s chief operating officer and chief product officer, said that executives “have worked really hard to essentially find a balanced position, an approach to it that supports consumer choice, and… , honestly, a long history of customer centricity which we believe has influenced the way we think about how our service is mainstream, but balances this by ensuring that we get paid as a business when we bring entertainment value to consumers Offer.”

“We’ve tried a few different approaches in different countries, you saw that, and based on the customer feedback we’re getting we’ve landed on a paid sharing approach that we think strikes that balance,” added he added.

Separately, Netflix announced on Monday that the option to transfer a profile to a separate subscription is rolling out globally. A blog post by product manager Timi Kosztin states that subscribers would receive an email if they were eligible for profile transfer, “a feature that allows users of your account to transfer a profile—the personalized recommendations, viewing history, mine List, saved games, and other settings – when they start their own membership.”

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For more: Ads is coming to Netflix in November with a plan that costs $6.99 a month

Netflix hasn’t publicly stated how it enforces restrictions on password sharing, but a test being conducted in Chile, Costa Rica, and Peru verifies the primary account holder via an IP address (aka the series of numbers that every device in identified in a network). ) rather than geographic location, a Netflix spokesperson previously told MarketWatch. This is partly because if a user tries to use their own Netflix account on a mobile device like a phone or laptop while on the go, enforcement based on the geographic location of the main account would run into problems.

A Netflix representative told MarketWatch on Tuesday that they had nothing more to say about the crackdown on password sharing beyond the letter.

Netflix shares have plummeted amid the company’s growth woes in 2022, down 60% so far this year, as has the S&P 500 index SPX,
+1.14%
has decreased by 22.8%. The stock rose 15% in after-hours trading on Tuesday after the release of third-quarter results that beat expectations for subscriber growth and earnings.

MarketWatch Editor Weston Blasi contributed to this article.

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