Netflix to Expand Password Crackdown to U.S. in Q2 With Paid-Sharing Plans

Netflix to Expand Password Crackdown to U.S. in Q2 With Paid-Sharing Plans

Netflix said it will stage a “broad rollout” of its paid-sharing plan in the second quarter of 2023, including in the U.S., aiming to convert freeloaders borrowing someone else’s password into revenue-generating subscribers.

The streamer announced the news in releasing its first quarter 2023 earnings report. Previously, Netflix had said it planned to commence a broader launch of the paid password-sharing program in Q1. As part of Netflix’s crackdown on customers sharing passwords with people outside their household, the company plans to start blocking devices (after a certain period of time) that attempt to access a Netflix account without properly paying.

“In Q1, we launched paid sharing in four countries and are pleased with the results,” Netflix said in its Q1 letter to shareholders. “We are planning on a broad rollout, including in the U.S., in Q2.”

The paid-sharing program will debut in Q2 in the “vast majority” of countries where Netflix offers service, co-CEO Greg Peters said on the earnings interview, with pricing varying by market.

The four markets it is referring to are Canada, New Zealand, Portugal and Spain, where in February Netflix launched a “buy an extra member” option that lets primary account holders pay an additional monthly fee for a sub-account for 1-2 people they don’t live with. That came after Netflix last year launched paid-sharing tests in three Latin American countries (Chile, Costa Rica and Peru). Netflix’s paid membership count does not include “extra members”; rather, the total revenue from a primary account and its sub-accounts result in higher average revenue per membership.

Netflix said the move to convert password-piggybackers into paying members produces an elevated volume of cancelations, leading to a hit on near-term subscriber growth. “This will not be a universally popular move,” Peters said on the Q4 2022 earnings interview in January, likening it to an uptick in churn when the company has raised prices on its streaming plans.

Starting with the last quarter of 2022, Netflix was no longer providing subscriber-growth estimates for the following quarter. However, it said it projects Q2 paid net adds “roughly similar to” to the first quarter, when it gained 1.75 million. The company does provide financial guidance but said the rollout of its paid-sharing initiative and ad-supported plans “leads to less-than-normal visibility.”

“As with Latin America, we see a cancel reaction in each market when we announce [paid sharing plans], which impacts near-term member growth,” the company said in the Q1 shareholder letter. “But as borrowers start to activate their own accounts and existing members add ‘extra member’ accounts, we
see increased acquisition and revenue.”

In Canada, which Netflix believes is a “reliable predictor” for behavior in the U.S., its paid membership base is now larger than prior to the launch of paid sharing, while revenue growth has accelerated and is now growing faster than in the U.S.

“With each launch, we learn more about how best to roll out these changes and what matters to members the most, in particular maintaining travel/watching on the go and the ability for people to better control access to their accounts as well as transfer profiles to separate accounts,” Netflix said. Instead of launching the paid-sharing plans broadly in late Q1, Netflix said, it “found enough improvement opportunities in these areas to shift a broad launch to Q2 to implement those changes. As noted above, while this will shift some of the membership growth and revenue benefit from Q2 to Q3, we believe it will result in a better outcome for our members and our business. Longer term, paid sharing will ensure a bigger revenue base from which we can grow as we improve our service.”

Netflix estimates that passwords are being shared in violation of its rules with more than 100 million non-paying households worldwide. It first cited that figure a year ago, when the company told investors it was focusing on generating revenue from password-sharing users.

“A Netflix account is meant to be shared in one household (people who live in the same location with the account owner),” the company says on the customer-help section of its site. “People who are not in your household will need to sign up for their own account to watch Netflix.” However, Netflix members can continue to access the service while traveling via their personal devices or by logging in to new TV (like at a hotel or vacation rental).

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