After Netflix Loses Subscribers, Company Says Password Sharing Crackdown Coming

Netflix has long been laissez-faire over password sharing as the company was consistently adding new subscribers and believed that the practice actually helped spur the company’s explosive growth over the past decade, but those days may be coming to an end.

In Netflix’s first-quarter shareholder letter, they raised the question of “how best to monetize sharing - the 100M+ households using another household’s account,” and added, “while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”

The nearly 100 million people Netflix believes are accessing their service through password sharing is viewed as the easiest growth target for the company. They have already piloted a system to monetize password sharing in Chile, Costa Rica, and Peru that didn’t ban users for doing so but had them pay extra for each additional household.

There has been public pushback to the idea, as the monthly cost of Netflix has grown considerably over the years. There is also the reality that password sharing has been a key part of the Netflix experience.

In the company's letter to shareholders, they noted: “Sharing likely helped fuel our growth by getting more people using and enjoying Netflix, and we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams.”

With password sharing a key tenet to Netflix’s success, it’s no surprise that their attitude towards the practice was one of acceptance.

In 2016, Reed Hastings, Netflix’s CEO and co-founder said: “Password sharing is something you have to learn to live with, because there’s so much legitimate password sharing, like you sharing with your spouse, with your kids .... so there’s no bright line, and we’re doing fine as is.”

However, those statements came in the middle of a decade-long period of growth. The last time Netflix posted a loss in paid subscribers was October of 2011.

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As the company began to shift from DVD rentals to streaming, its paid subscriptions boomed in the United States and created a blueprint to expand globally. In the first quarter of 2013, Netflix had only 34.24 million paid subscribers. By the fourth quarter of 2021, that number had nearly increased seven-fold to 221.84 million.

Netflix pinpointed a few key causes for the loss of 200,000 subscriptions: increased competition in the streaming marketplace, COVID-19 lockdowns ending and changing people’s available leisure activities, rampant password sharing, and the company pulling its services out of Russia.

In fact, Netflix admitted in its quarterly report that if it wasn’t for the 700,000 subscriptions canceled in Russia due to it stopping its services there, it would have posted a 500,000 subscription bump from the previous quarter.

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While Netflix’s stock took a beating, the company’s financial situation remains rosy. They saw their revenue increase nearly 10% to $7.87 billion and their steady price hikes have yet to turn consumers off.

Netflix is forecasting a tough second quarter but remains the dominant force in the streaming industry. An end to password sharing could undo years of goodwill with consumers, but it appears the company’s goodwill with its shareholders will have to take priority.