The day has come for all you freeloaders. After months of build up and test rollouts in other countries, Netflix’s crackdown on password sharing is finally coming to the U.S. and abroad in the coming weeks.
“In Q1, we launched paid sharing in four countries and are pleased with the results. We are planning on a broad rollout, including in the U.S., in Q2,” Netflix said in its first quarter earnings results for fiscal 2023.
The password sharing crackdown, which has already taken effect in Canada, New Zealand, Spain, and Portugal following a test run in Latin America, works this way: account holders have to set info about their primary location, as well as manage account access and devices, and you’ll only be able to share your password with other people in the same household. Anyone who is using that account outside of that household will have to get the account owner to add them onto their plan at the additional fee or switch to a new plan. Should you be traveling on vacation and watching Netflix on the go, you’ll be prompted to enter a verification code that only lasts temporarily for about a week.
Netflix began charging $7.99/month in Canadian Dollars per person to add an extra account. If you are switching and starting your own account, Netflix also last fall launched a feature called “Profile Transfers” so that people who have been password sharing can still preserve their watching history and algorithmic data based on their viewing habits and not start from scratch.
Netflix said this time last year that it estimates 100 million households are not properly monetized (it reiterated that figure in today’s earnings), or that they’re mooching off another account holder. From that, about 30 million of those users are in the U.S. and Canada, where subscriber growth has effectively plateaued for some time. This quarter, Netflix added 1.75 million subscribers globally.
Cracking down on password sharing could help Netflix finally break that trend domestically and get people who have avoided paying for Netflix to either sign up as new users or to be added as additional users on someone’s existing plan. For those unwilling to pay full freight, some may opt to join under the cheapest pricing tier for Netflix with ads. Last quarter when Basic With Ads launched, Netflix added 7.66 million subs globally.
The streamer also said that when the news of the program has been announced, they immediately see a “cancel reaction” in each market. But over time, Netflix says, those borrowers start to activate their own accounts and others add extra members. That was particularly true of Canada, where the streamer says the paid membership base is now higher than it was before they rolled out the paid sharing plan, and subscriber growth is going up faster there than it is 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. “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 also gave a caveat that in the short term, engagement from places like Nielsen will “likely shrink modestly” as people begin to cancel, but they predict that should improve over time.
Wall Street analysts are more excited than you are that Netflix is finally taking password sharing seriously, and that’s because they estimate that new signups as a result of the enforcement could be worth upwards of $3 billion domestically. That’s because even if a third, or 10 million, of those users ultimately convert or get added as additional users, which several analysts say is a realistic and conservative estimate, that’s still a big chunk of change.
It could be even more lucrative internationally where analysts say that password sharing crackdowns may not be as bumpy or lead to as many people cancelling altogether than might do so stateside, namely because Netflix is still newer and growing in other parts of the world.
Netflix’s Basic with Ads is $6.99 per month; ad-free it’s $9.99. Netflix’s Standard plan, which currently allows for downloading and same-time usage on two devices, is $15.49 per month, while the Premium tier that offers downloading on six devices and simultaneous usage on four devices along with enhanced audio and visuals, is $19.99.
Netflix on Tuesday also announced an end to its long-running DVD program, marking an end of an era of a company that launched on the backs of red envelopes shipping movies to your doorstep. The last DVD mailer will go out on September 29.