Netflix password-sharing crackdown coming; streamer says 100M households don’t pay

Netflix shared its earnings letters with shareholders Tuesday and stated that they estimate that Netflix has over 100,000,000 households viewing Netflix’s service, without them having to pay.

The streaming service announced in March that it was testing new features in Peru, Chile and Costa Rica. This feature detects account sharing, which allows for sub-accounts to be created at a lower price. Many thought this meant that account sharing would be more strictly controlled. Netflix’s shareholder statement confirmed this as a focus for the company over the next year, and as justification set out the huge scale of the account sharing practice.

“In addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in [the U.S. and Canada],” the company said. That would mean that nearly a third of households that use Netflix aren’t paying for it.

Netflix explained to its shareholders that the big boost to its subscriber numbers during the pandemic had obscured the fact that it was facing a number of challenges in expanding its enormous audience any further — including things like increased competition in streamed entertainment, take-up of connected TVs, and data costs. It was these factors that caused its slowing growth. In the meantime, to grow is revenues, it would look to find ways to monetize the vast number of households that weren’t currently paying for the service.

Netflix spoke in a friendly tone that appeared to be aimed both at shareholders and customers.

Another focus is how best to monetize sharing – the 100M+ households using another household’s account. These households already use Netflix and enjoy our service, so this is an enormous opportunity. Increasing the number of people who use and enjoy Netflix has likely fueled our growth. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households. We began testing various ways to monetize sharing early in the year and introduced new features in March that allow members to choose to purchase additional homes in Latin America. There’s a broad range of engagement when it comes to sharing households from high to occasional viewing. So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.

This passage is not meant to be threatening but it does explain how Netflix decided to stop enforcing its Terms and Conditions, which prohibits anyone from sharing an account with someone else. The company may have seen the viral spread of Netflix through sharing as a marketing tool. But now, with market saturation approaching, it’s become imperative to turn some of those sharing households into paying customers.

The paid sharing features being tested allow any Netflix viewing profile to be spun off into its own full account — so things like personalized lists and viewing preferences aren’t lost — or into one of the new sub-accounts. Up to two sub-accounts can be added to Standard or Premium subscriptions, and they don’t cost as much as full Netflix subscriptions.

Greg Peters, chief operating and chief product officers of the company and the CEO of the corporation posted a video to investors along with the letter. He stated that it will take time for them to perfect their approach and implement paid account sharing in all countries. “My belief is that we’re going to go through a year or so of iterating and then deploying all of that so that we that solution globally launched,” he said.