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Netflix pays price for being too complacent on password sharing

Cantillon: Film and series streamer looks to clampdown as subscription numbers fall

Sleep is the answer, but is Netflix? Natasha Lyonne stars in Russian Doll, the second season of which was added to the streamer on Wednesday. Photograph: Netflix

Thu Apr 21 2022 - 05:21

Netflix has a password-sharing problem. The streaming service estimates that a whopping 100 million households worldwide are using a password shared by one of its 221.6 million paying subscribers. Until recently, it hadn't really considered this is a problem – a complacency that created the problem in the first place.

Over a decade of global expansion in which it posted 41 consecutive quarters of growth, Netflix could afford to take a relaxed view of password sharing. Indeed, there were some positives to doing so.

Netflix has been marketed in part on its flexibility, including its ability to be consumed on multiple devices and a feature permitting multiple user profiles on the same login. It made sense if the same password was used in more than one place. Netflix adapted by introducing a three-tier pricing structure so that it cost more to view more than one screen simultaneously.

This was all fine when the graph of Netflix subscribers was still merrily shooting upwards, propelled by the streamer’s debt-financed forays into original content. But in the first quarter of 2021, Netflix lost a net 200,000 subscribers. Its investors duly panicked, deeming the party over.

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Predictable exodus

The slippage was attributed to a price increase that is yielding additional revenue despite the predictable exodus that followed. Netflix would still have recorded net subscriber gains had it not shut down its service in Russia. It has not necessarily arrived at an inflection point.

But with the streaming market fast maturing and competitors lining up to distract the audience it once had to itself, Netflix could obviously do with some of those 100 million password-obtaining households – which includes 30 million in the US and Canada – paying up.

The company has recently been experimenting in certain countries with account verification tools and “add an extra member” prompts. A wider clampdown is expected in 2023.

Still, there is a serious risk that anything it does now, in the absence of consistently more compelling content, will simply increase its churn rate and send Netflix-satiated viewers elsewhere.

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