How Netflix’s password sharing breach is likely to work

Netflix sign next to Nasdaq MarketSite in New York, USA, Friday 21. January 2022.

Michael Nagle | Bloomberg | Getty pictures

Netflix surprised the world this week, saying they plan to finally address the widespread practice of password sharing.

More than 100 million households use a shared password, Netflix said Tuesday, including 30 million in the United States and Canada.

But the video streamer does not just plan to freeze the shared accounts. Instead, the company is likely to favor the setting of an additional fee for the accounts used by multiple people outside the home.

Netflix̵[ads1]7;s plan to capture lost revenue will start with a notification being sent to account holders whose passwords are used by other households.

The company has already started a test of this feature in Peru, Costa Rica and Chile. For accounts that share passwords across addresses, Netflix requires an additional fee to add “sub-accounts” for up to two people outside the home. The price varies from country to country – about $ 2.13 per month in Peru, $ 2.99 in Costa Rica and $ 2.92 in Chile, based on current exchange rates.

The company also allows people who use a shared password to transfer their personalized profile information to either a new account or a sub-account, so they can keep the viewer history and recommendations.

“If you have a sister, let’s say, who lives in another city, you want to share Netflix with her, that’s great,” Chief Operating Officer Greg Peters said during the company’s earnings conference. “We are not trying to close that sharing, but we will ask you to pay a little more to be able to share with her and so that she gets the benefit and value of the service, but we also get the revenue related to that view.”

Netflix did not say how much revenue they expect to generate from the implementation of its worldwide sharing strategy, although Peters said he thought it would take about a year to implement the sub-account prices globally.

A survey by the research organization Time2Play indicated that about 80% of Americans who use someone else’s password would not get their own new account if they could not share the password. It did not survey how many user account payers would be willing to pay more to share with others.

Peters also suggested that the company could still adjust prices or further assess the test strategy.

“It will take a while to figure this out and get the right balance,” he said. “And so just to set your expectations, my belief is that we’re going to go through a year or so of iteration and then distribute all of this so that we get that solution globally launched, including markets like the United States.”

Unanswered questions

Netflix’s plan is unique. No major streamer has ever turned down password sharing before. Other owners of streaming services, such as Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount Global are unlikely to set their own plans until after reviewing Netflix’s password sharing reforms.

Some account holders will no doubt be surprised when they receive news from Netflix that their passwords are being shared. It is also unclear how long Netflix will allow viewers of a shared account to maintain access if the primary account holder chooses not to pay the surcharge.

In addition, Netflix will have to tread lightly on defining password sharers to avoid incorrectly tagging people as abusers, such as family members who are temporarily living away from home.

A reluctance to act against this group of users would probably save millions of people from the Netflix crash – at least to begin with.

“They want to start with serial addicts,” said LightShed Partners media analyst Rich Greenfield. “If you have 15 people using your account, it’s pretty simple.”

It is also not likely that the company will have its employees stuck in disputes over what is classified as a home account and what qualifies as a sub-account. Contesting these definitions can be ugly for both employees and customers, who until now have seen Netflix as a best-in-class brand.

But “Netflix knows who you are,” Greenfield said, whether you use your own personal profile or not.

Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was that it would simply have more eyes on the content, which in turn would create buzz and lead to actual subscriptions. That strategy seemed to pay off. Netflix subscriptions have been growing quarterly for more than 10 years – until the last quarter.

In 2017, Netflix tweeted its corporate account “Love shares a password”.

Now the company would love it if you stopped doing that.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

WATCH: Netflix to test additional password sharing fee

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