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Netflix is finally cracking down on password sharing at the start of the new year, which will affect 100 million password-borrowing viewers.
The time has finally come, as Netflix faces a huge loss of subscribers in recent months since it peaked at the start of the COVID-19 pandemic.
The password swapping has led to the company losing a lot of subscribers, a source familiar with the problem said. Wall Street Journal (WSJ).
Co-CEO Reed Hastings told top executives at a company meeting that the password swapping has gone on too long and that the pandemic only masked how bad it really was, the source said.
Now 100 million face losing their favorite shows on the platform since Netflix updated its policy, saying passwords can only be shared with those who live in the same household.
Fearing they would lose even more viewers, sources told the WSJ that Netflix may gradually introduce a ban on password sharing.
In the future, the company plans to use IP addresses to track password sharing and shut it down, unless consumers want to add an additional password sharing fee.
Netflix insiders said the company is preparing to crack down on password sharing in 2023, allowing only those who live in the same household to share an account.
Sources say the company may drop a plan that charges a few extra bucks a month to add an extra home, but no pricing has been announced, nor has the plan been officially announced to consumers.
Netflix tried this in South America, charging an extra $3 to $4 a month for a second home, but later “scrapped” the idea.
It’s a sea change for the company, which tweeted in 2017 that “love is sharing a password,” and executives know full well that consumers won’t take it lightly.
“Make no mistake, I don’t think consumers are going to love it out of the box,” co-CEO Ted Sarandos told investors this month. He also reportedly said it was up to the company to make users see the value of the service.
In addition, Netflix also added an ad-based version for $6.99 a month in November, but restricted some of its extensive catalog other than ads.
Like rival Hulu, which also has an ad-supported service for $7.99 a month, Netflix was hoping to increase its consumer base with the new addition.
The company also considered offering pay-per-view content, sources told the WSJ, but later backed out for fear it would become too complicated for viewers. His original idea for introducing it was to pressure account holders not to share their passwords for fear that their loved ones would buy a program with their credit card.
They also reportedly scrapped the plan because it would make the platform too complicated for users, a practice they jokingly refer to as Comcastification, a dig at the cable giant.
Netflix, which has 223 million subscribers worldwide, will be the first to crack down on password sharing, but media executives don’t think they will be the last to do so, the WSJ reported.
Netflix’s market capitalization is around $130 billion, but one analyst at cowen inc. estimated that the company could generate an additional $721 million in revenue in the US and Canada.
Co-CEO Reed Hastings (pictured) said password sharing has gone on too long and must end. The company originally planned to crack down on it in 2019, but after getting a surplus of subscribers during COVID-19, it held back.
Co-CEO Ted Sarandos (pictured) said he doesn’t “think consumers are going to love it right out of the box.”
Cowen’s estimate comes after surveying consumers who share an account with someone they don’t live with and asked how they would respond to a $3 surcharge to continue.
“It’s a boost and it can definitely help, but it’s also a one-time boost,” Morningstar senior equity analyst Niel Macker told the WSJ. He also told the outlet that he doesn’t think Netflix is taking into account how many consumers will exhaust their subscriptions and that the move will only boost the company temporarily.
One setback that consumers and Netflix could encounter is when a person is traveling and tries to use their account, a source familiar with the internal discussions told the WSJ.
One solution the company has reportedly considered is to allow consumers to notify Netflix when they change geographic locations, much like people do with credit cards.
Netflix hasn’t officially announced its plan to reduce password sharing, nor has it set a price for consumers to add an extra household to their account.