The Password Sharing Problem That's Costing Netflix Millions
Updated: Sep 23, 2019
Account-holders sharing subscription passwords with their family and friends may seem like a relatively minor offense, but the practice is actually costing companies millions.
For a whole generation of online consumers, the practice of sharing the passwords of their favorite subscription-based services — Netflix (NASDAQ: NFLX), Spotify (NYSE: SPOT), Apple Music (NASDAQ: AAPL), and so on — seems both harmless and inevitable. After all, is it really that different than lending someone a book or letting them borrow your car?
As recently as three years ago, Netflix CEO Reed Hastings seemed not to think so. He said that the question of password sharing “hasn’t been a problem” and may even have been a major incentive for fresh customers. However, new research indicates that the issue is growing, and in some cases becoming more absurd. Business news site CNBC recently reported on a series of Netflix consumers who admitted to using the log-in details of ex-partners and even of one-night stands from years earlier. The bills that streaming services are racking up as a result of this type of behavior might prompt a change in policy across the board.
For now, it’s difficult to determine the extent of the problem. And since it’s even harder to say whether the beneficiaries of password-sharing would actually pay for an account of their own, the exact amount that these services lose from the practice is not known precisely, although Netflix’s annual loss is estimated to be in the ballpark of $2.3 billion. Considering the streaming company posted revenue of $16 billion last year, a recurring loss on that scale is not exactly devastating, yet it’s hardly trivial either.
There are a number of reasons why the likes of Netflix have yet to strictly enforce their own policies regarding password-sharing. For one, customers who have a network of friends or family members relying on their log-in details are perceived as less likely to take any action that might affect their account, including canceling. As well as that, a draconian crack-down on offenders would almost certainly result in some erroneously canceled subscriptions, which may cause irreparable harm to a streaming service’s reputation as it tries to expand its user base.
As it happens, the company most likely to initiate this shift in the password-sharing culture will not be Netflix or Spotify but Disney. In August, the entertainment giant partnered with cable company Charter Communications (NASDAQ: CHTR) to create a service that will supposedly make the liberal sharing of login details impossible. Little is known yet about the implications of the rules, or how sternly they will be forced, but the two companies stated that they “will work together to implement business rules and techniques to address such issues as unauthorized access and password sharing.”
It seems possible that Apple could follow suit. What the iPhone-maker currently shares with Disney is a huge diversity of offerings and operations, which means it can currently afford to make more constructive mistakes in its fledgling streaming business. Clearly, this is not the case for Spotify or Netflix, both of which still draw most of their revenue from subscriptions, and have built their brand around the ease and accessibility of streaming. However the first shots are fired, it seems that the era of sharing an account with your grandmother’s cousin’s neighbor may be coming to a sad end.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple, Netflix, Spotify. Read our full disclosure policy here.