Most Netflix subscribers have more than two or three people sharing on their accounts. This leaves many people watching the service for free. The company says that accounts that are being shared between households are impacting their ability to invest in great new TV and films for their subscribers. Netflix announced in March that it plans to crack down on password sharing, and in its first-quarter earnings letter to shareholders (pdf), it gave a huge clue as to why.
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First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers. Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets – an issue that was obscured by our COVID growth.
Netflix has 222 million “paying households,” but it estimates the service is shared with over 100 million “additional households,” 70 million of which are outside the US and Canada. That indicates there is a massive swath of people who aren’t paying Netflix directly for the ability to stream their favorite shows.
The company is working on how to monetize sharing, and the company CEO confirmed that they have been thinking about that for a couple years. Netflix co-CEO Reed Hastings said in a video regarding this quarter’s earnings. “But you know, when we were growing fast, it wasn’t the high priority to work on. And now we’re working super hard on it. Remember, these are over 100 million households that already are choosing to view Netflix. They love the service. We’ve just gotta get paid in some degree for them.”
How Netflix sharing will work
If you’ve got a brother that’s living in a different city, you want to share Netflix with him, Nefllix will not trying to remove them from the sharing account. But they are going to ask you to pay a bit more to be able to share with him so he gets the benefit and the value of the service but they also get the value of the revenue associated with that viewing.
Members on the Standard and Premium plans will be able to add sub accounts for up to two people they don’t live with – each with their own profile, personalized recommendations, login and password – at a lower price. Members on the Basic, Standard, and Premium plans can enable people who share their account to transfer profile information either to a new account or an Extra Member sub account – keeping the viewing history, My List, and personalized recommendations.
Right now, the company is testing this new feature in Chile, Costa Rica, and Peru but it may not launch more broadly for some time, Neflix says that they’re going to go through a year or so of iterating and then deploy the solution globally.
