Many analysts support Netflix’s password-sharing crackdown—stating that the new policy will boost revenue for the streaming service.
Key Details
- Netflix says that more than 100 million people use the streaming service under another user’s account without paying for it.
- In January, the company announced a plan to crack down on password sharing by charging members outside of a household to use the same account.
- Analysts are supportive of this strategy, along with the debut of a lower-cost tier with advertising, which could keep user growth robust, supporting an extended rebound in the stock, according to Bloomberg.
Why it’s news
Netflix is one of the top streaming services—boasting 230 million subscribers, but a large portion of these subscribers share their passwords with others, cutting into Netflix’s revenue.
The company estimates that 100 million users are watching Netflix shows and movies without paying for the service.
Originally password sharing was not a big concern for Netflix, even joking on social media about it. The company tweeted in 2017 that “love is sharing a password,” but after suffering a significant subscriber loss, the company is now wanting everyone watching the service to pay.
After announcing the new plans in early 2023, the company began receiving backlash from current users, complaining that they should have full access to share their accounts with whomever because they pay the monthly price.
Analysts were skeptical that the decision to crackdown on sharing would cause the streaming service to lose even more subscribers, but now many analysts report being bullish on the decision and believe Netflix made the right call.
Analysts say this strategy and the debut of a lower-cost tier with advertising could keep user growth strong, supporting an extended rebound in the stock.
“There are millions of people on shared accounts, and if you get a few bucks per month out of even a small percentage of them, that creates a huge recurring revenue base that can supplement current growth,” says Third Bridge senior analyst Jamie Lumley.
Despite many thinking the crackdown would cause a loss of subscribers, shares have more than doubled off a 2022 low and are up 18% from last month’s drop. Although shares are up, the stock remains down 50% from its peak in 2021.
The average estimate for Netflix’s 2023 earnings per share has risen by 8.4% over the last three months. Revenue is expected to increase by 8.6% this fiscal year before rising to almost 12% growth in 2024, according to data compiled by Bloomberg.
The password crackdown hasn’t taken full effect yet, but is expected to in the near future. While it is still possible when the change occurs, users could decide to drop the streaming service, analysts remain confident that many will continue paying the monthly fee.
“There’s some risk Netflix could be too restrictive, but we’re pretty optimistic that this won’t lead to a lot of people canceling,” says Third Bridge’s Lumley.
Password change Details
The Netflix Help Center webpage details frequently asked questions, mainly about the upcoming password-sharing change. Netflix details that with the change, accounts are still shareable, but only within one primary household.
The profiles under the primary household will all be able to use the same login information, but Netflix will use location services to determine if a profile is not within the household. If the profile isn’t in the primary location, Netflix will prompt them to create a separate account, and if refused, all streaming to that device will be blocked.
If a user not in the primary household creates a new account, Netflix will transfer their current profile to the new account to keep the user’s show recommendations, watch history, and other profile information.
The location services have concerned users who use their accounts while traveling, but Netflix assures that accounts can still be used outside the primary household. The service says traveling users can request a travel code that will allow their account to be used outside the primary location for up to seven consecutive days.
