Netflix to broaden crackdown on password sharing next year

The Netflix startup screen appears on a laptop computer. (Photo by Jade87 via Pixabay/Graphic by The Desk)

Netflix says its attempts to curb password sharing in some countries is working, and the company intends to crack down on freeloaders more broadly next year.

In a letter to shareholders that accompanied Netflix’s quarterly earnings report on Tuesday, the streaming company said it believed its “approach to monetize account sharing” was “thoughtful,” and additional features tied in to this strategy were launched based on customer feedback.

One such feature allows freeloading streamers to transfer their watch lists, history and other personalized settings to a new account. Another allows customers who share their passwords with people outside their immediate household to pay extra for that privilege.

Executives say they think the account check-out feature will be particularly popular with customers who choose the ad-supported version of the service, which launches early next month.

Netflix reversed a two-quarter trend of subscriber losses during its most-recent financial quarter, adding around 104,000 paying customers in the United States and Canada for the three-month period that ends September 30. Overall, Netflix added 2.4 million paying subscribers, according to a balance sheet reviewed by The Desk. The company now has just over 233 million global subscribers.

The net additions did not erase the cumulative loss Netflix suffered in its prior two financial quarters, with the company bleeding 1.9 million paid subscribers in the United States and Canada in the first half of this year.

Executives say the streaming media industry continues to be competitive, with Netflix challenged by legacy media brands that have pulled licensed content in favor of their own streaming endeavors. The Walt Disney Company (Hulu, Disney Plus), Paramount Global (Paramount Plus, Pluto TV, Showtime), Comcast (Peacock, Xumo), Warner Bros Discovery (HBO Max, Discovery Plus) and Amazon (Prime Video) are stimulating the time and attention of customers with robust content libraries and, in some cases, lower prices.

Price has been a pain point for Netflix over the last few years, with the company steadily increasing rates on customers as it spent tens of billions of dollars commissioning original content, opening production studios and hiring staff. As it stands now, Netflix’s basic tier of service allows two simultaneous streams for $15.50 a month — about 50 cents more expensive than HBO Max and Amazon Prime Video. Both HBO Max and Amazon Prime Video also offer access to ultra-high definition (UHD/4K) video streams, something Netflix reserves for its premium tier, which costs $20 a month.

Still, Netflix said building a streaming company from scratch is expensive, with aggregate annual losses expected to top out over $10 billion. Netflix, on the other hand, has been in the streaming space for more than a decade, and executives say they grab $5 billion to $6 billion in profit every year.

“We believe some of our competitors will seek to build sustainable, profitable businesses in streaming – either on their own or through continued industry consolidation,” a Netflix executive wrote on Tuesday. “While it’s early days, we’re starting to see this increased profit focus, with some raising prices for their streaming services, some reigning in content spending, and some retrenching around traditional operating models which may dilute their direct-to-consumer offering.”

Some analysts have criticized Netflix for not diversifying its business model to match what is offered by other companies like Disney and Comcast. But Netflix said its decision to stay in its lane is one that will ultimately lead to its long-term success.

“We believe our focus as a pure-play streaming business is an advantage,” a Netflix executive affirmed. “Our aim remains to be the first choice in entertainment, and to continue to build an amazingly successful and profitable business.”