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Netflix expected to prohibit password sharing by March

A smart television set running the Netflix application.
A smart television set running the Netflix application. (Stock image via Pixabay, Graphic by The Desk)

Streaming service Netflix is expected to issue a broader crackdown on password sharing within the next few weeks.

The move comes after Netflix began charging customers in Latin America for the privilege of sharing an account password last year, a move that the company said resulted in a limited number of account cancellations, but ultimately wound up being better for its business.

For years, executives at Netflix have turned a blind eye to freeloading streamers who use credentials associated with a paid streaming account to watch Netflix’s catalog of movies and TV shows. At one point, Netflix co-founder and CEO Reed Hastings even suggested that password sharing was good for business, because it exposed viewers to Netflix content in a way that might ultimately convince them to pay for the service outright.

Netflix’s stance has changed in recent times, thanks in large part to the company’s strategy of spending tens of billions of dollars developing original content and building out domestic and international production campuses. Those costs have been passed on to customers in the form of higher fees — Netflix charges $15.50 a month for its base plan, which offers high-definition video streams and the ability to watch content on two devices at once.

The higher costs were partially to blame for two consecutive quarters of subscriber losses at Netflix last year, a trend that was reversed after Netflix introduced a lower-cost tier of service that includes advertisements. Netflix didn’t blame its content spending and higher fees for the subscriber losses; instead, executives said the company was weighed down by freeloading streamers who should really be paying for the service. The company estimates around 100 million households are using someone else’s username and password, something that Netflix says must end.

“Widespread account sharing undermines our long-term ability to invest in and improve Netflix, as well as build out our business,” Netflix executives wrote in a letter to shareholders published last week.

Netflix says its terms of service won’t change, and that people living in the same household will still be able to share an account among themselves. That means most users won’t have to pay for their own account if their parents, live-in children, extended family, roommate or friends already have a Netflix subscription, as long as they live at the same address.

Like other companies, Netflix is expected to use a combination of data to see if customers are mostly living in the same place, or if they’re sharing their account data with those who live in other places. Two years ago, the company began targeting streamers who apparently used a Netflix account well beyond the home address of the person who paid for it. In that instance, it appeared Netflix was using a combination of IP address information and geolocation data to see if several customers were using a single Netflix account in multiple places most of the time, which would almost certainly be a red flag that a paying customer shared their password outside their immediate household.

Netflix hasn’t revealed too many details about how it will determine a customer is sharing their password with people who don’t live in their immediate household, but it did say customers will have the ability to pay extra to do so, similar to the test that was conducted in Latin America.

“As we roll out paid sharing, members in many countries will also have the option to pay extra if they want to share Netflix with people they don’t live with,” Netflix executives affirmed. Freeloading customers who can’t convince the account holder to pay extra will be able to “take out” their watch list and other data, and import it into a new account.

Netflix said paying customers will still be able to use the service on TVs, phones and other devices when they travel, and won’t have to pay extra for the privilege of doing so.

While some customers may drop off in the short-term, Netflix said it expects to see long-term growth as freeloading customers who miss Netflix’s TV shows and movies ultimately sign up for their own subscriptions.

“We believe this pattern will be similar to what we’ve seen in Latin America, with engagement growing over time, as we continue to deliver a great slate of programming and borrowers sign up for their own accounts,” executives said.

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About the Author:

Matthew Keys

Matthew Keys is the publisher of The Desk and reports on the business and policy matters involving the broadcast television, streaming video and radio industries. He previously worked for Thomson Reuters, Disney-ABC, Tribune Broadcasting and McNaughton Newspapers. Matthew is based in Northern California, has won numerous awards in the field of journalism, and is a member of IRE (Investigative Reporters and Editors).