Netflix says 100 million households share passwords: Is a crackdown coming?

Netflix recently announced a price hike for subscribers, and now that it's lost subscribers for the first time in a decade, it beginning to think about how password sharing is affecting its bottom line.

In March, Netflix hinted that it's considering ways to prevent password sharing, and in its first quarter earnings call and letter to shareholders in April, Netflix revealed its service is shared with over 100 million "additional households" - 30 million of which are in the US and Canada. That means there is a tonne of people who aren’t paying for Netflix but can still access the streaming service by logging in with a friend or loved one's credentials. Netflix also revealed that it lost about 200,000 subscribers in the first quarter of 2022, a huge contrast from the millions of additions per quarter over the past year. 

The company blamed password sharing, competition from online services such as Disney+ and Prime Video, and the decision to halt service in Russia. But the password sharing bit is perhaps the most interesting.

Look at what Netflix said in its first-quarter earnings letter to shareholders: 

"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."

And in a video regarding the first-quarter earnings, Netflix co-CEO Reed Hasting said the following:

"We’re working on how to monetize sharing. . . . You know, we’ve been thinking about that for a couple years. 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."

Netflix COO and CPO Greg Peters also said in the video: "If you’ve got a sister that’s living in a different city, you want to share Netflix with her, that’s great. . . . We’re not trying to shut down that sharing. But we’re going to ask you to pay a bit more to be able to share with her so she gets the benefit and the value of the service but we also get the value of the revenue associated with that viewing".

Keep in mind Netflix is testing a feature in Chile, Costa Rica, and Peru where subscribers can add "sub accounts" for up to two people outside of their household at lower prices. However, Peters suggested in his earnings call video that Netflix still needs to "go through a year or so of iterating" before it deploys any feature globally (including in the US) that would affect password sharing.

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