Streaming Password-Sharing Crackdown Seen Picking Up Steam

Netflix's password crackdown "led to increased subscriber counts and that seems to be a pattern,” BIA Advisory Services Managing Director Rick Ducey said in an email. Netflix gained 8 million subscribers since it started its password enforcement, said Colin Dixon, a streaming TV analyst and consultant with NscreenMedia. Most of those subscribers are believed to be password sharers signing up legitimately for Netflix, Dixon said.

However, password-sharing crackdowns won't work for all streaming services, Adriana Waterston, Horowitz Research Insights & Strategy Lead, said in an email. The key issue is the perceived value of the service compared with the price, Waterston said. Netflix and services that are highly valued and heavily used, such as Disney+ and Hulu, have faced little negative impact from their crackdowns, she said. That and the Netflix growth is due to people wanting those services, and the services offering high value, such as big libraries and original content that can't be found elsewhere, she added.

Streamers trying to emulate Netflix should also note that the company introduced a low-cost, ad-supported tier before its password crackdown, Dixon said. It also phased in paid sharing to targeted groups of subscribers rather than the entire audience, he said. Disney may have “stumbled” with its crackdown because it increased the price of the entry-level plan, he said. Ducey said streaming has a “strange economics” where “increasing the price actually increases demand.” For broadcast entities that own streaming services such as Fox, Disney and Paramount/CBS, “it adds up to a bit of [a] win-win,” Ducey said. Streamers “are increasing prices as another revenue driver, even while cutting back on content investments” and focusing on earnings over subscriber growth, Ducey said.

Viewers who were relying on password sharing and don’t choose to get their own subscriptions are unlikely to run into the arms of broadcasters or traditional MVPDs, Dixon said. “Password sharers tend to be younger and not engaged with traditional media.” They’re likely to turn instead to other streamers. “Cost-conscious consumers are dropping some streaming subscriptions in favor of spending more viewing time” with free ad-supported streaming TV. “Tubi, in particular has seen tremendous growth ... much to the delight” of owner Fox.

Smaller, niche services cracking down on password sharing could face more risks, Waterston noted. While niche services have their core users, a substantial number of people subscribe yet don’t really use them that much, she said. In those instances, "sharing the account with others increases the value proposition, making it worth their while to pay for the service even if they only use it once in a while, knowing others of their friends and family are doing the same with that account."

The password-sharing issue arose from the direct-to-consumer, a la carte model that has defined the streaming industry thus far, Waterston said. However, it's transitioning to a model of bundles, with mobile and internet providers, as well as streamers themselves, starting to offer bundled streaming services for one price. Such bundling mitigates the effects of crackdowns, as consumers with bundles and getting discounts are less likely to feel burdened by the costs of those services and thus probably less sensitive to password-sharing crackdowns, she said.

Warner Bros. Discovery is rolling out its password-sharing crackdown at year's end and into 2025, with the company anticipating that will drive revenue, JB Perrette, president-global streaming and games, said in an earnings call this month.

Disney started its password-sharing initiative in June, with it kicking in earnest in September, CEO Bob Iger said in an August earnings call. He said Disney has seen no backlash from notifications that were sent and crackdown work underway already. CFO Hugh Johnston said the crackdown should be a growth driver.

Netflix co-CEO Ted Sarandos told Wall Street analysts last month that while it expected some viewer engagement decline because of the sharing crackdown, engagement "is actually not just steady but up year-on-year. So, we're very excited about that." Netflix accounts for about 10% of TV time in every country it operates, he added.

Among U.S. internet households, 71% have a subscription VOD service, 42% use an ad-supported VOD or free, ad-supported TV service and 18% use a transactional VOD service, Parks Associates said Thursday. It said 46% of households have five or more streaming services.