A crackdown on Netflix password sharing puts students on edge

As Netflix moves closer to rolling out password-sharing guidelines in the United States, students using accounts connected to family or friends are bracing for changes in their streaming habits.

The company has said it expects new password guidelines in the coming months, though it has not given details on what they would look like. Netflix in February outlined password-sharing protocols for users in Canada, New Zealand, Portugal and Spain that urge users to set a “primary location” for their Netflix accounts — and add additional monthly fees for sub accounts outside the household.”

While Netflix hasn’t said whether the U.S. plan will eventually resemble these earlier changes, some worry that a crackdown on password sharing could shake up streaming for college freshmen, and lower-income students and burden their families. .

Sam Figiel, a sophomore at Mercer University in Georgia, said access to Netflix is ​​required for many of his peers’ classes. Figiel, who uses his mother’s account, said almost everyone he knows watches Netflix at school, though he and a few friends may move away from the platform once the password sharing stops.

“Without Netflix, I would have to find a way to compensate for classes, but the only other way I could compensate is to move to another streaming platform,” said Figiel. “My parents pay for three kids in college. They have all their own expenses. They pay all our car payments, all our phone bills, so they don’t really have a lot of extra money to spend.”

Netflix has long touted how it puts subscribers first. But the gradual changes in password sharing have created uncertainty for students who may not have disposable income or want to spend for their own subscriptions.

Netflix spokesperson Kumiko Hidaka referred CNBC to the company’s previous announcements for information about the earlier moves, but declined to comment further. Chengyi Long, the company’s director of product innovation, said in February that more than 100 million households shared accounts, representing about 43% of the company’s 231 million paid global memberships, as of this month.

According to a 2022 Parks Associates study, 40% of U.S. households share or use shared passwords, up from 27% in 2019. People in the 18 to 34 age group, accounting for 30% of all Netflix users, are more likely to exchange passwords than older viewers. Netflix reported 74.3 million paid streaming subscribers in the US and Canada in the fourth quarter.

Vrisha Sookraj, a junior at the University of Maryland who watches Netflix from her parents’ account, said it’s the streaming platform of choice for almost everyone she knows. But she worries that future policies could drive away some younger consumers.

Sookraj suggested that a student plan, similar to cheaper plans offered by Spotify, Hulu, and Amazon Prime, could offer more flexibility while accommodating different income levels. Still, she doubts whether she will pay the monthly amount herself.

“Maybe it’s not that expensive, but ultimately saving money is saving money,” Sookraj said.

Netflix executives have acknowledged that while the change should help the company’s financial results, it may not be as popular with users. Co-CEO Ted Sarandos said at a conference in December that the paid sharing model is “much like the way you would manage a price increase,” adding that it will be “really positive for revenue” and “market expansion.”

But, he added, “Make no mistake, I don’t think consumers will love it right away.”

Netflix said last month that users in Canada, New Zealand, Portugal and Spain can create up to two “sub-accounts” for users who don’t live in the primary location for a monthly fee per additional user: CA$7.99 in Canada, NZ$7.99 in New Zealand, 3.99 euros in Portugal and 5.99 euros in Spain.

The company hasn’t shared what a US pricing model would look like – if it follows that lead.

In the countries listed above, users can also ask non-households to create their own individual accounts by transferring their profiles to a new account, which retains personalized recommendations and viewing history from the original account.

The guidelines came after a trial period in Chile, Peru and Costa Rica that began in May.

The company has worked to support “customer choice and frankly a long history of customer focus,” Netflix executive Greg Peters, who became co-CEO in January, said during an earnings call last October.

Still, he said, the company needs to balance those goals with the need to “get paid.”

For Netflix, the calculus compares subscriber growth to monthly costs — and not for the first time. In November, Netflix launched a new tier called “Basic With Ads” that costs $6.99 a month – an effort to attract more viewers at a lower price.

Some Wall Street analysts think an outage could occur immediately following a password crackdown in the US, leading to higher churn in the second quarter, followed by potential revenue growth.

Analysts at Wells Fargo think password sharing could be a bigger catalyst for revenue in the short term than introducing the ad-supported tier.

In a January note, Macquarie analyst Tim Nollen speculated that average revenue per user could increase if enough free users are pushed off the platform and then rejoined as paid subscriptions or added as subaccounts. He told CNBC this week that he expects many users who drop the service to come back fairly quickly given the size of Netflix’s content, though he expects some initial churn before next quarter.

“There are a lot of US users who don’t pay for it, so I think they’re very sensitive to the backlash they’re going to get if they set this up,” Nollen said. “It will take a while before they really know what they are doing and can start making real money from it.”

If Netflix charges additional fees for sub-accounts in the US, these additional fees could pose a challenge for Thuan Tran, a Duke University senior from Vietnam who shares his own account with his sister and partner. While he acknowledged that many Duke students have the financial resources to cover extra costs, he said significant changes to the subscription structure would make him think twice.

“If your whole shtick is you can share an account with people you love in different places… and then you turn that around and start charging people more if they want more profiles or screens, that kind of counters that many of the things that made your site attractive to many viewers,” Tran said.

Even if the cost of a subscription could increase for borrowers, some students think Netflix is ​​too important to give up.

Elizabeth Danaher, a sophomore at the University of Missouri-Columbia who studies communications and film, said Netflix allowed her to watch movies with her family in Illinois while she was in school, especially with her father, who played “A League of Their Own” and “Home Alone 2.” She said it would “absolutely hurt” if the cost structure barred her from accessing Netflix – which she considers an essential “source of information” – although she says she and many of her colleagues would probably spend a few dollars a month. pay.

“I think at the end of the day, Netflix is ​​probably a necessity for me,” Danaher said.

According to a study by Leichtman Research Group that has yet to be released, about 66% of households nationwide own Netflix. About 14% of all households that own Netflix borrow it from someone else and don’t pay, according to the online survey of 3,500 adults in the US. That jumps to 21% for consumers aged 18 to 34.

“What sharing did was help them grow the business, but what it’s doing now is limiting their potential subscriber growth,” said president and chief analyst Bruce Leichtman, adding that last year Netflix lost nearly a million subscribers in the US and Canada.

Leichtman estimates that subaccounts can cost an additional $3 each, and according to survey data, about half of both sharers and borrowers say they would pay a fee at that rate. About 10% in both categories said they would pay the extra fees but also try to downgrade their account.

Of respondents who share their credentials, about a quarter say they would drop Netflix after a policy change that would cost them additional monthly fees per sub-account, compared to a third of borrowers. Though Leichtman said it’s unlikely to pan out to that extent as people settle for paying a few extra dollars a month under new policies.

Aravind Kalathil, a senior at the University of Missouri-Columbia, said he uses a stranger’s Netflix account logged into his apartment’s smart TV. Kalathil and his roommates do not know who owns and pays for the account, and are willing to have their access cut off without warning if password restrictions come into effect.

“Ultimately it probably won’t have the greatest effect for us because our families all have Netflix accounts and we’ll make sure it works, but it just adds extra hassle and annoyance to something that’s ultimately a bit expendable with the amount of of streaming services out there,” said Kalathil.