When Netflix (NFLX -1.96%) started talking about password-sharing subscribers taking a bite out of the company’s revenues, many observers saw this as a new idea. However, the company began addressing this issue several years ago, with a significantly stronger approach beginning in June 2021. Management must have been thinking about this stuff for years – the only news here is that it is taking more direct action to address it. . .
Where are those missing returns? Image source: Getty Images.
The crux of the issue
Subscribers to Netflix’s streaming media services will pay for that privilege. On the same subject : The 50 original original films of Netflix. Here’s how the company’s terms of service address that crucial business idea:
“The Netflix service and any content accessed through our service are for your personal, non-commercial use only and may not be shared with individuals outside of your home.”
Elsewhere, the company clarifies what counts as a family, and why it matters:
“A Netflix account is for people living together in one home. This unique home is the Netflix home and is associated with the devices of the primary account owner and devices used by other people living in the Netflix home.” .
So it’s okay to share your Netflix login information with other members of your immediate family. Otherwise, it wouldn’t make much sense to charge extra for a higher-level service plan that allows you to play content on two or four different devices simultaneously. But that’s where the account sharing will end. I’m not supposed to let friends, distant family, or total strangers access Netflix with my credentials. If they like the service, they should consider signing up for their own subscription.
The active anti-sharing effort started quietly in 2018
This issue has been bubbling beneath the surface for many years. Analysts have seen it as a significant problem since the early days of Netflix digital streaming. Read also : Guide to Business Entities: Which is Right for You?. Recently, management has begun to take direct public action.
First, the company started a trial program in three Latin American markets, asking people to pay a little extra if they wanted to share their access to Netflix with someone who doesn’t live in the same house. The upcharge for adding a remote user is about half the price of a single user subscription. If these processes are successful, Netflix could expand to other markets. If not, be sure to try a few different ideas to get the same result – collecting some money from people who have used Netflix for free.
According to data from the Internet Archive, Netflix’s terms of service added the anti-sharing citation above in May 2018. Four months later, the company began sending e-mails to warn the account holder of Netflix sign-ins from a new device or internet address. The first version of this notification was all security, asking the user to reset their password if they did not recognize the new login attempt.
That warning has been unchanged for a couple of years. In July 2021, Netflix addressed the idea of password sharing for the first time. Since then, email notifications contain this interesting language:
If you were someone else: Please remember that we only allow people in your household to use your account.
This notification is an annotated version of the more practical Latin American experiment. Netflix was setting the stage for its next monetization attempt here, asking subscribers to ensure that no one outside the family benefits from their login credentials.
So when the experiment began in Peru, Costa Rica and Chile this spring, it was essentially just an amplified spin on an existing policy.
Can Netflix monetize password-sharing subscribers?
Early tests may or may not show what Netflix will stand for in the long run. This may interest you : CORSICAN RESTRUCTURES TRADE BY CHAPTER 11 PROCESS. In the April earnings call, COO Greg Peters noted that the company has been working on the current password-sharing mitigation for two years.
“It’s going to take some time to work this out and to get that right balance,” Peters said. “And so just to set your expectations, my belief is that we’re going to go through a year or more of iteration and then implement everything we’re going to get this, sort of that solution launched in the world, including markets like “It’s the United States. States.”
Later in the same call, CFO Spence Neumann explained that the account sharing sub-accounts add to the company’s revenues, but don’t count as new subscribers. So if this idea develops in the world, we should see the growth of subscribers flatten out as people take advantage of this lower cost sharing option instead of opening whole accounts. At the same time, account revenues should continue to grow and the total revenue stream should continue to grow.
In the end, it is the total income that matters most. Netflix has provided a remarkably consistent peak growth in the digital streaming era, to the point that the onset of coronavirus was almost invisible in a long-term graph:
NFLX Revenue (TTM) data from YCharts
This is the most important trajectory in Netflix’s bag of business tricks. As revenue growth continues, it doesn’t really matter if it happens because more accounts are added or because each subscriber becomes more profitable over time. The effort to monetize password-sharing customers should support that ambition over the next two years.
So it’s as usual, and Netflix ensures healthy growth where it matters most. Meanwhile, market makers are staring blindly at slower subscriber addition figures, and Netflix shares are back at prices not seen since 2017. It’s a massive disconnect between business prospects. tremendous is the stock prices. So, all things considered, Netflix is my favorite investment idea today.
