Netflix is ​​testing its endurance with a global password crackdown

Netflix is ​​at a turning point where the company will soon find out if its brand still has momentum and the ability to dominate in today’s streaming market given the plethora of choice available to consumers. On Tuesday, Netflix announced its plan to roll out its password-sharing restrictions to a global audience, including the US, years after encouraging the practice to introduce its service to a wider range of consumers. Today, however, Netflix considers moochers to be lost profits, with an estimated 100 million households worldwide sharing their user accounts, 30 million of which are in the US and Canada.

To some extent, consumer backlash against the crackdown has to do with Netflix’s complete shift in its stance on password sharing. There was a time when the company believed people who benefited from a shared password would eventually convert to Netflix membership, but that hasn’t always proved true.

In 2016, then-Netflix CEO Reed Hastings told reporters that the company loved it when people shared Netflix with family and friends, calling it a “positive thing.”

“We love people sharing Netflix, whether they’re two people on a couch or 10 people on a couch,” he said. Hastings also likened the subscription to Netflix as yet another milestone for young adults to come of age, adding: “As kids progress in their lives, they like to have control over their lives, and since they have an income, they see we subscribe to them separately. It really hasn’t been a problem.”

Even Netflix the following year tweeted“Love is sharing a password”, – a post people dug up recently to complain about the new password sharing rules.

Netflix’s stance on password sharing has changed in part due to increased competition in the streaming market. Where Netflix was once the leading service for cord-cutters, today consumers have a variety of services to choose from, including those with sizable IP catalogs, such as Disney+; those that offer live TV access, such as Hulu; and those with must-see shows like HBO Max, recently rebranded as Max. The latter has capitalized on pop culture sensations like “Game of Thrones,” formerly and now “Succession,” to keep its viewers hooked.

Plus, there are other major services available to streaming audiences, such as NBCU’s Peacock (now bundled with Comcast’s new NOW TV) or Paramount+ (which will soon merge with Showtime). And there are free streamers, such as Xumo, The Roku Channel, Amazon Freevee, Pluto, and others, for those with price sensitivity.

More importantly, there is a generation of young people who no longer spend as much time watching TV as their parents, preferring to scroll through other entertainment apps such as YouTube and TikTok. A global survey of kids and teens’ app use found that kids and teens ages 4 to 18 watched an average of 67 minutes of YouTube per day, compared to just 48 minutes of Netflix. TikTok had gained even more time, averaging 107 minutes per day, the report found.

When free content created by a world of largely unpaid content creators is more appealing than scripted, well-crafted shows and movies that cost millions to produce, Netflix isn’t the only streamer that may be in trouble here. No wonder it’s reaching for lost dollars.

Despite these competition issues, Netflix has managed to keep its finger on the pulse over the years, with recent hits like “Squid Game,” “Wednesday,” “Stranger Things,” “Bridgerton,” “The Crown,” “Emily in Paris’. and “Love is blind,” all of which have become cultural touchstones. However, the company admitted last year, amid declining subscriber numbers, that it needed to create more series and movies that consumers loved and release more hits.

Another risk for Netflix is ​​that the composition of the catalog has changed. One of the things that made Netflix a must-have in the past was the vastness of its content offerings, including old list prices and popular movies. That has suffered in recent years as rights holders withdrew their best shows and movies to improve their own services. In addition to losing key IP, like Disney’s Marvel shows, which Netflix canceled when the Disney deal was closed, it also lost the older, under-the-radar content that people used to use Netflix for, like comfort TV and background playback.

It turned out that many Netflix users regularly streamed classic shows like “The Office” or “Friends” during their downtime.

For example, “The Office” was the most watched show on Netflix, but left for NBCU in 2021. ‘Friends’ got out to Warner Bros. in 2020. Netflix hoped to offset these losses by acquiring the rights to “Seinfeld.” in 2021, but other than a modest start in the Top 10 at launch, it quickly fell off the list and has yet to return.

The timing of the crackdown is also a risky gamble for Netflix, as economic uncertainty and post-COVID adjustments have led to high prices for food, gas, and rent, leading consumers to watch their wallets more — and dump unnecessary subscriptions. As The Wall Street Journal reported in April. Cancellations for premium streaming services in the US, including Netflix and Hulu, were up 49% in 2022 from the previous year, the report said, citing antenna data.

Netflix has assured investors that the cancellations that will result from the password crackdown will be a temporary setback. But it has yet to test that theory in the US

During the first quarter results, Greg Peters, co-CEO of Netflix, said the results of the crackdown in the first test markets were very similar to how subscribers reacted to price increases. It found that some slackers would sign up for their own accounts or people would pay for the additional members — like parents, perhaps, who support their adult children who live outside the home.

To what extent this strategy will be successful in the US and other markets remains to be seen. Netflix missed Wall Street estimates on the number of new subscribers in the first quarter, recording a net increase of just 1.75 million (up 5% year-over-year), versus analysts’ forecast of 3 million.

As Netflix begins a crackdown on password sharing in the US and other markets, many consumers are concerned about the details of the implementation. For example, how will this penalize people who travel for a living? Or those who often go on vacation and take other outings? What about those who have a second home, such as a beach house, that they visit regularly? Why can’t kids in college just be counted as a screen, not a moocher?

Netflix has provided limited information on how it is responding to these carve-outs, noting only that traveling people will have no problem accessing the service when traveling with a device from their household. At other times it can prompt users to confirm they’re traveling – a system that has been criticized by consumers as an unnecessary imposition – especially for a paid service where things like regional sports – which are supposed to be tied to geolocation – aren’t offered. .

While Netflix has no reason to make it more difficult for users to stream their service, the fear of those challenges is weighing on consumers’ minds — and now, perhaps, their wallets.

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