Crackdown on Netflix password sharing puts students on edge

As Netflix moves closer to implementing password-sharing guidelines in the United States, college students who use accounts connected to family or friends are gearing up to change their streaming habits.

The company said it expects new password guidelines in the coming months, though it didn’t provide details on how they will look. In February, Netflix outlined password-sharing protocols for users in Canada, New Zealand, Portugal and Spain that require users to set a “primary location” for their Netflix accounts – and add additional monthly fees for “out-of-home sub-accounts”. .”

While Netflix hasn’t said whether the US plan will ultimately resemble those earlier changes, some fear a crackdown on password sharing could disrupt streaming for students who have just left home, as well as a burden for low-income students and their families. .

Sam Figiel, a sophomore at Mercer University in Georgia, said Netflix access was required for many of his peers’ courses. Figiel, who uses his mother’s account, said almost everyone he knows at school watches Netflix, although he and some friends can walk away from the platform if the password sharing ends.

“Without Netflix, I would have to find a way to compensate for the courses, but the only other way to compensate would be to go to another streaming platform,” Figiel said. “My parents pay for three kids in college. They all have their own expenses. They pay all of our car payments, all of 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. Yet the incremental changes to password sharing have created uncertainty for students who may not have, or want to spend, disposable income for their own subscriptions.

Netflix spokesperson Kumiko Hidaka directed CNBC to the company’s previous announcements for information on its previous steps, 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, which is about 43% of the company’s 231 million paid global memberships, as of this this month.

According to a 2022 survey by Parks Associates, 40% of US households share or use shared passwords, up from 27% in 2019. People between the ages of 18 and 34, who make up 30% of all Netflix users, are more likely to trade passwords than older viewers. Netflix reported 74.3 million paid streaming subscribers in the United States and Canada during its fourth quarter.

Vrisha Sookraj, a University of Maryland student who watches Netflix from her parents’ account, said it’s the go-to streaming platform for almost everyone she knows. But she worries that forward-looking policies could push away some younger consumers.

Sookraj suggested that a student plan, similar to the cheaper subscription plans offered by Spotify, Hulu and Amazon Prime, could allow for more flexibility while accommodating different income levels. Still, she doesn’t know if she would pay the monthly fees herself.

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

Netflix executives acknowledged that while the change should help the company’s bottom line, it might not be as popular with users. Co-CEO Ted Sarandos told a conference in December that the paid-sharing model “is a lot like how you would handle a price increase,” adding that it will be “really positive for revenue” and ” expanding market”.

But, he added, “Make no mistake, I don’t think consumers are going to love it out of the box.”

Last month, Netflix said users in Canada, New Zealand, Portugal and Spain can create up to two “sub-accounts” for users not residing 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 didn’t share what a US pricing model would look like – if it follows that lead.

In the countries listed above, users can also have non-household members create their own individual accounts by transferring their profiles to a new account, which will retain the 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 been working to support “customer choice and frankly a long history of customer centricity,” Netflix executive Greg Peters, who became co-CEO in January, said on a conference call in October. last.

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

For Netflix, the math pits subscriber growth against monthly fees — and not for the first time. In November, Netflix launched a new tier called “Basic With Ads” which costs $6.99 per month – an offer to attract more viewers at a lower price.

Some Wall Street analysts believe there could be an immediate hiccup after a password crackdown in the US leads to a surge in churn in the second quarter, followed by possible revenue growth.

Wells Fargo analysts think password sharing could be a bigger near-term revenue catalyst than introducing the ad-supported tier.

In a January note, Macquarie analyst Tim Nollen speculated that average revenue per user may increase if enough free users are kicked out of the platform and then join as paid subscribers. or are added as sub-accounts. He told CNBC this week that he expects many users who leave the service to return fairly quickly given the size of Netflix’s content base, although he anticipates some initial turnover for the next quarter.

“There are many, many, many American users who aren’t paying for this, and so I think they’re very sensitive to the backlash they’re going to experience when they institute this,” Nollen said. “It will take some time to get to the point where they really know what they’re doing and they can really start making money from it.”

If Netflix charges additional fees for sub-accounts in the United States, these additional costs may prove difficult for Thuan Tran, a senior from Duke University in Vietnam who shares his own account with his sister and partner. While he acknowledged that many Duke students have the financial wherewithal to sustain additional costs, he said significant changes to the subscription structure would make him think twice.

“When your whole shtick is that you can share an account with people you like in different places…and then now you reverse that and then go charge people more if they want more profiles or screens, then that’s fine kinda against a lot of things that made your site appealing to a lot of viewers,” Tran said.

Even though the cost of a subscription might increase for borrowers, some students think Netflix is ​​too big to pass up.

Elizabeth Danaher, a sophomore at the University of Missouri-Columbia who is studying communications and filmmaking, said Netflix allowed her to watch movies with her family in Illinois while in school, especially with her father, who edited “A League of Their Own” and “Home Alone 2.” She said it would “certainly hurt” if the cost structure barred her from accessing Netflix – which she sees as a vital “source of information” – although she says she and many of her peers would fork out probably a few dollars a month.

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

According to an as yet unpublished study by the Leichtman Research Group, around 66% of households nationwide have Netflix. About 14% of all households that have Netflix borrow it from someone else and don’t pay, according to the online survey of 3,500 adults across the United States. This rises to 21% for consumers aged 18-34.

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

Leichtman estimates that sub-accounts could cost $3 more each and says, according to survey data, about half of sharers and borrowers say they would pay fees at that rate. About 10% in both categories said they would pay the additional fees, but would also seek to downgrade their account.

Among survey respondents who share their login credentials, about a quarter say they would drop Netflix after a policy change that would cost them an additional monthly fee per sub-account, compared to a third of borrowers. Although Leichtman said it was unlikely to happen at this point, with people agreeing to pay a few extra dollars a month under new policies.

Aravind Kalathil, a senior at the University of Missouri-Columbia, said he was using a stranger’s Netflix account that logged into his apartment’s smart TV. Kalathil and his housemates don’t know who owns and pays for the account, and are prepared to have their access cut off without warning if password restrictions come into effect.

“Ultimately for us it probably won’t have the biggest effect because our families all have Netflix accounts and we’ll make it work, but it just adds hassle and annoyance. additional to something that ultimately is sort of expendable with the amount of streaming services out there,” Kalathil said.