Netflix Has a Problem With Password Sharing.
We have all heard the story of the college grad using his former roommate’s parents’ Netflix password. We all know the ex-boyfriend binging his favorite shows with his ex-girlfriend’s account credentials.
Many consider the sharing economy a positive thing. However, Netflix, Hulu, Amazon, HBO and others are literally losing millions of dollars via the generosity of their consumers. While credential sharing seems like the gift that keeps on giving for users around the world, it represents a major missed opportunity for revenue growth among some of the largest media streaming services.
In this case, more users simply do not equal more accounts. Although the continued growth of Netflix and other streaming platforms is impressive, as we have seen with other tech innovators, growth will eventually stagnate.
When this time comes, it will beg the question whether there could have been more strategic investments from the industry into providing a streamlined and powerful authentication system to ensure the person looking to stream the latest episode of “Game of Thrones” is actually who they say they are. Companies will need to balance this stricter framework with a strong customer experience. These two elements must continue the stringent subscriber growth and revenue numbers investors are clamoring for.
As the digital media industry grows, evolved and matures, we will see more players tackling these challenges in a way that limits password sharing, increases subscribers and revenue, all without alienating customers through clunky and trying identity verification processes.
While the industry may seem apathetic to this issue, it is only a matter of time before the pressures to limit the exploitation of this issue to increase revenue puts one company against the wall, providing the impetus (and the blueprint) for the rest of the industry to follow.
Netflix is not the only service facing this issue, but it is one of the biggest and most visible. With the media streaming services industry growing and more service providers become content providers, there is significant money being lost in the process. Hulu, for example, says its losing $1.5 billion a year as it ramps up investments to compete with Netflix.
Just how rampant is this issue of password sharing? One survey from Magid for CNBC shows it may be a generational issue. Overall, it may be only 9% of customers sharing passwords, but 35% of millennials share passwords for streaming services. This is in comparison with 19% of Generation X and 13% of Baby Boomers. Although just under 10% overall seems low, if you look at Netflix and their incredible 137 million customers, 10% means 13.7 million people not paying $9.95 a month. That’s over $135 million in missed opportunities.
You can attribute the extremely fast rise of these kinds of services – from Netflix, to HBO, Hulu, Spotify and others – to the relatively low cost of holding an account. Additionally, lower cost of bandwidth and the rise of the ubiquitous smartphone aid this growth. Compare Netflix to a traditional cable or satellite television subscription. These cable subscriptions could cost well over $100 per month. In contrast, a media streaming account can grant you access to more content than you could ever watch. In addition, this content is on-demand, wherever you go. Thus, begins the massive growth of the streaming consumer.
Is Sharing Really Caring?
Netflix’s official policy on account sharing states that it is not allowed. Technically, a user’s control over their account is exerted through their password, which the user should have exclusive control over. The company suggests that if someone is looking to share their account with multiple other people to purchase their “family” plan, which allows the account to be used by four people at the same time.
But account sharing is not taboo by any means. As mentioned earlier, millennials are known to show no shame about sharing their passwords – with friends, family, and more. Maybe this is also because Netflix has historically taken a relaxed stance toward account sharing. And, considering recent growth numbers, it is not necessarily hurting them.
But what many subscribers fail to consider is how sharing their Netflix password, for example, puts them at risk for fraudulent activity. Sharing passwords is a risk to cybersecurity that could even potentially result in identity theft via their other accounts. This is because many people use the same password across accounts. So, if your ex-roommate’s boyfriend has your email address and password to log on to Netflix, he might also have all the credentials he needs to access your online banking if you use the same password.
At the same time, for these streaming services, nobody is pulling the wool over their eyes. Netflix and other platforms are aware of just how many users are sharing their account credentials. There is no doubt that these companies are estimating the scale of unofficial sharing. It is their job to factor these lost costs into their pricing model. In some ways, the users who are following the official policy on account sharing (i.e. not doing so) are funding the screen time of those who are much more lenient.
The Future of Account Sharing
Customer experience is core to the model of major media streaming services like Netflix. Netflix designed these sites to be easy to use and easy to access. This is why we should not expect Netflix and others to completely abandon their culture of “sharing is caring”. It is also unlikely they will go cold-turkey and force more stringent and laborious multi-factor authentication upon all of their subscribers as the default.
This make it more difficult for the people looking to take advantage of their friend’s or family’s “generosity” more difficult. Additionally, it may add undue burden to the paying subscriber. This added friction can lead to a negative user experience that may, inadvertently, lead to customer churn.
However, what will Netflix and these other platforms do when growth finally begins to flatten? There will come a time where investors pressure the company to account for the “free-riders”. One company will need to step forward and reinvigorate the business model and monetization system of media streaming services.
Consider a potential future of account sharing, wherein streaming services can solve this identity paradox, providing a seamless way to verify the paying customers are who they say they are, while also encouraging and embracing this underlying sharing ecosystem with temporary (and secure) access privileges for non-subscribers. This can easily be granted with a simple text message, email or swipe.
Who says Netflix or others looking to disrupt the industry can’t embrace the opportunity to strengthen security and identity? Who says they can’t encourage sharing and drive subscriber and revenue growth? Thinking about the archaic system in a new way would create a more secure platform, while still encouraging the “sharing is caring” approach.