Will password sharing end the streaming wars?
We live in most uncertain of times. First it was the COVID pandemic, then the war in Ukraine sent the world back to times we thought would happen “never again” as besides illegally annexing Ukrainian territories Russia is threatening the West with nuclear weapons (yet again). The International Monetary Fund says the war prompted the worst global food crisis since at least 2008. At the same time, we feel the burden of sky-rocketing fuel and energy prices, high inflation, rising living costs, etc. So it is only natural for people to start cutting their budgets and the first “non-essential” expenses that will have to go will be those for entertainment. And while the streaming services actually benefitted from the COVID pandemic and saw a rapid growth and expansion, things look quite different now.
Of course, people are still subscribing to streaming services; just at a much lower rate. Last quarter, there were 13 million new subscribers in the U.S. (which is still considered a stable market). This was 18% up from the previous quarter. Meanwhile, cancellations have remained constant, with 28.5 million users dropping their subscriptions. With the crisis expected to worsen by the end of the year, tips have started popping up all over the internet on how to save from streaming services (legally) – which include “rotating” services and using monthly subscriptions which are easier to cancel once you have binged your favorite series.
But there is something else that might surprisingly put an end to the streaming wars if not swiftly and categorically dealt with, according to experts. “The streaming wars are over because subscriber growth has come to a halt,” Michael Nathanson, a media analyst at MoffettNathanson, told CNN Business. “You’re fighting a war in a land that has no more resources in it.” Or let us paraphrase that – not all of the “resources” are actually paying.
Streaming platforms dominated media as people turned to home entertainment for comfort during the pandemic. Netflix, Disney+, Apple, Hulu, and Amazon Prime saw growth, and other networks rapidly tried to through their hats in the ring with the rise of Paramount+, Discovery+ and more.
Now, experts have identified some of the growing pains and say the current market no longer encourages growth. Many of the platforms, instead, are falling flat, losing subscribers in an oversaturation of the market. And one of these pains, if not the major one, is exactly password sharing – the number of people watching is growing but many use the accounts of their friends or passwords obtained from not-so-legal websites for the fraction of the monthly subscription price.
Let’s put this into perspective: in an April letter to its shareholders Netflix estimated almost 100 million households are accessing its services for free. While the issue around password sharing has not been strongly addressed by the streaming industry before, one can expect to hear about it a lot more frequently moving forward. Netflix has around 222 million paying customers, meaning that the company would benefit by an almost 50% increase in revenue if the 100 million non-paying households paid for Netflix’s services. If Netflix’s annual revenue were to increase by 50%, the company would gain an additional $14.8 billion.
Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was it simply wanted more eyeballs on its content, which in turn would create buzz and lead to actual subscriptions. That strategy seemed to pay off. Netflix subscriptions have grown every quarter for more 10 years — until last quarter.
Other streaming platforms, like Disney+, have had the same issues of password sharing — a recent report found that Disney+ has five scroungers for every one actual subscriber. Data from Kagan Consumer Insights—based on responses from 2,626 U.S. adults—suggests that 11% of users of both Netflix and Disney+ indicated that they use a shared login for accessing the services. Hulu followed at around 8% while HBO Max showed about 7% of viewers using shared credentials and Amazon Prime Video had about 5%. “Additional survey data suggests that Netflix login sharers are also generally less avid SVOD consumers overall compared to both Netflix users excluding login sharers and total survey respondents. Login sharers used an average of 3.9 total SVOD services versus nearly 5 services for total respondents and Netflix users minus sharers. Login sharers were also much more likely to turn to SVOD services on a weekly or monthly basis than the more frequent daily/several times per week usage demonstrated by total and non-sharing respondents,” wrote Seth Shafer, senior research analyst for Kagan, in a research note.
A study conducted by the research firm Magid, found 35% of millennials (ages 23-38) share passwords for streaming services. In comparison with 19% of Generation X and 13% of Baby Boomers. Additionally, a Shred-It survey found that 36% of the even younger generation, Gen Z (ages 7-22), were the most likely to share passwords or PINs with family and friends. A survey from research organization Time2Play suggested about 80% of Americans who use someone else’s password wouldn’t get their own new account if they couldn’t share the password. It didn’t survey how many current account payers would be willing to pay more to share with others.
The latest data from Cordcutting.com estimates Netflix will lose more than $790 million in membership revenue this year due to password sharing — tops among all SVOD services. Other streaming platforms such as HBO Max, Disney+ and Hulu will lose $477 million, $440 million and $436 million, respectively. That “breakage” revenue collectively tops $2.3 billion in annual membership revenue lost when including Paramount+, Amazon Prime Video and Peacock.
Of the 215 million people in the U.S. using SVOD services, the report contends 25% are using someone else’s paid-for account. Indeed, the average account borrower accesses up to two, third-party accounts, which equates to almost 86 million shared accounts.
The report, citing a survey of 790 U.S. adults early this year, found that the most-shared accounts include HBO Max, Disney+ and Amazon Prime Video. Among survey respondents, Netflix remains the overwhelming favorite platform with 92% market share.
During its Q1 2022 earnings call, AT&T also acknowledged the issue of password sharing. CEO John Stankey said AT&T had been actively monitoring HBO Max usage for activities relating to password sharing, claiming that the company had technical features and capabilities to limit the practice.
So, the problem of password sharing is a serious one for the streamers and they are well aware of it. What are they doing about it? Unsurprisingly, the first and loudest streamer to address the problem publicly was Netflix – especially after its latest quarter results. The company began trialing a way to monetize password sharing in Chile, Costa Rica, and Peru during March 2021 by offering two sharing options. Customers on Standard and Premium plans can add a sub account for two additional people outside of their household for approximately $2.90 in Chile, $2.99 in Costa Rica, and $2.12 in Peru. The other option allows members on Basic, Standard, and Premium plans to transfer profiles from their existing account to a new account or sub account, thus giving customers the tools to monetize password sharing for Netflix. Netflix began testing this new program in March, and initial impressions are that user reaction has been mostly negative, after Gizmodo spoke to a dozen subscribers in Peru. Some users have canceled their Netflix subscription entirely, while others continue to share their passwords without repercussions from the company. However, Netflix has confirmed that this test cycle is “progressive” and that it is testing different versions in Peru, Costa Rica and Chile before settling on a final version.
With Netflix testing the concept of charging subscribers when they share passwords with up to two-third parties in Chile, Costa Rica and Peru, John Blackledge, analyst with Cowen & Co., believes the move could be a money maker for the SVOD behemoth when rolled out globally. Blackledge believes Netflix could increase its annual revenue by 4%, or $1.6 billion, when enabling password sharing. “We think Netflix’s recent efforts reflect a natural progression across more mature markets and could add incremental subs and revenue if the test is rolled out globally,” Blackledge wrote.
A new study from Beyond Identity, a password-less identity platform for workforces and customers, has shed some light on how widespread password sharing is, and how much streaming services are losing from the practice. But if the service wanted to get more aggressive, what steps could it take? It turns out, there are some options that haven’t been deployed yet. “From what’s been mentioned by Netflix specifically, it seems that these streaming services can start to take action by charging more for accounts that are shared outside of a single household,” says Jing Gu, product marketing lead for secure customers, at Beyond Identity.
“These streaming platforms likely have ways to tell when an account is being shared like this, via IP address locations and number of devices simultaneously accessing the service, so they can limit the number of actively streaming devices and start flagging the accounts that are suspected of being shared,” Gu said.
But how successful will this plan be, really? From Gu’s research, it seems that “surprisingly, only 17% of moochers said they would pay for their own account if the provider said they could no longer share,” and that 27% said they would not pay for their own account, while 45% said they might.
The danger of password sharing for seemingly innocuous purposes like streaming involves credential stuffing, where hackers are obtaining passwords and usernames to see if those details will gain access to accounts on different websites. This could include your business website, company email server, or even access to an endpoint such as a company computer.
Although acknowledging the problem, no other streamer has ever cracked down on password sharing before. Most likely other major streaming operators like Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount Global, will set up their strategy after they have evaluated (and seen the results) of Netflix’s strategy.
Netflix will have to tread lightly around defining password sharers to avoid wrongly tagging people as abusers, such as family members temporarily living away from home. “They’ll start with serial abusers,” said LightShed Partners media analyst Rich Greenfield. “If you have 15 people using your account, it’s pretty easy.”
The company also isn’t likely to want its employees mired in disputes about what classifies as a home account and what qualifies as a sub account. Contesting those definitions could get ugly for both staffers and customers, who have up until now seen Netflix as a best-in-class brand.
While stopping rampant password sharing is definitely in the best interest of streaming platforms, a cautious approach is crucial. Both AT&T and Netflix acknowledge this. If the approach from streaming platforms is too aggressive – such as raising the price of their services to offset losses accrued by users accessing their services for free or by reducing the number of profiles that can be created, which would adversely affect larger households – they could face severe backlash from users and end up in a worse situation than they’re currently in.
While Netflix’s move could help “better monetize the people who are already watching,” Paul Erickson, research director of entertainment and consumer technology at Parks Associates comments on the matter, the approach could also backfire if some people factor in password borrowers when evaluating the cost of the service. In other words, the cost of services may be harder to justify when non-household users start getting boxed out.
“If you’re going to literally make this individual subscriber to individual subscriber, then you have to radically rethink your pricing model,” Stephen Beck, founder and managing partner of the consultancy cg42, told Marketing Brew. So far, that’s not happening; instead, streaming services price-points continue to rise to cover the high cost of content.
“A password crackdown across the industry would lead to more volatility because people will swing to the content that they want,” Beck said. “They won’t stick around on that service for the periods of time when the content is not fresh and not interesting.”
Beck cautioned that content remains the key investment for streamers to continue attracting viewers and fueling their businesses. In an ultra-competitive streaming world, even a streamer’s most loyal customers may turn elsewhere if faced with less-than-enticing programming combined with headaches related to account-sharing.
According to the latest data from Digital TV Research streaming won’t die soon, on the contrary - global SVOD subscriptions will increase by 475 million between 2021 and 2027 to reach 1.68 billion. Six US-based platforms will account for 47% of the world’s total in 2027. Netflix will remain the revenue winner, with $30 billion expected by 2027 – similar to Disney+, HBO Max and Paramount+ combined. Global SVOD revenues will reach $132 billion by 2027. But it is not really a question of how many subscribers you have now – the important thing is how many of them are actually paying. And with the introduction of AVOD subscriptions by Netflix and Disney+ next year, things will get even more interesting.
Of course, people are still subscribing to streaming services; just at a much lower rate. Last quarter, there were 13 million new subscribers in the U.S. (which is still considered a stable market). This was 18% up from the previous quarter. Meanwhile, cancellations have remained constant, with 28.5 million users dropping their subscriptions. With the crisis expected to worsen by the end of the year, tips have started popping up all over the internet on how to save from streaming services (legally) – which include “rotating” services and using monthly subscriptions which are easier to cancel once you have binged your favorite series.
But there is something else that might surprisingly put an end to the streaming wars if not swiftly and categorically dealt with, according to experts. “The streaming wars are over because subscriber growth has come to a halt,” Michael Nathanson, a media analyst at MoffettNathanson, told CNN Business. “You’re fighting a war in a land that has no more resources in it.” Or let us paraphrase that – not all of the “resources” are actually paying.
Streaming platforms dominated media as people turned to home entertainment for comfort during the pandemic. Netflix, Disney+, Apple, Hulu, and Amazon Prime saw growth, and other networks rapidly tried to through their hats in the ring with the rise of Paramount+, Discovery+ and more.
Now, experts have identified some of the growing pains and say the current market no longer encourages growth. Many of the platforms, instead, are falling flat, losing subscribers in an oversaturation of the market. And one of these pains, if not the major one, is exactly password sharing – the number of people watching is growing but many use the accounts of their friends or passwords obtained from not-so-legal websites for the fraction of the monthly subscription price.
Let’s put this into perspective: in an April letter to its shareholders Netflix estimated almost 100 million households are accessing its services for free. While the issue around password sharing has not been strongly addressed by the streaming industry before, one can expect to hear about it a lot more frequently moving forward. Netflix has around 222 million paying customers, meaning that the company would benefit by an almost 50% increase in revenue if the 100 million non-paying households paid for Netflix’s services. If Netflix’s annual revenue were to increase by 50%, the company would gain an additional $14.8 billion.
Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was it simply wanted more eyeballs on its content, which in turn would create buzz and lead to actual subscriptions. That strategy seemed to pay off. Netflix subscriptions have grown every quarter for more 10 years — until last quarter.
Other streaming platforms, like Disney+, have had the same issues of password sharing — a recent report found that Disney+ has five scroungers for every one actual subscriber. Data from Kagan Consumer Insights—based on responses from 2,626 U.S. adults—suggests that 11% of users of both Netflix and Disney+ indicated that they use a shared login for accessing the services. Hulu followed at around 8% while HBO Max showed about 7% of viewers using shared credentials and Amazon Prime Video had about 5%. “Additional survey data suggests that Netflix login sharers are also generally less avid SVOD consumers overall compared to both Netflix users excluding login sharers and total survey respondents. Login sharers used an average of 3.9 total SVOD services versus nearly 5 services for total respondents and Netflix users minus sharers. Login sharers were also much more likely to turn to SVOD services on a weekly or monthly basis than the more frequent daily/several times per week usage demonstrated by total and non-sharing respondents,” wrote Seth Shafer, senior research analyst for Kagan, in a research note.
A study conducted by the research firm Magid, found 35% of millennials (ages 23-38) share passwords for streaming services. In comparison with 19% of Generation X and 13% of Baby Boomers. Additionally, a Shred-It survey found that 36% of the even younger generation, Gen Z (ages 7-22), were the most likely to share passwords or PINs with family and friends. A survey from research organization Time2Play suggested about 80% of Americans who use someone else’s password wouldn’t get their own new account if they couldn’t share the password. It didn’t survey how many current account payers would be willing to pay more to share with others.
The latest data from Cordcutting.com estimates Netflix will lose more than $790 million in membership revenue this year due to password sharing — tops among all SVOD services. Other streaming platforms such as HBO Max, Disney+ and Hulu will lose $477 million, $440 million and $436 million, respectively. That “breakage” revenue collectively tops $2.3 billion in annual membership revenue lost when including Paramount+, Amazon Prime Video and Peacock.
Of the 215 million people in the U.S. using SVOD services, the report contends 25% are using someone else’s paid-for account. Indeed, the average account borrower accesses up to two, third-party accounts, which equates to almost 86 million shared accounts.
The report, citing a survey of 790 U.S. adults early this year, found that the most-shared accounts include HBO Max, Disney+ and Amazon Prime Video. Among survey respondents, Netflix remains the overwhelming favorite platform with 92% market share.
During its Q1 2022 earnings call, AT&T also acknowledged the issue of password sharing. CEO John Stankey said AT&T had been actively monitoring HBO Max usage for activities relating to password sharing, claiming that the company had technical features and capabilities to limit the practice.
So, the problem of password sharing is a serious one for the streamers and they are well aware of it. What are they doing about it? Unsurprisingly, the first and loudest streamer to address the problem publicly was Netflix – especially after its latest quarter results. The company began trialing a way to monetize password sharing in Chile, Costa Rica, and Peru during March 2021 by offering two sharing options. Customers on Standard and Premium plans can add a sub account for two additional people outside of their household for approximately $2.90 in Chile, $2.99 in Costa Rica, and $2.12 in Peru. The other option allows members on Basic, Standard, and Premium plans to transfer profiles from their existing account to a new account or sub account, thus giving customers the tools to monetize password sharing for Netflix. Netflix began testing this new program in March, and initial impressions are that user reaction has been mostly negative, after Gizmodo spoke to a dozen subscribers in Peru. Some users have canceled their Netflix subscription entirely, while others continue to share their passwords without repercussions from the company. However, Netflix has confirmed that this test cycle is “progressive” and that it is testing different versions in Peru, Costa Rica and Chile before settling on a final version.
With Netflix testing the concept of charging subscribers when they share passwords with up to two-third parties in Chile, Costa Rica and Peru, John Blackledge, analyst with Cowen & Co., believes the move could be a money maker for the SVOD behemoth when rolled out globally. Blackledge believes Netflix could increase its annual revenue by 4%, or $1.6 billion, when enabling password sharing. “We think Netflix’s recent efforts reflect a natural progression across more mature markets and could add incremental subs and revenue if the test is rolled out globally,” Blackledge wrote.
A new study from Beyond Identity, a password-less identity platform for workforces and customers, has shed some light on how widespread password sharing is, and how much streaming services are losing from the practice. But if the service wanted to get more aggressive, what steps could it take? It turns out, there are some options that haven’t been deployed yet. “From what’s been mentioned by Netflix specifically, it seems that these streaming services can start to take action by charging more for accounts that are shared outside of a single household,” says Jing Gu, product marketing lead for secure customers, at Beyond Identity.
“These streaming platforms likely have ways to tell when an account is being shared like this, via IP address locations and number of devices simultaneously accessing the service, so they can limit the number of actively streaming devices and start flagging the accounts that are suspected of being shared,” Gu said.
But how successful will this plan be, really? From Gu’s research, it seems that “surprisingly, only 17% of moochers said they would pay for their own account if the provider said they could no longer share,” and that 27% said they would not pay for their own account, while 45% said they might.
The danger of password sharing for seemingly innocuous purposes like streaming involves credential stuffing, where hackers are obtaining passwords and usernames to see if those details will gain access to accounts on different websites. This could include your business website, company email server, or even access to an endpoint such as a company computer.
Although acknowledging the problem, no other streamer has ever cracked down on password sharing before. Most likely other major streaming operators like Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount Global, will set up their strategy after they have evaluated (and seen the results) of Netflix’s strategy.
Netflix will have to tread lightly around defining password sharers to avoid wrongly tagging people as abusers, such as family members temporarily living away from home. “They’ll start with serial abusers,” said LightShed Partners media analyst Rich Greenfield. “If you have 15 people using your account, it’s pretty easy.”
The company also isn’t likely to want its employees mired in disputes about what classifies as a home account and what qualifies as a sub account. Contesting those definitions could get ugly for both staffers and customers, who have up until now seen Netflix as a best-in-class brand.
While stopping rampant password sharing is definitely in the best interest of streaming platforms, a cautious approach is crucial. Both AT&T and Netflix acknowledge this. If the approach from streaming platforms is too aggressive – such as raising the price of their services to offset losses accrued by users accessing their services for free or by reducing the number of profiles that can be created, which would adversely affect larger households – they could face severe backlash from users and end up in a worse situation than they’re currently in.
While Netflix’s move could help “better monetize the people who are already watching,” Paul Erickson, research director of entertainment and consumer technology at Parks Associates comments on the matter, the approach could also backfire if some people factor in password borrowers when evaluating the cost of the service. In other words, the cost of services may be harder to justify when non-household users start getting boxed out.
“If you’re going to literally make this individual subscriber to individual subscriber, then you have to radically rethink your pricing model,” Stephen Beck, founder and managing partner of the consultancy cg42, told Marketing Brew. So far, that’s not happening; instead, streaming services price-points continue to rise to cover the high cost of content.
“A password crackdown across the industry would lead to more volatility because people will swing to the content that they want,” Beck said. “They won’t stick around on that service for the periods of time when the content is not fresh and not interesting.”
Beck cautioned that content remains the key investment for streamers to continue attracting viewers and fueling their businesses. In an ultra-competitive streaming world, even a streamer’s most loyal customers may turn elsewhere if faced with less-than-enticing programming combined with headaches related to account-sharing.
According to the latest data from Digital TV Research streaming won’t die soon, on the contrary - global SVOD subscriptions will increase by 475 million between 2021 and 2027 to reach 1.68 billion. Six US-based platforms will account for 47% of the world’s total in 2027. Netflix will remain the revenue winner, with $30 billion expected by 2027 – similar to Disney+, HBO Max and Paramount+ combined. Global SVOD revenues will reach $132 billion by 2027. But it is not really a question of how many subscribers you have now – the important thing is how many of them are actually paying. And with the introduction of AVOD subscriptions by Netflix and Disney+ next year, things will get even more interesting.
