Why Netflix and other streamers are struggling with password sharing

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As competition for customers among streaming services heats up, so too does the proliferation of online marketplaces where passwords are sold illegally at bargain prices, according to companies that manage digital content protection for Hollywood studios.

Such illicit marketplaces have emerged in response to the popularity of password sharing, which has become a growing headache for streamers who rely on subscription revenue to fund the rising cost of content production.

Losses are steep. Account sharing and piracy cost streamers and pay TV providers $9.1 billion in lost revenue in 2019. That loss is expected to rise to $12.5 billion by 2024, according to research and consulting firm Parks Associates.

Some experts consider these estimates to be conservative. A Citi analyst has calculated that streaming services are losing roughly $25 billion a year due to password sharing, with Netflix accounting for 25% of that amount.

“In the past, credential sharing was allowed because it is a form of expanding your audience, the popularity of your brand and your services,” said Ken Gerstein, vice president of sales for NAGRA, a Swiss company that advises streamers and others on anti-piracy issues. measures. “But there’s a point where competition starts to limit growth… We’re seeing a tipping point that starts to have such an impact on subscriber growth that it forces streamers to take action.”

Netflix took a major step last month to stop sharing passwords between people who don’t live in the same house. The Los Gatos, California-based streamer said he is testing features that will allow his subscribers in Chile, Costa Rica and Peru to add up to two users outside of their family for an additional $2 or $3 per account.

Despite the popularity of Netflix subscription plans, there has been confusion among consumers about when they can be shared, executives said.

“As a result, accounts are spread across households, impacting our ability to invest in great new TV shows and movies for our members,” Chenggi Long, Director of Product Innovation, Netflix, wrote in the blog last month.

She added that the company will monitor the trials before rolling them out to other countries.

Last year, Netflix also checked the hint during the login process, this would remind some unpaid viewers that unless they live in the same house as the account holder, they would need to get their own Netflix subscription.

For years, Netflix and other streamers didn’t seem to bother with password sharing, and even seemed to condone it. In 2017, the company tweeted that “love is a password exchange.”

But the company’s tolerance for this practice has changed as the company faces more pressure to increase your subscriber base and improve profitability in an increasingly competitive environment.

The announcement comes after Netflix said it expected slower subscriber growth. The streamer expects it to be so. add 2.5 million subscribers in the first quarter, up from 4 million subscribers a year earlier.

“There is a lot of pressure to figure out what to do with existing users and existing subscribers to maximize the financial health of how this base is used,” said Paul Erickson, research director at Parks Associates.

Pirates used random password sharing, selling individual credentials on marketplaces like the one The Times viewed, or creating their own streaming service and illegally stealing popular shows from platforms like Netflix and Disney+.

At the same time, password sharing has become popular during the pandemic as consumers spend more time streaming at home.

“Over the past few years, we have seen growth, especially in the context of COVID, because more people subscribed to streaming services compared to traditional pay TV,” Gerstein said. “One of the manifestations we’ve seen is that as subscriptions accumulated, it became expensive for consumers and pirates saw an opportunity in credential theft or credential hijacking.”

Many streaming services such as Netflix and HBO Max have guidelines stating that each account is for a family, i.e. people who live in the same household. But some consumers have a broader definition of household, meaning relatives who don’t live in the same house or friends who want to watch the sci-fi series Stranger Things without paying a full monthly subscription.

People who tend to share passwords are between the ages of 18 and 24, according to a study conducted by the Advertising Research Foundation, which included 10,400 adults. Young consumers may be more budget-conscious and are looking for ways to save money by paying for multiple streaming services despite exposing themselves to security risks, industry experts say, especially if they use the same password for other services such as like a bank account.

ARF Chief Scientist Paul Donato said the number of people sharing Netflix and Disney+ passwords tends to be higher than for other services like ESPN+ because they offer content to a wide audience and appeal to families. Netflix is ​​also more expensive compared to ESPN+’s $6.99 monthly plan, Donato said.

The study found that 36% of Netflix subscribers share their password with at least one relative outside their family, and 13% share their password with a friend outside their family.

By comparison, 32% of Disney+ subscribers share their password with a relative outside their family, and 13% share it with at least one friend who doesn’t live with them, the study says. That’s compared to just 16% of ESPN+ subscribers sharing their password with a relative who doesn’t live with them and 7% with a friend, according to the study.

“ESPN has a clear focus, you have to play sports, while Netflix is ​​much more general, practically covering all genres,” Donato added.

While some analysts have lauded Netflix’s password-sharing measures as a necessary step, some consumers have backed out, citing rising costs. In January, Netflix raised the cost of some of his plans, including premium monthly plan from $2 to $19.99.

It’s unclear if other streaming services will follow Netflix’s password-sharing moves. Disney+ and HBO Max declined to comment, while Apple TV+ and Amazon did not respond to a request for comment.

One method that streamers use to restrict password sharing is two-factor authentication. So when a user logs into their account on a new device, the prompt will ask for a separate code that can be sent to the account owner’s mobile phone. If a person no longer lives in the house, say, an ex-boyfriend, he is unlikely to call the account holder to find out the code.

If customers share their passwords with people outside their households, the streaming service is likely already aware of this, said Jonathan Friend, chief product officer of Friend MTS, a Birmingham-based UK company that provides content protection services. Stream services can detect patterns, such as when a client logs in from multiple locations.

“Streaming companies are very sophisticated technology service providers,” Friend said. “So it’s fair to say that most of these platforms will know what’s going on.”