How Netflix Crackdown On Password Sharing Might Play Out

NetflixNFLX
has revealed what its planned crackdown on password sharing in 2023 could look like in the United States. The streamer published details about password plans implemented in several other countries on a U.S. help page (accidentally, at first) on Wednesday and said it would begin a similar program domestically by second quarter.

Netflix has long claimed that password sharing, or allowing those outside the immediate family to use a password to access the streamer’s programming, has dramatically cut into its potential user base.

Now, subscribers will need to pay a small fee to add a new user to their account. They will also be required to watch something once a month from home Wi-Fi to log a consistent home address, allowing Netflix to track where the passwords are being used.

The streaming giant has predicted the changes could lead some users to cancel their service. That’s certainly one potential outcome of the new policy. Here’s a look at the possible cancellation fallout as well as three other ways the changes may potentially impact Netflix.

1. Massive Netflix Subscription Cancellations Could Occur

Netflix feels it’s getting squeezed out of money it should be getting from those who use a family member or friend’s account to watch content. Yet it knows that in going after those dollars, there’s a real chance people could simply get frustrated with Netflix and unsubscribe. It’s possible that the password crackdown could lead to big declines in subscribers at a delicate time for Netflix.

The company sustained its first subscriber decline in a decade last year, losing subscribers for two straight quarters. It subsequently told Wall Street that it would no longer be using subscriptions as a primary metric for success, rather focusing on revenue—potentially a preemptive move in light of the potential password crackdown subscriber drain.

Is it a real danger? It’s unclear if people will follow through on threats to cancel Netflix that reigned throughout social media yesterday when details of the plan came out. But it’s certainly a possibility.

2. Ad-Tier Accounts Could Grow

If those using other people’s accounts decide to (or are forced to) get subscriptions of their own, they may not want to pay the full price. Netflix’s recently launched ad-supported tier could be a better option. It costs just $6.99 per month, or less than half a Netflix subscription.

The service’s launch has been a success, though Netflix had been coy about its expectations. That launch and the password crackdown coming so close together is no coincidence. Netflix knows that it has interested and invested consumers who still want its content but don’t want to pay full price. Offering them this alternative may prove good business sense.

3. Other Streamers Could Benefit

You can bet the other streamers are watching how Netflix’s password sharing crackdown will play out because the company is not the only one presumably losing out on revenue from the practice. If Netflix sees subscriber losses, undoubtedly others will step in with special offers to try to woo these defectors—or they may even voice their approval of password sharing to set up a direct dichotomy.

4. Consumer Reaction Could Spook or Excite Investors

As goes consumer sentiment, so often goes the stock market—and investors will be watching the reaction to the password crackdown closely. CNBC’s Jim Cramer advised investors to stick with Netflix, which has been up in recent days, after details of the password plan emerged. But stocks have been moody recently, and hiccups in adoption of the plan could certainly send prices spiraling.