Netflix Wants To Monetize Password Sharing, And It Could Change Subscription Models

Key Takeaways:

• Netflix is testing a password-sharing fee in some Latin American countries
• Other streaming services could follow suit if the plan is successful in adding revenue
• Investors should keep tabs on how the plan pans out, as it can affect Netflix and competitor stocks

In 2017, Netflix tweeted , “Love is sharing a password.” But times are changing—and so is password sharing. That’s because Netflix wants to start charging users who share their passwords with people outside of their households, which actually violates its terms of use.

Gone are the days of stealing your ex’s Netflix password to catch up on TV shows and movies. Or borrowing your parents’ account because there are just some parts of adulting for which you’re just not ready, despite having fled the nest quite some time ago. That is, if this social experiment proves successful to Netflix’s bottom line.

If the plan to monetize password sharing pays off, it could add $1.6 billion to its top line, according to estimates by Cowen & Co. analysts. That equates to about four percent upside to the firm’s 2023 revenue projection of $38.8 billion. After all, Netflix anticipates that about half of non-paying password-sharing households will convert to paying customers and, of those, about half will opt to sign up for separate accounts.

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Cowen & Co. senior research analyst John Blackledge estimates that 10% of the nearly 116 million broadband homes in America have viewers streaming Netflix movies and series without chalking up subscription fees.

“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 (via Seeking Alpha).

Netflix is launching a test in Chile, Costa Rica and Peru for now—allowing customers to add up to two extra-member accounts for about $2 to $3 per month each (atop the standard subscription fee). Of course, if the aforementioned numbers come to fruition, the move could go global. And Netflix could pave the way for other subscription-based companies to follow suit, creating a new standard for streaming services across the board. If it does, streaming subscriptions as we know them may never be the same.

Consumers could go one of two ways: 1. Comply and hop on board by paying the extra member fees or purchasing their own separate subscriptions. 2. Call it quits, turning to other streaming services that haven’t introduced password-sharing fees, like Amazon and Hulu.

Already, Netflix has been struggling to grow its membership. But not all analysts believe that this is the right move for the platform.

“I suspect that a crackdown will result in five percent subscriber growth, partially or fully offset by an increase in churn, and it won’t impact financials much, if at all,” Wedbush Securities analyst Michael Pachter told The Hollywood Reporter. “I think they are doing this now because growth has stalled to a crawl.”

Only time will tell how consumers respond to the change. But Netflix has certainly been a staple for long enough—especially throughout the COVID-19 pandemic—that it’s safe to assume at least some of Netflix’s users won’t even bat eyes. If the new plan is successful, other companies may consider the same subscription fees, which could lead to the same successes. If they do, those successes could be reflected in their stocks.

If the new plan is not successful, however, consumers may leave the platform in droves, turning their attention to competitors. In this case, profits could tank and the stock could sink. Whatever the case, the move will surely shake up stocks.

Investors would be wise to keep their eyes on how the test goes in Latin America, any other moves Netflix makes internationally, and how consumers respond. They would also be wise to keep tabs on other competitor companies that offer streaming services, whether Netflix’s plans flop or pop.

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