Netflix, Inc. Loses $500M Annually To Password Sharing But CEO Reed Hastings Is Not W

CBC News reports that companies like Netflix, Inc. (NASDAQ:NFLX) and HBO have no issues whatsoever when it comes to users sharing passwords for the online streaming services. A recent report by analyst Glen Hower revealed that these services may be losing around $500 million every year. Users who pay the bill for the streaming services often give their passwords to other users so that they can also use the service. In these cases, these extra members don’t show up on official streaming figures and the industry doesn’t really care about that issue.

Netflix’s recent quarterly earnings showed that the company had added an extra 3.3 million subscribers in the past three months which could be attributed to the success of Netflix’s critically acclaimed original series. More so, Netflix also offers users the option to make five different profiles on the account of one person who pays the bills. The fact that this is endorsed by the company seems to show that it is not such a massive issue. Numbers released by Netflix show it has 65.6 million who pay for the service while there is an unaccounted number of users who don’t pay but have access to the service. The terms of service clearly state that, “the Account Owner should not reveal the password to anyone” and that the bill payers service is non-transferable, but that is exactly what is going on these days.

Users that share their passwords can range from college students, civil relationships or just friends sharing, as some don’t have the ability to pay for the service each month. Glen Hower states that, “Credential sharing has a measurable impact on video services [and] is especially troublesome as … providers are investing large sums of money to boost their original content offerings.” Hower estimates that the streaming companies are leaving around $500 million up for grabs because of the lack of subscriptions from these non-paying customers. Additionally, research shows that users in the United States spend around $11 billion in video streaming subscriptions.

Hower also calculated that, of the 49% of households that have access to Netflix, around 6% of bills is being paid by someone who does not live in the house. Moreover, the age range where the most password sharing occurs happens to be individuals aged 18-24.

In response to the password sharing conundrum, HBO executive Richard Plepler stated that, “To be honest, it’s material to our business. It’s not that we aren’t mindful of it, but it has no real effect on the business.” From a marketing stand point, this is an old trick where users who share services with others ultimately end up buying the service for themselves after a while, and the prospect of free-loading for some time does lead to an eventual paid subscription.

Tech Analyst Carmi Levy believes that, “They want everyone to come on over from the cable dark side. They don’t want to be seen as heavy handed, they want to get everyone locked in and then they’ll figure out enforcement later on.” Therefore it makes sense from a marketing point of view that these companies can’t come off as so strict that users move to piracy. The streaming industry is still in its infancy and the addiction for these services has yet to settle. In response to this issue, Netflix also has a family sharing option where a user can pay $12 per month to let four people sign up to the service. More so, CEO Reed Hastings also stated in a general meeting, “We really don’t think that there’s much going on of the ‘I’m going to share my password with a marginal acquaintance',” which means that password sharing is usually done with close relations and not people you don’t know.

Consequently, the industry has not yet made any serious noise over this issue which means that it is getting the money that it is asking for, while other content security agreements are made with the services beforehand.