Sharing Netflix passwords isn’t the revenue drain Wall Street thinks it is

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ITEM: Young people have a tendency to share log-in details for video streaming sites like Netflix – and it’s freaking out Wall Street.

A Reuters/Ipsos poll found that 21% of streaming viewers aged 18 to 24 admitted accessing at least one digital video service using the username and password of someone else who didn’t live with them. Around 12% of grown-ups do it too, according to the poll. (It’s a US poll, but it’s safe to assume the same thing happens in Asian markets.)

The Reuters article is concerned mainly with the revenue supposedly lost by letting other people use your Netflix account, which matters to Wall Street if quarterly revenue earnings aren’t as high as they would like:

“If Netflix goes from a 30 percent revenue growth story to a 10 percent story, there is absolutely going to be more focus on their leaving money on the table,” said Justin Patterson, an analyst with Raymond James.

According to Parks Associates, streaming providers will lose an estimated $550 million in 2019 from password sharing.

However, it’s a mistake to assume that a crackdown on password sharing would result in restoring that $550 million to service provider coffers, because it’s based on the faulty assumption that the person “borrowing” an account would otherwise be a paying subscriber.

We’ve seen this logic before in the salad days of file sharing when BitTorrent and Pirate Bay were terrorizing the music and movie industries. Then, content owners offered grand estimates of money lost to piracy based on the notion that someone who illegally downloads pirate movies would have gladly paid full price for them otherwise. In some cases that would be true, but many people downloaded pirate media because they couldn’t afford to pay the full price. If you want to watch all the Marvel films, say, but you only have enough money to pay for two, you’re not going to buy the other eight. Whether you illegally download them or not, Marvel isn’t going to make money from you.

We’re starting to see the same dynamic play out with video streaming, partly because there are more services to choose from, and partly because many of them are developing exclusive programs that can only be watched via their platform. That’s forcing consumers to either buy more subscriptions to access content or make choices. One consumer in the Reuters story makes this point clear:

Donielle Bradshaw, a live-in nanny in Smyrna, Georgia, said she uses her 28-year-old sister’s password for Hulu, and her 32-year-old brother’s password for Netflix.

[…]

If companies cracked down on password sharing, Bradshaw said she would be willing to pay for her own Netflix subscription but is not sure about Hulu, which is owned by several media companies. “I binge a lot of shows on Netflix. I don’t think I could do without it,” she said.

As the article notes, different streaming services have different policies for password sharing, but Netflix has said for some time that a crackdown isn’t going to result in more revenue:

“We could crack down on it, but you wouldn’t suddenly turn all those folks to paid users,” Netflix Chief Financial Officer David Wells said at a Goldman Sachs conference last September.

It’s somewhat ironic that the appeal of streaming subscriptions as a business model has always been a value-for-money alternative to downloads: “Can’t afford to pay per item? Why not access a whole library of content for a reasonable monthly fee?”

Great idea. The difficulty is that exclusive popular programs result in the need to pay for access to multiple libraries, and that can add up – especially for younger people on a budget who also happen to be the key demographic for many of these shows.

Remember too that it’s not just about watching shows – it’s about participation in popular culture. My generation had the “water cooler” conversations based on whatever happened on TV the night before. Today the conversations happen on Facebook and Twitter, but the principle is the same – one reason people watch popular shows is so they can follow those conversations and participate in them. That was easy to do when most shows were free to air and available to everyone – it’s not as easy when they’re exclusive to paid platforms. But the social motivation remains.

I understand why video platforms want to produce exclusive content – it’s a draw. But the tradeoff is consumers having to pick and choose which services to pay for if paying for all of them isn’t an option. And when shared passwords are an available alternative, people will use them.

Some people at this point might advocate making sharing passwords illegal, which may or may not already be the case in the US under the 1986 Computer Fraud and Abuse Act (CFAA).

In any case, I don’t think it’s much of a solution. If a policy crackdown on password sharing won’t result in more paying subscribers, neither will sending freeloaders to jail or forcing them to pay massive fines. Also, no video platform provider really wants the kind of reputation that, say, the RIAA has.

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John C. Tanner
About John C. Tanner 201 Articles
John Tanner has been covering the Asia-Pacific telecoms industry since 1996. He has two degrees in telecommunications, and worked for six years in the US radio industry in various technical and advisory capacities, covering radio and satellite equipment maintenance, studio networking, news writing and production, the latter of which earned him several regional and national awards.

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