Why Netflix Is Starting To Review Password Sharing

The fact that many of us are using our friends’ and family’s Netflix accounts without their permission has gone unnoticed for years by Netflix. That may be changing, however, as Netflix’s growth is slowing and its annual production budget for creating new hits keeps rising, making the streaming king reconsider its policy of looking the other way. That is to say, Netflix has a cash shortage.

According to an announcement made this week, the company is testing a crackdown on users who share their passwords, in an effort to reduce the number of accounts that are stealing money from people outside of their own households. Users in Chile, Costa Rica, and Peru will soon have the option of adding up to two additional members as sub-accounts to their Netflix memberships as part of this test. This will add about $3 to the monthly Netflix subscription fee in Costa Rica.

Netflix has been notoriously lax about password sharing for years, even going so far as to call it a “positive thing” at one point under Netflix CEO Reed Hastings. Only in the last year or so has Netflix indicated that it might be experimenting with ways to gently enforce a shared-account crackdown, mostly through stray tests like the one announced earlier this week.

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Even though the timing of this new test is critical for our company, there is a distinct difference in the energy surrounding it. Netflix has long seen rapid expansion in its subscriber base, but that has recently begun to slow. Netflix has a content budget in the tens of billions, so it needs to think outside the box when it comes to making money. In many households, Netflix has become an essential service, so going full hall monitor on shared accounts is a viable option.

It’s been a long time since Netflix cared whether or not you shared your account, according to LightShed Partners analyst Richard Greenfield, who spoke with The Verge about Netflix’s previous ambivalence toward shared accounts. “Password sharing becomes easier to crack when something becomes so essential to your day-to-day life.”

Rather than directly competing with the streaming giants, Netflix is trying to be a supplement to them, which sets it apart from some of its more scrappy competitors. It’s no secret that Netflix is raising its prices to offset rising costs, and the latest hikes will take effect later this month. Netflix, on the other hand, has yet to implement ad tiers to entice new subscribers (and ease the financial burden on existing ones).

It’s been a long time since Netflix looked the other way when it came to account sharing—but that’s all changed now.

Netflix could gain paying subscribers by enforcing stricter restrictions on account sharing. Adding another 10 to 20 million subscribers in the United States could be achieved by cracking down on passwords.

In the meantime, Netflix is calling this a “test,” so keep that in mind. Even though Netflix hasn’t yet completely removed the rug from under the lucky few of us who have an ex or grandparent who doesn’t mind sharing their Netflix password, it’s possible Netflix will come up with a better strategy than booting us from their accounts. Any streamer trying to gain attention in the current environment should avoid putting the hammer down on shared accounts and risk alienating their own audience.

Password crackdowns in streaming, on the other hand, have long seemed like an assured outcome. In the end, streamers aren’t doing this for the love of it. In any event, users will be responsible for the cost of their streaming diets regardless of how the current streaming controversy plays out.