from growth for growth department
We’ve already noted how Netflix’s password-sharing crackdown is a dumb cash grab. The company already locks users into pay tiers based on a number of different criteria, including how many concurrent streams a single account can already use at the same time. And it has just been done by imposing a significant price hike on most of its subscribers, with more on the way.
Then the company started to see real competition in the streaming space. Wall Street doesn’t care that the market has changed and, as Wall Street always does, demands quarter-over-quarter growth at all costs. Netflix has therefore developed an ingenious plan to nickel and dime existing users with additional fees if Netflix determines that passwords are being shared outside the home.
Change has not yet arrived in the United States, but it is expected to be soon. Overseas enforcement has been a bit of a mess, with inconsistent consumer billing, enforcement and messaging. It’s all a giant headache for a “problem” that Netflix used to make it clear that it wasn’t really a problem:
Enter Adobe, which apparently thinks it can help Netflix crack down on this nonexistent threat with machine learning systems that study user behavior in great detail. To sell Netflix on the idea, Adobe apparently claims that Netflix suffers somewhere around $9 billion annually in potential losses due to password sharing, which Adobe more clinically calls “credential sharing”:
Adobe prefers the term “credential sharing” to “hacking passwords,” but doesn’t minimize its implications. Citing a 2020 study, Adobe says up to 46 million people in the United States could access streaming services with credentials that aren’t their own without paying anything for the privilege.
Citing potential losses of $9 billion a year — three times that of rival Disney+ — Adobe says Netflix suffers the most from shared credentials. The company believes that if video streaming is to avoid the fate of music streaming where free content is expected, action is needed sooner rather than later.
I don’t know where Adobe got the insane $9 billion estimate from. Other analysts like Cowen and Co have suggested that Netflix will earn an additional $1.6 billion a year from a crackdown on password sharing, and even that sounds generous.
First, such an analysis ignores the fact that Netflix already monetizes password sharing by limiting concurrent streams. Second, users are already facing global price increases and will not respond to further increases, no matter how smartly they are informed. And third, Cowen’s estimate is that half of all password sharers would sign up for a new account, which is overly generous.
Other analysts are highly skeptical that Netflix’s password crackdown is paying significant dividends:
Benchmark Co. analyst Matthew Harrigan in a note last week expressed skepticism that it would be a “game changer for growth,” saying the strategy “cannibalizes complete membership growth.” . He pegged the incremental revenue increase at less than 4% of revenue, even with generous assumptions about how many piggybacks Netflix might be able to convert into Extra Member accounts.
There is a real risk that Netflix will only annoy customers with higher fees and restrictions at a time when they are already losing customers and facing more streaming competition than ever. And with Wall Street demanding growth at all costs, there’s a good chance Netflix will push its luck on both password sharing and find annoying ways to monetize the account data Adobe collects.
If you notice a lot of egos and fuzzy numbers and wishful thinking from Netflix, it’s because Netflix has gone from innovating to protecting the territory, joining the Motion Picture Association and adopting a much of the broader cable, broadcast and entertainment. industry (sometimes optional factual) rhetoric… especially when it comes to the diabolical threat that is password sharing.
Filed Under: cable tv, password sharing, streaming, video
Companies: netflix
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