Netflix is launching a password-sharing crackdown in the next few weeks in the US. Could Spotify follow?

Photo Credit: Souvik Banerjee via Unsplash

Netflix is set to start cracking down on password sharing in the US.

The streaming giant revealed the plan in a letter to shareholders published with its Q1 2023 financial results yesterday (April 19).

In the letter, Netflix says that password sharing “undermines [its] ability to invest in and improve Netflix for our paying members, as well as build our business”.

The company estimates that over 100 million households worldwide are sharing accounts.

Netflix reports that it added 1.75 million subscriptions in Q1 to end the quarter with 232.5 million global paid subscribers, which was up 4.9% YoY.

Netflix first announced its intention to start charging its users additional fees to share passwords around a year ago.

In March 2022, Netflix started testing these password crackdowns – an initiative the firm now calls ‘Paid Sharing’ –  in Latin America.

In February 2023, Netflix expanded its ‘Paid Sharing’ trial into Canada, New Zealand, Portugal and Spain.

In those four markets, Netflix members can “buy an extra member” by adding an extra member sub-account for up to two people they don’t live with.

Each comes with a profile, personalized recommendations, login and password — for an extra CAD $7.99 a month per person in Canada, NZD $7.99 in New Zealand, EUR €3.99 in Portugal, and €5.99 in Spain.

The scheduled rollout of ‘Paid Sharing’ in the United States will now form part of a broader rollout in Q2 2023, says Netflix.

Netflix told its investors this week that it’s been “pleased with the results” of the rollout in Canada, New Zealand, Portugal and Spain to date, and that “while we could have launched [‘Paid Sharing’] broadly in Q1, we found opportunities to improve the experience for members”.

Added Netflix: “We learn more with each rollout and we’ve incorporated the latest learnings, which we think will lead to even better results. To implement these changes, we shifted out the timing of the broad launch from late Q1 [2023] to Q2.

“While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome for both our members and our business”.

Another streaming giant that could be watching these developments very closely is Spotify.

The audio streaming platform started cracking down on its own account-sharing issue back in 2019 when it started requiring members on the $15.99-per-month Premium Family Subscription to prove that they all live at the same address.

According to SPOT’s FAQs, the primary account holder and up to five subsidiary account holders must be family members residing at the same address in order to be eligible for the shared account.

Spotify adds in those FAQs that it “may from time to time ask for re-verification of your home address in order to confirm that you are still meeting the eligibility criteria”.

Spotify, which had 205 million Premium Subscribers as of December 31, said in its Q4 and FY 2022 financial results that its “Family Plan was a meaningful contributor of total gross additions in Premium Subscribers” in 2022.

In the face of rising inflation, slowing music subscription growth and a resistance so far to raising Premium Individual prices in its biggest markets, could Spotify look to Netflix’s “paid sharing” scheme as a case study for growing its own subscribers and revenues?

(Spotify raised the price of its Family Plan in multiple markets, including the UK and US, over the past year and a half. It also raised its individual premium fees in markets such as Brazil, Argentina and Sweden last year, as noted in an MBW analysis in June. But that classic $9.99/€9.99/£9.99-per month price point for individual premium Spotify subscriptions still remains the same in the US, the UK, and in Europe’s biggest markets like Germany.)

Looking to Netflix as a case study for how users might respond to being charged to share their accounts, citing the results of its own recent tests and launches, Netflix told its investors that in Latin America, it saw “a cancel reaction in each market when we announce the news”, which, it said, “impacts near term member growth”.

Netflix added however, that as account “borrowers” in those Latin American markets “start to activate their own accounts and existing members add ‘extra member’ accounts”, it saw “increased acquisition and revenue”.

In Canada, which Netflix believes is “a reliable predictor for the US”, the streaming platform says that its paid membership base is now larger than it was prior to the launch of paid sharing initiative and that “revenue growth has accelerated and is now growing faster than in the US”.

Netflix also told its shareholders: “As a reminder, as we roll out paid sharing – and as some borrowers stop watching either because they don’t convert to extra members or full paying accounts – near term engagement, as measured by third parties like Nielsen, will likely shrink modestly.

“However, we believe the pattern will be similar to what we’ve seen in Latin America, with engagement growth resuming over time as we continue to improve our programming and borrowers sign-up for their own accounts.”Music Business Worldwide

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