In an earnings letter to shareholders on Tuesday, Netflix said that it estimates that over 100 million households are viewing the service without paying for it, by sharing accounts with households that do.
In March, the streaming company said that it would be testing a new feature in Costa Rica, Chile, and Peru that detected account sharing and allowed for the creation of cheaper sub-accounts. This led many to suppose a wider crackdown on account sharing was coming. Netflix’s shareholder statement confirmed this as a focus for the company over the next year, and as justification set out the huge scale of the account sharing practice.
“In addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in [the U.S. and Canada],” the company said. That would mean that nearly a third of households that use Netflix aren’t paying for it.
Netflix explained to its shareholders that the big boost to its subscriber numbers during the pandemic had obscured the fact that it was facing a number of challenges in expanding its enormous audience any further — including things like increased competition in streamed entertainment, take-up of connected TVs, and data costs. These factors were behind its recent slowed growth. In the meantime, to grow is revenues, it would look to find ways to monetize the vast number of households that weren’t currently paying for the service.
In relatively friendly language that seemed aimed at customers as much as shareholders, Netflix said:
Another focus is how best to monetize sharing - the 100M+ households using another household’s account. This is a big opportunity as these households are already watching Netflix and enjoying our service. Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households. So early last year we started testing different approaches to monetize sharing and, in March, introduced two new paid sharing features, where current members have the choice to pay for additional households, in three markets in Latin America. There’s a broad range of engagement when it comes to sharing households from high to occasional viewing. So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.
While bending over backward to sound non-threatening, this passage also goes some way to explain why Netflix has previously chosen not to enforce its terms and conditions, which forbids sharing accounts outside of a household. It sounds like the company viewed the wide spread of Netflix via sharing as a useful viral marketing tool. But now, with market saturation approaching, it’s become imperative to turn some of those sharing households into paying customers.
The paid sharing features being tested allow any Netflix viewing profile to be spun off into its own full account — so things like personalized lists and viewing preferences aren’t lost — or into one of the new sub-accounts. Up to two sub-accounts can be added to Standard or Premium subscriptions, and they don’t cost as much as full Netflix subscriptions.
In an investor relations video posted alongside the letter, chief operating officer and chief product officer Greg Peters said that it would take a while for the company to refine its approach and roll out paid account sharing in all markets. “My belief is that we’re going to go through a year or so of iterating and then deploying all of that so that we that solution globally launched,” he said.