Netflix intends to implement “paid sharing” in the United States over the next few weeks, which is the company’s preferred way of addressing the issue of people sharing their login credentials with others.
Netflix has announced that it will debut paid sharing in the United States during the second quarter of this year, which is part of a global rollout planned for this quarter. The company expressed satisfaction with the results from the launch of paid sharing in four countries during the first quarter. Along with this announcement, Netflix reported mixed financial results for the first quarter, with the number of subscribers and revenue falling slightly below Wall Street’s expectations, while earnings per share exceeded expectations.
Over the course of several years, the company turned a blind eye to the practice of customers sharing passwords as it gained popularity. However, as the losses in revenue continued to accumulate into billions of dollars, the company began to take the issue more seriously, especially with the growing financial pressures in the highly competitive streaming industry. Both Co-CEOs, Ted Sarandos and Greg Peters, have recognized that there may be some negative response from certain subscribers, but they view the decision to crackdown on password sharing as a crucial long-term strategic goal.
The company has not yet determined the pricing in all areas, but it foresees a financial impact on its second and third quarter results. Although the company originally planned to initiate a major push in the first quarter, it has postponed it to the second quarter. Nevertheless, the company believes that the insights gained from prior tests will aid in refining the process as it expands globally.
According to a shareholder letter, the company is content with the recent introduction of paid sharing. While the company could have launched the service broadly in the first quarter, it decided to enhance the experience for members. The company continues to learn from each rollout and has integrated the most recent insights to deliver even better results.
Netflix stated that they have made some changes in their plan and have shifted the broad launch schedule from the end of the first quarter to the second quarter. Although this means that some of the expected growth in membership and revenue will be delayed to the third quarter, they believe that it will be beneficial for both their members and business.
The company’s first quarter venture in Canada, New Zealand, Spain, and Portugal has convinced its executives that they are on the right track. Netflix estimates that over 100 million households are currently sharing passwords, and they are simply trying to generate some revenue from these additional viewers.
The company has observed a similar trend in Latin America and other markets where there is a temporary decline in membership growth due to the announcement of their new policy. However, as borrowers activate their own accounts and existing members create “extra member” accounts, there is a subsequent increase in acquisition and revenue.
Netflix regards Canada as a reliable indicator of the potential outcome in the U.S. The implementation of the password monetization strategy in Canada has resulted in a larger paid subscriber base and accelerated revenue growth, outpacing that of the U.S.
While the initial impact on viewership stats, as measured by Nielsen, may be negative as the rollout progresses, the company is optimistic based on previous testing in Latin America that there will be a rebound in the near future.