Netflix Expands Its Stupid Password Sharing Crackdown Cash Grab

from the meet-the-new-boss dept

We’ve noted how, as Netflix gets bigger and more powerful, it has increasingly behaved more like the cable giants (Comcast) it used to disrupt. For example, once it was big enough to pay telecom giants their pound of flesh, it stopped caring about stuff like net neutrality.

But there’s no better example of Netflix’s pivot than the company’s dumb password sharing crackdown, which will require users to pay an extra fee if they’re caught sharing their password with people who live outside of the home of the original account holder.

It’s dumb for several reasons. One, predictions of how much money Netflix will make from the crackdown (Adobe claims $9 billion annually, for example) aren’t based in reality. Two, Netflix already limits the number of simultaneous streams per account, forcing you to pay more if you want more. In other words, the “problem” Netflix is trying to monetize has already been monetized.

Three, users just faced major price hikes. Four, Netflix is losing subscribers due to increased competition, and providing users with new, annoying reasons to leave your service isn’t particularly bright. Five, Netflix is on record repeatedly saying password sharing was no big deal and it loved the practice, which it saw as little more than free advertising not that long ago:

The crackdown hasn’t yet come to the U.S., but probably will next year. In the interim, Netflix has been using cash-strapped South American Netflix users as messaging guinea pigs, as it tries to figure out messaging that justifies the cash grab. It’s… not working particularly well:

The announcement of this latest pricing experiment triggered a wave of criticism, most notably among users in Argentina — the fourth-largest household penetration rate for Netflix globally, according to Comparitech, a consumer tech research platform, behind only the U.S., Canada, and Australia, with more than 4.5 million subscribers as of 2020. Argentine users took to the internet more vociferously than any other country, as anti-Netflix memes, hashtags, and posts went viral across social media. Many threatened to leave Netflix en masse by popularizing the hashtag #ChauNetflix (#ByeNetflix), a riff on the platform’s local #CheNetflix promotional campaign on Twitter.

Wall Street, as it does, demands quarter over quarter growth at any cost. Netflix clearly doesn’t feel like it can achieve that growth through improved service or innovation, so it’s taking a page from the cable industry playbook and attempting to do it by firing people and nickel-and-diming existing subscribers. It also joined the MPA, and embraced the dumb cable industry belief that password sharing is “piracy.”

But unlike Comcast in its heyday, Netflix actually sees meaningful, unconstrained competition. Disney, Amazon, Starz, Apple, Hulu, Paramount, HBO and the countless other streaming competitors that have been nibbling away at Netflix subscriber counts all surely appreciate Netflix’s dedication to making its service more expensive, cumbersome, and annoying.

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Anonymous Coward says:

Re: Re: Re:

Who has not been following the story? Netflix allow subscribers to pay for multiple streams, and now they want to charge if those streams are used from different locations, like home and a weekend cottage, or a long distance driver when away from home. They allow for, and charge for password sharing, as in paying for multiple streams, now they want to charge more is those streams do not appear to come from the same location.

nerdrage (profile) says:

Re: it's for Wall Street's benefit

If the password sharing plan sounds incoherent and poorly thought through, it’s because it is.

It all broke right before an earnings call several months back where Netflix had to tell everyone they lost subscribers for the first time ever. They knew they would get hammered because their share price was absurdly inflated based on nothing but the questionable notion that they would keep growing forever, or the ceiling was one billion users and not a mere 200M.

So they needed a good story to tell. Bullet point 1: ad based tier. Remember how they were never going to do that? But we can’t just have one bullet point, that’s lame! Somebody come up with a second bullet point fast! The earnings call is tomorrow!!!!

And that’s how the password sharing crackdown got added as bullet point #2. Great moments in corporate decision making.

I’m skeptical that bullet point #1 will help much and extremely skeptical about bullet point #2.

Charleston Chew says:

Turning Water into Whine

I can usually relate to your perspective, but I honestly don’t get this whiny, self-righteous post. Netflix’s rules are that the multiple streams at one time plans are for members of a single household. It’s their product, so they get to write the rules. Since when is it greedy for a company to expect to get paid for a service they sell which costs them money to provide?

Maybe you’re just being nasty about it because they’re a large company. If a small company did the same thing, I doubt you’d be so upset because you’d view paying them as “supporting” the little guy. I don’t think you should expect lax enforcement of the rules just because a company is large.

svim says:

Re:

I agree with Charleston Chew’s comment, this particular article just isn’t as insightful and interesting as the typical Techdirt postings.
From the start there’s a contradiction — ‘as Netflix gets bigger and more powerful’ is later countered by references to the growing competition as more and more streaming content services are taking a big bite out of Netflix’s market share numbers. I don’t even agree that Netflix is ‘more powerful’, it still dominates but as other services like Disney see rapidly increasing numbers of customers and costs increase for all of them, that’s leveling off Netflix’s once almost monopoly status.
And really, why is it so bad that Netflix is cracking down on password sharing? It’s not like the competing services are giving away free access either. (…or the ones that are free, it’s a matter where they make money on the inherent ads.)

Rocky says:

Re: Re:

From the start there’s a contradiction — ‘as Netflix gets bigger and more powerful’ is later countered by references to the growing competition as more and more streaming content services are taking a big bite out of Netflix’s market share numbers.

The first paragraph is a reference to what has been said earlier about Netflix. It’s kind of self-evident because the paragraph starts with “We’ve noted how, as Netflix gets bigger and more powerful..” and then switches to past tense to describe how they have behaved.

TL;DR: There is no contradiction.

nerdrage (profile) says:

Re: Re: Netflix is not reacting well to having actual competition.

Customers are churning because there’s actual competition now and Netflix’s growth is stalling out, resulting in a plummeting share price, resulting in panicky decision making that doesn’t address the core problem, which is that Netflix doesn’t actually have what it takes to maintain their #1 position forever. They might not even make it as an independent company long term.

Why can’t they compete?

They have two competitors (Apple and Amazon) with the unbeatable advantage that they don’t even need to make money off streaming. It’s just an adjunct to their real business of selling stuff. Bezos made a Lord of the Rings knockoff show because it helps him sell more toilet paper and dog food.

They have two or three other competitors with big IP. Disney, HBO Max and Paramount kinda. Big IP is key because it allows for budget discipline. Disney doesn’t actually need to make good shows. They can spew out Boba Fett and Obi Wan, slap Star Wars on them, and it’s an insta-hit. Netflix makes crap all the time but there are no brand names so they vanish without a trace. Wasted money.

With greater competition, Netflix can’t afford this inefficiency, but it can’t magically just make “good stuff” either. Just look at garbage like Blonde. They probably thought that would be excellent Oscar-caliber filmmaking when they greenlit it. By the time they got a look at the tawdry product, it was far too late to cancel it.

Netflix has tried for years to make its own big IP, and Stranger Things might qualify, but the amount of money they spent on failures just to find a small amount of hits is simply staggering. This business model isn’t going to work anymore so what do they do?

PaulT (profile) says:

Re: Re: Re:

“Customers are churning because there’s actual competition now and Netflix’s growth is stalling out”

Which was obviously inevitable. Even if they had an actual monopoly position, there’s no way such growth could carry on forever. The real problem there is the unrealistic demands placed by markets.

“They have two competitors (Apple and Amazon) with the unbeatable advantage that they don’t even need to make money off streaming”

Arguably Disney as well, with so much of their business being merchandising.

“Netflix makes crap all the time”

I’ll always balk a little at that. All providers make some crap, and I don’t think that Netflix is any more guilty than others. The main thing with them is that because their interfaces are quite bad at promoting anything they’re not actively trying to push, it’s easy to miss a lot of content on there.

“Just look at garbage like Blonde. They probably thought that would be excellent Oscar-caliber filmmaking when they greenlit it. By the time they got a look at the tawdry product, it was far too late to cancel it.”

Art is subjective. Whatever you think of the movie, it’s still #1 on the platform. It’s a very divisive movie, and because they’re pushing it, it’s been seen by a lot of people who were expecting something different or just wouldn’t have been in the market for it if it had release some other way.

Yet, according to a quick check the film only cost $22 million, which is less than advertising costs for many other movies. Hell, it’s less than some actors are paid before a frame is shot. Overall, it’s a successful film. Better than, say, Moonfall, which lost a lot of money but I don’t see people expressing ideas about that film’s distribution model being at fault.

There’s definitely problems, and they do seem to have an issue building brands to compete against Disney/whoever in terms of blockbuster IPs. But, that’s not the only way to do things, and trying to play Disney at their own game probably won’t end well.

This comment has been deemed insightful by the community.
Rocky says:

Re:

Since when is it greedy for a company to expect to get paid for a service they sell which costs them money to provide?

Customers pay for 5 streams – whoever uses those streams doesn’t in no way change the fact that Netflix got paid. Netflix needs to keep growing their gross profits so investors are happy, one easy way to do that is to extract more money from their customers, even though it’s very short-sighted, exceedingly so when they are loosing market share. That’s where the use of greedy comes from.

Maybe you’re just being nasty about it because they’re a large company. If a small company did the same thing, I doubt you’d be so upset because you’d view paying them as “supporting” the little guy. I don’t think you should expect lax enforcement of the rules just because a company is large.

How was he nasty? I guess there are people who doesn’t like it when others point out stupidity, because Netflix move is stupid and short-sighted for a multitude of reasons. If Netflix was small company doing stupid shit, it would also be pointed out – which actually happens regularly here on Techdirt.

Cowardly Lion says:

Re:

Since when is it greedy for a company to expect to get paid for a service they sell which costs them money to provide?

When they change the terms and conditions underneath you to suit their balance sheet. When they give you less for more. When they expect their customers to fund their growth rather than providing actual, tangible improvements to their service.

I could go on…

Freakydisco (profile) says:

Re: Fine. Be a sheep.

Please enlighten me as to how I may continue to be a valued customer when all I do is travel for work. I don’t share my passwords with anyone. I never have. But I travel all around the world extensively for business—nearly every day if my life. This is my reality. And Netflix was something I watched to keep me busy while traveling. Now, fine, it’s a privilege, not a right. But I was a a loyal Netflix customer from the beginning of their online streaming service. How will I be treated when their servers detect that I’m constantly logging from different countries every week or so, and different IP addresses every day? Sure, they can do whatever they want; I’m not entitled to anything; that’s not the argument here. But they seem to be using an approach which will penalize certain groups of innocent and loyal people in an effort to weed out the bad seeds. People like me are expendable, or we’re expected to suck it up. Let’s not forget this in an online service, and online services are generally inherently designed to be mobile. To act as if I need to be tethered to my house is as good as being tethered to a coaxial cable in the wall… we might as well ditch online services and go back to normal TV. Imagine Apple or Tidal restricting your music to your home. Ridiculous! This practice opens the door for other companies to jump on the band wagon and start charging us for mobile digital content vs stationary digital content. Shouldn’t I be allowed to listen to my music on the go?? How do they know it’s me and not someone else?? Why is music different than movies and tv shows on the go? Oh, they’re not? Then why are we debating this?

We live in a world where everyone is now gouging us with “dynamic pricing” and subscription-based services for everything. Suddenly I have to pay a monthly fee to check my own email instead of buying the software once, or I’m being charged to use Photoshop monthly. Enabling these companies to “do whatever they want” without pushback or protest is irresponsible as consumers. Customers CAN change a company through boycotts and revolt. It’s been done before and we can do it again.

I was out buying a fridge recently and they actually had digital price tags on the appliances—and those price tags were literally changing as I was perusing my options. While I was talking to the salesman about a model I was interested in, the price tag flickered. When I asked what was happening, he said the price might be increasing out of his control because they use live updates and changes based on demand. I laughed and walked out and took my business elsewhere. Those digital tags are some obvious pressure tactics and I will not be subjected to panic buying under the guise of “dynamic pricing”. I mean, really. The fridge I’m standing in front of just happens to be flickering as I’m trying to decide??? Coincidence? Maybe. But what stops him or someone in the office from covertly pressing a button which makes everything “update” just as a customer is on the fence? That’s the future for you. The salesman gets to stay calm and cool and friendly while it’s now the appliance itself that starts flickering, as if to say “You’d better buy it now! We can’t guarantee these prices forever!” How convenient. Blame it on the dynamic price tag, not the salesman, because the tag is out of his control—and it’s being updated by what means? The universe? The almighty god of price tags? A direct link to the manufacturer? Bye. Next.

I don’t know about you, but I certainly don’t want to live in a society where we go to the grocery store and the price of an apple is fluctuating wildly before our eyes, depending on how many apples are left in the bin. Want the last loaf of bread? It’s gonna cost you $50!

The point? Yes, a business can do whether they want. And as a consumer, so can I. I can take my business elsewhere out of protest. It lets them know we won’t stand for it. Don’t forget, streaming exists en masse now because the media giants needed a response to all the illegal torrenting which was killing the DVD market. When they realized that everyone was fine with downloads rather than live TV they pivoted—and Netflix was the first result. With Netflix as proof of concept, everyone jumped on the bandwagon. But customers will always take the easiest path—like water—so if you piss them off or make things overly complicated and pricey, they’ll find another way. I’m not saying it’s right. It’s just what it is.

What Netflix is doing now is the ultimate irony, given how they came to exist. We can make a point collectively NOW before everyone gets out of hand. I am disgusted by what this represents, so even though I’ve never been punished or penalized by Netflix, I quickly canceled my account the very moment I read what they were testing in other countries. I let them know exactly why I was leaving and that I can’t support such an approach, especially when their own employees and executives surely know what’s it’s like to travel or to own multiple properties. They can do with that what they will… but I’m not losing any sleep over it.

Making things difficult for your customers is only going to lead them back to torrenting. It’s really stupid. And the rub? I’m a business owner myself! I’m the owner an CEO of a corporation and I’m in the entertainment business; I offer online services myself. I can absolutely afford multiple Netflix accounts—but I am vehemently opposed to their approach. It sets a very bad precedent. I feel I’m being given no choice but to walk away because there’s zero consideration for people like me. Or to people who have a cottage they’d like to visit on the weekend. So in protest… I’m out. Be a sheep if you want, but no change ever comes about by being complacent.

Anonymous Coward says:

You could also argue that the “competition” from other streaming services is just segregation due to all the various exclusive silos (especially the likes of Paramount and Disney with their massive back catalogs that they could (and have done in some cases) easily pull from other streaming services.

I often wonder how much the major studios pulling content from Netflix to send people to their own streaming platforms is contributing to Netflix’s subscriber bleeding.

That Anonymous Coward (profile) says:

Re:

Because they are all convinced they can make more on their own, ignoring that people aren’t going to maintain 5 different streaming accounts.

You can have exclusives & a great back catalog but there is only so much people are willing to pay to access them.

Imagine if 8 different companies had created 8 different DVD formats/players & expected that consumers would pay to buy all of them… it would have ended poorly.

Some of these streaming companies aren’t that good & they should have just cut deals with one of the big guys to have them do that hard part. But they have to answer to wall street who thinks that magically consumers are totally going to pay upwards of $50 a month to see 1 show.

The silos and exclusives seem like a good idea, if you’ve been in the MBA bubble your entire life and never looked at how many people watched Game of Thrones but didn’t have HBO on their cable plan…

They could do so much better if they just decided to give customers what they want, fewer places to have to run to to see content, fewer restrictions about where and when you can use the service you are paying for, and focus more on customer satisfaction instead of wall streets demands that they totes need another nickel in value or else.

nerdrage (profile) says:

Re: Re: wishful thinking

Disney’s huge subscriber growth (faster than Netflix ever had) proves that exclusive control over big IP is the winning formula. They put money into just a few movies and shows. When they stink, they still make money, because they have Marvel or Star Wars slapped on them, and the fanbases will watch uncritically. When Netflix makes a stinker, it’s wasted money.

You may not like it, but it works, it brings in money and it’s going to beat Netflix in the long run. Amazon, Disney and probably HBO Max will all beat their subscriber counts. Netflix will be lucky to maintain independence and not be bought by Microsoft or (ugh) Comcast.

PaulT (profile) says:

Re: Re: Re:

You’ve hit on an important point in a way. Disney have nearly a century of franchise content, much of which they didn’t originate. They have a unique market momentum in that people default to them for certain types of entertainment (pretty much anyone with a kid is going to want them available for a start), and it’s cheaper than it’s ever been to do that (people who paid for the tapes that were about to go into the “vault” could get 2-3 months sub for the same price now).

Disney still releases flops, still lose on the content that doesn’t work, they can just depend on stuff from many years ago whereas Netflix is still building from scratch. Note that you mentioned 2 franchises Disney didn’t own until fairly recently as the reasons people will continue to subscribe.

“It’s going to beat Netflix in the long run. Amazon, Disney and probably HBO Max will all beat their subscriber counts”

Maybe it will. Nobody stays on top forever, and Netflix got where they are by creating a market. It wouldn’t be the first time that someone created a market and fell from the top spot, by a long shot. But, they’re not going to be destroyed completely.

Netflix being toppled from #1 to, say, #5 would be a big problem for investors but it doesn’t necessarily reflect badly on the company. It’s just that when you go from being the defacto default choice because you created the streaming market, to 80% of your suppliers pulling out to set up competing services and you have to learn to become a movie studio and a TV network at the same time, there’s going to be some bad moves along the way.

The worst thing would be if they get bought out, but hopefully it’s a little early to say that just because they had their first drop in subscribers in their history (actually, a slight increase internationally and they would have still increased in total if they hadn’t blocked Russia IIRC).

That Anonymous Coward (profile) says:

Re: Re: Re:

The problem is with Wall Street screaming, they look at the first weeks numbers to decide if it stinks and kill it off before word of mouth can spread.
Netflix doesn’t advertise that much outside of itself, as far as I can tell, and while I sometimes seen puff pieces promoting something new on Netflix I might like far to often the article announcing its already cancelled crosses my path 3 days later.

PaulT (profile) says:

Re:

It’s fairly obvious that part of Netflix’s “problem” right now is because they went from the only game in town to having to directly compete with companies that used to supply them (I say “problem” because they haven’t lost subscribers internationally once you account for cutting off Russia).

But, cracking down on people they explicitly said could share accounts a few years ago isn’t going to inspire them to open up more accounts.

nerdrage (profile) says:

let the desperate flailing begin uh continue

Streaming customers have noticed that they can cancel services very easily and can’t actually watch more than 1 at a time. So they’ve started churning around the options to save money. The peak subscription level was 4-5 per household. That’s dropping now and could drop all the way to 1 per household. Probably above that since some are free (Amazon), maybe settling between 2 and 3.

Which means Netflix is slammed particularly hard because they’re not a new kid with a new library of attractive content and they have nothing like Marvel, Star Wars, Lord of the Rings or Game of Thrones to grab attention.

This means they won’t keep growing like Wall Street wants them too, and their share price fell of a cliff. They need some plan that sounds like it will turn things around, so they whomped up an ad-based tier and password sharing crackdown in a hurry right before the earnings call where they had to deliver the bad news. The rush job aspect of it was obvious.

Whether these things will work is another matter. Competitors can do those too, so how does it differentiate Netflix from Disney or HBO Max? And Netflix still doesn’t have any big IP like competitors do. I don’t think they’ll go under entirely but I do expect them to be eclipsed by one or more competitors. Disney, Amazon, probably HBO Max.

jose says:

Why is this such a big deal?

Netflix is trying to avoid for different households that do not share any financial connection to share their product so they actually pay for the product and service they are consuming? Why is that such a dickish move?

Are we going to sit here and pretend that doesnt happen?

Yes, it sounds like it will be very difficult to identify and/or enforce given that people may move/travel around at any given time and want to use their account at different places but in theory I dont see why is such a bad thing that Netflix wants people to pay for their services.

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