You might recall that almost exactly a year ago, Netflix announced that it would be getting into the “gaming” business. While the announcement led many to believe that Netflix was going to jump into competing with Google’s Stadia platform and offer streaming AAA video games, in actuality, it turns out to be… not so much. Instead, Stadia collapsed faster than a poorly maintained Miami condo building, and Netflix’s plans were revealed to be a couple of movie/show-related mobile games siloed behind Netflix’s mobile app. While this felt underwhelming, at least the games were free and contained no micro-transactions.
So, it’s been a year; how’s it going? Well, on the one hand, there are plenty of reviews of the 25 or so mobile games that are fairly positive. That’s good!
Back in November, Netflix began offering games as part of its subscription service, launching with five initial titles: Stranger Things: The Game, Stranger Things 3: The Game, Card Blast, Teeter Up, and Shooting Hoops. It’s since added more and now has over 25 mobile games that people can download through the Netflix app on either Android or iOS devices. Some of these games—like Into The Breach—are really good, too. And all of these games contain no ads or microtransactions.
However, that positive outlook on the quality of the games only adds to how perplexing it is that the number of Netflix subscribers who have even given a single one of those games a try is essentially a rounding error. That’s bad!
As reported by CNBC, via data from app analytics company Apptopia, Netflix’s games have been downloaded just over 23 million times and have an average daily audience of 1.7 million. That might sound good on paper, but it’s basically nothing compared to Netflix’s 221 million subscribers. What this data seems to show is that about 200 million people who have access to Netflix’s library of games are currently not playing them or maybe don’t even know they exist.
Still, with a solid list of games that continues to grow, Netflix is struggling to get anyone to care. Apptopia’s data shows that all of these games have a combined daily audience of 1.7 million. Meanwhile, there are hundreds of crappy mobile games that have twice that alone.
This should ring as strange on multiple levels. Usually, when user adoption for a product is garbage, it’s because that product is typically trash. That isn’t the case here. Very few people seem to think that the problem here is the quality of the mobile games relative to the rest of the market. On top of that, while Netflix has certainly had its struggles as of late, the company’s longer term success has largely been about great marketing and nimble business models that react well to change in customer demand. Yet here we are, with a mobile gaming market that’s never been bigger and a company with all kinds of marketing power and name ID that can’t seem to marry those two things together to get people to play its games. That’s just odd.
But it appears to speak to a larger issue at Netflix, one that is less about quality of product and more about an inability to align its pricing and messaging, and, perhaps now, user experience when it comes to getting at these games through the Netflix mobile app, with consumer demand.
Netflix is currently facing a problem with keeping users. Since the beginning of this year, the streamer has lost 1.2 million subscribers. In response to downward trending numbers, Netflix has cut jobs, spending, and canceled shows. Building and supporting a library of games that can compete with Game Pass or Apple Arcade isn’t cheap.
If I had to put my chips anywhere, I’d guess that by the end of 2023 there won’t be a Netflix gaming offering unless something massively changes. Netflix would need to cease bleeding subscribers, would need to rework how subscribers get these mobile games (or stop siloing them with subscribers), and would have to increase the number of games on offer while still maintaining or increasing their quality.
That is what is called a “heavy lift” in the gaming industry.
Hungry to boost municipal budgets, a growing roster of states and cities have spent the last five years or so trying to implement a tax on Netflix, Hulu, and other streaming services.
Sometimes (like in Chicago) this has involved expanding an existing amusement tax (traditionally covering book stores, music stores, ball games and other brick and mortar entertainment) to online streaming.
Other times this has involved trying to leverage existing cable TV laws or ordinances to try extract their pound of flesh from Netflix. In both, it involves taking rules written for the physical world, and applying them to the internet. Often haphazardly.
That’s what’s been happening in Texas, where nearly a dozen different towns have joined forces to sue Netflix, Disney, and Hulu for failure to pay millions in franchise fees:
The cities are alleging that the streamers should be paying annual franchise fees back to 2007, as they said is required by the Public Utility Regulatory Act (PURA). Those are the fees that cable/broadband operators provide that go toward city services.
The Texas law allows cable and video providers to deliver cable TV via publicly owned utility poles on public land in exchange for remitting 5% of gross revenue to the municipality. So the argument has generally been because Netflix bits technically travel over those same lines somewhere in the tangle of data flowing over them, they should also be responsible for paying that tax.
Cable TV providers generally have a physical presence in the towns and cities they serve. Employees live in these areas, climb physical city poles in these areas, and do tech support calls in these areas. By contrast, a company like Netflix may have little to no real physical presence in a town (outside of maybe some CDN hardware at an internet exchange point or regional ISP), so demanding they pay a tax under laws designed decades ago for different technologies often proves logically and legally unsound.
Regardless, Texas towns and cities are hopeful the law doesn’t care about all that, and they can just get what they view as a lucrative windfall, grabbing money they don’t really deserve for services they don’t actually have any meaningful authority over.
After years of saying password sharing wasn’t really a big deal and was akin to free advertising, Netflix recently announced it would be cracking down on password sharing. It started with a new trial in Chile, Costa Rica, and Peru, where users were forced to pay an additional fee if they shared their password with users outside of their home.
Now Netflix has expanded the trial to Argentina, El Salvador, Guatemala, Honduras, and the Dominican Republic, where users who try to stream Netflix outside of their central address will be nagged and forced to pay an additional fee per home. In a statement, the company tried to pretend that password sharing was a big problem:
“It’s great that our members love Netflix movies and TV shows so much they want to share them more broadly,” Chengyi Long, Netflix’s director of product innovation, said in a statement. “But today’s widespread account sharing between households undermines our long term ability to invest in and improve our service.”
Of course that’s bullshit.
One, Netflix already limits the number of concurrent streams for each account, so there’s already restrictions in place for additional users that might be sharing your core password. Two, Netflix just got done imposing a major price hike that should have easily helped them “invest in and improve their service.” Three, the company spent years making it clear password sharing was no big deal.
What’s actually happening is that Netflix is a publicly traded company that is facing newfound competition and saturated growth. Yet it still has to please insatiable Wall Street investors and deliver their quarter over quarter returns. Just offering a good service at a good price isn’t good enough, so Netflix is now forced to nickel-and-dime users to extract more money for the same service.
Previous reports made it clear that these trials aren’t particularly well done and have been confusing the hell out of many subscribers, especially in developing nations. So Netflix’s grand idea to squeeze existing customers to please Wall Street is likely to backfire, driving existing subscribers to alternative streaming providers, or making them more likely to occasionally put their subscription on hold.
This is, of course, the cycle that traditional cable giants like Comcast have been caught in for years, consistently trying to excite Wall Street by cutting back on things like customer service as they try to extract blood from a stone. The difference is that Netflix faces actual competition in the streaming wars, giving alternative competitors a chance to differentiate simply by not being an asshole.
It’s always interesting to watch one-time disruptors shift toward turf protection, apparently remembering none of the annoyances that drove their passion for disruption (and ultimate success) in the first place.
Once Netflix was as powerful as the telecom sector, it shifted its tone on issues like net neutrality. And as the now-dominant company has increasingly faced competitors, it has taken to nickel-and-diming its subscribers (see the recent rate hikes followed by fees for those who share passwords, a practice it once heralded as little more than free advertising).
Roku has also gone from pesky market disruptor to one of the biggest streaming hardware companies in the world. And their behavior has also, as you might have expected, started to resemble a lot of the cable companies that it once disrupted.
In the last year or two, Roku has been mired in contract standoffs with Google and AT&T as it tries to leverage its market share to take greater control of profitable streaming user viewing, CDN, and behavior data. That’s resulted in a growing number of instances where users have lost access to certain streaming content on certain devices (something you’re going to see a whole lot more of).
As Janko Roettgers at Protocol notes, many of Roku’s contemporaries feel like the company may be getting a bit to big for its britches as it pushes for a bigger cut and more control:
Under the new terms, Roku keeps 45% of net advertising revenues. That’s still less than the cut some competing platforms take, according to industry insiders. However, given Roku’s size, the change has significant impact on the business of these channel providers, with one of the affected publishers calling it “a bit of a money grab” in a conversation with Protocol.
As we noted last year, the future of streaming TV is looking more and more like traditional cable. Especially with the rise of free, ad-supported streaming TV channels (aka “FAST”) popping up on a lot of hardware. Roku wants to take advantage of the company’s massive fifty percent streaming hardware market share to bend other sector companies to its will.
In a book forward in 2016, Netflix CEO Reed Hastings warned about the hubris of successful disruption:
“Throughout my business career, I have often observed powerful incumbents, once lauded for their business acumen, failing to adjust to a new competitive reality,” Hastings writes. “The result is always a stunning fall from grace.”
Like most executives, Hastings hasn’t heeded his own warnings. Once you’ve achieved success and face the kind of young, hungry competitors you used to be, panic often sets in, and you forget what brought you to the top of the mountain in the first place. Especially under the thumb of Wall Street’s demand for improved quarterly returns at any cost. And the cycle continues…
Back when Netflix was a pesky upstart trying to claw subscribers away from entrenched cable providers, the company had a pretty lax approach to users who shared streaming passwords. At one point CEO Reed Hastings went so far as to say he “loved” password sharing, seeing it as akin to free advertising. The idea was that as kids or friends got on more stable footing (left home to job hunt, whatever), they’d inevitably get hooked on the service and purchase their own subscription.
But as Netflix subscription numbers have begun to go south and competitors are challenging Netflix’s market share and revenue, the company is predictably taking a harder stance on the practice.
The company recently announced it would be testing a new system that would impose additional fees on an account holder if Netflix can see that the account is being used outside of the account owner’s home. Netflix hasn’t explained precisely how this will work, only that it’s testing the effort in Chile, Costa Rica, and Peru, where users who share accounts now have to pay around $3 more a month.
But there’s already trouble in Netflix’s deployment of the program. RestofWorld notes that messaging, implementation, and enforcement of the program in Peru has been a “mess,” leaving consumers confused as to what the hell Netflix is actually doing and regulators eyeing an intervention:
For some, the price increase has been enough to convince them to cancel their Netflix accounts outright. Others continue to share their accounts across households without any notification of the policy change or have ignored the new rule without facing enforcement. Overall, the lack of clarity around how Netflix determines a “household” and the differing charges levied on different customers have left subscribers in the trial confused, risking action from consumer regulators.
As the report notes, Netflix appears to have thought it would be a good idea to test these added hikes in smaller markets with more low-income households that are already struggling to afford basic services. All because Netflix executives want to claw back some revenue from a practice industry executives previously and repeatedly made clear wasn’t that big of a deal.
Streaming providers like Netflix already limit the number of maximum possible concurrent streams by each account. And there’s no guarantee that users harassed with additional warnings and fees will automatically decide to sign up for their own account — as opposed to just signing up for any of a growing number of cheaper Netflix competitors like Amazon Prime, Hulu, Disney Plus, Paramount Plus…
Netflix reported its first subscriber loss in a decade back in April due to a number of factors, including competition, customer dissatisfaction with program selection and quality, and a recent significant rate hike. Imposing yet another poorly messaged rate hike on top of its existing headaches likely isn’t the winning subscriber-boosting strategy many Netflix executives seem to think it is.
Apparently, I never should have wished on that old monkey’s paw for copyright term reduction. One of the very reasons why Techdirt exists in the first place, and why it was started nearly 25 years ago, was to fight back against over expansive copyright laws, and, as such, we’ve spent many years and many posts arguing about the problems of excessive copyright terms. Indeed, there are few things I’ve hoped for more in these two and a half decades than for Congress to realize the dangers of excessive copyright and to move to shorten copyright terms back towards their actual constitutional underpinnings.
Almost exactly ten years ago, Republicans in Congress actually seemed to recognize that copyright terms were too long, and published a paper arguing, in a principled way, for shorter copyright terms. Of course, within 24 hours, the screaming responses from Hollywood caused the paper to be pulled, and for the author of the paper to be fired.
So… now, we’re actually seeing a bill to reduce copyright terms, coming as promised from Senator Josh Hawley, one of the most performative, least principled elected officials around. Hawley has now officially released his Copyright Clause Restoration Act and made it abundantly clear that he’s doing so to punish Disney for that company’s political speech.
Everything about this bill is ridiculous and almost certainly unconstitutional. And I say that as someone who was arguing for shorter copyrights that were more closely aligned with the Constitution since Josh Hawley was in a private boys prep school (which is funny since he so wants to present himself as a man of the common people).
So, let’s go through the bill, and discuss what actually makes sense, but also why Hawley’s attempt here is so ridiculously bound to fail. It starts out by returning copyright term to what Hawley (incorrectly) refers to as the “original term.”
(1) ORIGINAL TERM.—Notwithstanding any provision of title 17, United States Code, or any other provision of law, copyright in any work shall endure for 28 years from the date it was originally secured.
(2) EXTENSION.—The holder of a copyright under paragraph (1) shall be entitled to a renewal and extension of the copyright in the applicable work for a further term of 28 years if the holder applies for that renewal and extension during the 1-year period before the expiration of the original term of the copyright under that paragraph.
So, first off, if we’re going back to the “original term” that would be 14 years with a 14 year renewable extension possible. The US didn’t shift to a 28 year/28 year extension copyright term until the Copyright Act of 1831. Also, I mean, if we’re going back to “original” copyright thinking, the law only applied to maps, charts, and books. Hell, sound recordings weren’t even covered by federal copyright law until 1972.
Anyway, there are actually strong public policy reasons to consider returning the US to a 28 year/28 year extension copyright system. Evidence has shown a massive cost to the public of our over extended copyright law — and the constitutional underpinnings of copyright law are that it must benefit the public (not, necessarily, the copyright holder). On top of that, back when we did have a 28/28 copyright system (which we had until 1978), the vast, vast majority of copyright holders did not renew their copyrights at the 28 year mark. The one exception, by the way, was movies (which, hold that thought…).
So, there are perfectly good, principled policy reasons to push for shorter copyright. Indeed, there are economic studies that have suggested the ideal copyright term for public benefit is somewhere around 15 to 38 years. And, it seems that a perfectly reasonable way to set this up is to have extremely short copyright terms, with frequent renewal periods that grow increasingly expensive. If it’s not worth it for someone to renew, let the work go into the public domain where the public can make use of it.
Of course, there are a few problems with jumping into this approach, with a big one being that in order to do this, the US would have to immediately violate a decently large number of international treaties. However, that’s long been the excuse of those looking to extend copyrights ever longer, or pushing ever more draconian copyright laws on the rest of us. They go running to international trade negotiations and slip in something awful, and then run back to Congress, demanding that we make copyright worse to meet our “international obligations.” After all, the architect of the DMCA, Bruce Lehman, has publicly admitted that this is how he got the DMCA into law. After Congress refused to pass it, he ran to Geneva, and got an international treaty passed, then went back to Congress insisting it had to enact the DMCA to comply with our “international obligations.”
That said, the reality is that Congress is not bound by any international treaties, and can pass legislation that violates them. That doesn’t mean it won’t create some international messes, though, and that could lead to retaliation in a variety of forms.
The next section of the bill then goes even further, and into murkier legal territory, by trying to claw back copyright terms already granted, making the law retroactive:
(2) RETROACTIVE EFFECT.—
(A) IN GENERAL.—Subject to subparagraph (B), subsection (a) shall apply with respect to a copyright that, on any date on or after May 1, 2022, is owned by a person that—
(i) has a market capitalization of more than $150,000,000,000; and
(ii)(I) is classified under North American Industry Classification System code 5121 or 71; or
(II) engages in substantial activities for which a code described in subclause (I) could be assigned.
Phew. So there’s a lot to break down here. This is Hawley’s weird attempt to make it obvious to everyone that this is, effectively, a bill of attainder, and specifically designed to punish Disney. Hawley, who positions himself as a “constitutional scholar” surely knows that bills of attainder are unconstitutional. I mean, it’s right there in Article I, Section 9, Clause 3:
No Bill of Attainder or ex post facto Law shall be passed.
A bill of attainder is defined as the legislature effectively targeting an individual, group, or company for punishment. And, I mean, Hawley didn’t shy away from making it clear that this was a bill of attainder in his press release, literally headlining it “Hawley Introduces Bill to Strip Disney of Special Copyright Protections.” That press release title is basically “hello, I am introducing a bill of attainder.” Because Disney has no “special” copyright protections. It just has copyright protections. And then literally calling out the company you are trying to punish as the reason for your bill is effectively handing them their brief to sue to stop the law as unconstitutional.
But, to really cement this home, while the bill would restrict all future copyright to a maximum of 56 years, it would strip only a small number of companies of their current copyrights. And from the text above, you can see how narrowly focused the bill is. Basically, everyone who has extremely long copyrights today can keep them unless the copyright is held to a company with a market cap over $150 billion (Disney is currently around $200 billion), and is classified in the NAICs system as being in two specific industries: 5121 for “Motion Picture and Video Industries” and 71 for “Art, Entertainment, and Recreation” which is the code that generally applies to theme park companies.
Doing a quick search around, it appears that the retroactive nature of the bill may only apply to a very small number of companies which are in those classifications and over $150 billion in market cap. On the Hollywood studio side, you have Disney and Comcast NBCUniversal (though NBCUniversal’s primary NAICS code is listed in 5152 for “pay and specialty TV”), but clause II would likely cover it. Netflix’s primary classification is otherwise, but it would also fit.
I guess it’s possible Amazon could get covered by this as well, as it owns MGM. MGM by itself has a much smaller market cap, but Amazon has a larger one. So if you lumped them together, it could take away all of Amazon’s copyrights and… well, wouldn’t that be interesting? Viacom’s market cap is below the threshold. Arguably, Apple might be covered as well. The new Warner Bros. Discovery market cap is also way below the threshold.
So, end result, no new copyrights can last more than 56 years. Most existing copyrights remain until they were set to go into the public domain, except for the um, “woke” corporations of Disney, NBCUniversal, Netflix, Amazon and Apple. It sure looks like this is directly targeting a very small number of companies — companies that Republicans have been known to criticize heavily.
There is also the takings issue. In the past, I’ve seen (mainly copyright maximalists) argue that reducing copyright would violate “the takings clause” of the 5th Amendment. This is the part that says “nor shall private property be taken for public use, without just compensation.” In general, I have problems with this applying to copyright, because I don’t think it’s appropriate to call copyright “private property.” And, in fact, if it is then it seems that the takings clause should have been violated when we massively extended copyright with the 1976 Copyright Act, and again in 1998 with the Sonny Bono Copyright Term Extension Act. In both cases, works that were slated to reach the public domain were “taken” back and held in copyright for many more years. If that’s not a “taking” under the 5th Amendment, then shortening copyright terms shouldn’t be either.
Still, I would bet that Disney and others would claim otherwise, and they would have to fight their way through the court. And we’ve seen that this particular court (even very recently) takes a very broad understanding of the “takings clause,” to the point that it would probably need to overrule its own ruling from just last year to decide otherwise.
There is one final clause in the bill, a weak attempt to deal with cases where some of the companies listed above have copyrights that would expire under this bill, but which are still in active use being licensed. There, it includes some terms under which the license would expire over a 10 year period, effectively phasing out the copyright over that time.
(B) LICENSING.—If, as of May 1, 2022, a person is operating under a license with respect to a copyright that is subject to subparagraph (A) and that, because of the application of that subparagraph, would expire during the 10-year period beginning on May 1, 2022, that person shall continue to hold the rights contained in that license (to the exclusion of any person not granted those rights by a license before May 1, 2022) for a period that is the shorter of—
(i) 50 percent of the remaining license term, as of May 1, 2022; or
(ii) 10 years, beginning on May 1, 2022.
And, well, whatever. It’s not like this bill has a snowball’s chance in hell of going anywhere. Because it’s not actually meant to go anywhere. It’s all part of Hawley’s non-stop performative bullshit, playing to a base he believes is so stupid that they’ll lap up whatever culture war nonsense he puts in front of them. And, right now, they want their politicians to “punish” Disney, because Disney execs offered some mild criticism of Florida’s pro-bigotry bill.
Copyright terms should be reduced. Massively. But this isn’t going to do it. Nor is it actually intended to to do it. Copyright term reduction is just a convenient tool for Josh Hawley to do Josh Hawley kinds of things. Anyway, that will teach me never to wish on the old monkey’s paw for copyright term reduction ever again.
As we recently noted, Netflix is preparing for a big crackdown on users who share account passwords with folks outside of their home. When Netflix was a pesky upstart it declared password sharing a good thing and a form of free advertising. Now that it’s facing Wall Street pressure to keep quarterly earnings up in the face of more competition, the push is on to start nickel-and-diming the userbase.
Under the new program, users who share passwords with folks outside of their home (something they’ll apparently track by IP or MAC address), will be required to pay even more money ($3 per user). And, it’s worth repeating, Netflix already limits concurrent streams per existing account. This new price hike (to be clear that’s what it is) comes on the heels of a significant price hike last year.
Much like piracy statistic debates, there’s no guarantee that annoying account holders will drive password sharers to get new plans. And a new survey suggests that as many as 13 percent of Netflix users could actually quit the service over the price hike. Even if only half of those users actually follow through, that could mean a revenue hit of as much as $900 million:
Still, if it were, say, 6.5% leaving the service, that would still represent around 5 million customers, and that’s “$900 million in [annual] lost revenue,” [Aluma’s Michael] Greeson noted.
On the flip side, the firm estimates that as many as 12% of the users would be willing to pay the higher fee per household. Parents, for example, might be willing to pay the additional $3 per user fee for their daughter instead of forcing her to subscriber to a whole new $15 a month plan. Even then, the firm estimates the money made here might not counter the money lost.
Here’s the thing, though. This is just the start. Netflix is being forced into turf protection due to increased competition. Streaming growth is also going to be constrained because the broadband market (directly tied to new streaming accounts) is saturated. So if it’s going to satiate the insatiable hunger of Wall Street for improved quarterly returns, it will need to find new and creative ways to grow revenues.
As the Tudum fracas illustrates, that’s not going great. Some growth could come in the form of new ventures like its game streaming service (in which Netflix will be a late-arriving underdog), but most of it will come in the form of the exact kind of nickel-and-diming that the traditional cable industry has tinkered with for years. That, in turn, risks driving even more subscribers to scrappy upstarts (like Netflix used to be) which don’t engage in that kind of behavior.
That market wants what it wants, and what it mostly wants is growth at any cost.
Maybe it’s a weird personal flaw or something, but one of the most fascinating things in business to me is watching one-time pesky disruptors inevitably pivot into powerful turf protectors. As well as all the executive finger-pointing, shenanigans, and denialism that process usually entails.
Take, for example, Netflix. After being disruptive and shaking up streaming for years, the company has been losing subscribers as it faces greater competition from the likes of Amazon, HBO, Hulu, Disney, and dozens of other newer streaming ventures. Its recent earnings report indicate Netflix lost 200,000 subscribers last quarter, its first subscriber loss in a decade.
There’s many reasons for this, including competition, a hugely unpopular price hike, and a Netflix catalog that increasingly includes some fairly banal reality TV shlock that’s cheaper to produce. But in a letter to shareholders, Netflix executives also continue to blame a bogeyman they’ve been increasingly complaining about over the last year: the dire menace that is password sharing.
Initially, Netflix executives loved password sharing because they (correctly) saw it as advertising for its services. Now that it’s harder to reach quarter over quarter growth, Netflix feels the need to weirdly blame it for its problems as they look to boost subscriber tallies by any means necessary to please Wall Street.
But Netflix executives blame it in a way that’s kind of weird and disingenuous; namely by pretending the problem with the way they’re doing things now (the popular way) is that it creates “consumer confusion”:
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 howNetflix can be shared with other households
There’s nothing actually confusing about any of this. This is just flimsy logic to justify making the consumer experience worse, to feed the insatiable investor desire for improved quarterly returns.
This is what’s entertaining to me about this point in a company like Netflix’s life cycle. Public companies can’t just consistently deliver a quality, well-loved product. They’re obligated to shareholders to boost quarterly returns at any cost. That creates a dynamic where a popular company will often effectively resort to self-cannibalizing–or make its product shitter–in order to “succeed.”
It’s a growth for growth’s sake mindset that often functions in stiff opposition to the principles adopted when a company was sleeker and more innovative. One of the first casualties of this kind of mindset is both consumer-facing prices, and “peripheral” stuff like customer support (see: telecom). In Netflix’s case, it also looks like it’s going to include adding some advertising.
There have been other examples of Netflix shifting from innovator to turf protector; such as when the company effectively stopped caring about net neutrality once it was large enough to pay off any large telecom players like Comcast or AT&T that might be bullying it financially.
Previously, streaming executives were quick to point out that password sharing had no material impact on revenues. In part because there’s no guarantee those users will pay for an account once they can no longer share their friends’ or parents’ account. Also because most streaming services already limit the number of simultaneously streams per account.
But then cable companies like Charter Communications began crying that password sharing was a form of piracy (it’s not). As Netflix grew, its executives began to adopt this adversarial mindset as well. Now, the company is experimenting not with innovative new ideas to provide more value to customers, but with technologies that determine whose sharing outside of their own home, allowing Netflix to nag and raise the prices on those subscribers.
Netflix has launched these new nagging price hikes in Chile, Costa Rica, and Peru, and it won’t be long before they come to the rest of its territories. Right on the back of a significant price hike last year that had already annoyed customers and was the likely culprit of a sizeable chunk of the company’s lost growth.
Once a company executive enters this cycle (again, see telecom and cable) you’ll routinely start distorting logic to justify any decision that erodes the quality your product was once known for. That opens the door for disruptive competitors who do still want to compete on quality to erode your subscriber base further, and the big dumb loop just accelerates.
Karl Bode recently wrote about Netflix’s new password sharing policy, which mostly amounts to test-running an upcharge should Netflix discover that passwords are being used “outside the home” of the subscriber. While this pilot program is only going to be run in Chile, Costa Rica, and Peru, Netflix’s announcement was completely silent on how it’s going to track this sort of thing. Most assume it’s by IP or MAC addresses, though that obviously opens up a whole host of other questions. What about mobile devices? What about if you have a display at your workplace you want to stream to? What about VPNs? What about if you travel?
In other words, there is a ton of uncertainty here thanks to Netflix not bothering to share the “how” for its program. What was never uncertain, however, was that the public wasn’t going to like this new program.
“Netflix will lose a lot of customers if they do this password sharing crackdown they plan to do,” said one Twitter user.
“How do you expect families to handle password sharing in the case of divorcees, their children, or college students away from home?” another user said. “We already pay a lot for it, now you’re just milking us for every dollar spent.”
There is more where that came from. And, sure, it would be quite easy to look at all of this and see it as a bunch of people complaining about what has mostly been a multi-household password sharing habit. Through that lens, perhaps you might think that Netflix has every right to police passwords in this fashion. And, sure, it does. The question is whether the backlash is worth whatever income the company thinks it’s going to get out of this.
You will note, for instance, that Netflix isn’t going for a lockdown here. Instead, it’s attempting to get small time payments for sharing passwords. Those payment amounts were almost certainly designed to be in a sweet spot: too small to suddenly keep people from sharing their passwords at all, but big enough to bring in some significant income for Netflix.
Seen through that lens, Netflix actually wants password sharing to occur. Why? Because the company knows that those using shared passwords wouldn’t sign up for Netflix themselves if somehow password sharing was nixxed entirely. If Netflix believed that, then it would simply nix password sharing, rather than trying to turn it into a cashcow.
Back when Netflix was a pesky upstart trying to claw subscribers away from entrenched cable providers, the company had a pretty lax approach to users who shared streaming passwords. At one point CEO Reed Hastings went so far as to say he “loved” password sharing, seeing it as akin to free advertising. The idea was that as kids or friends got on more stable footing (left home to job hunt, whatever), they’d inevitably get hooked on the service and purchase their own subscription.
But as Netflix subscription numbers have begun to go south and competitors are challenging Netflix’s market share and revenue, the company is predictably taking a harder stance on the practice.
In a blog post, Netflix director of product innovation Chengyi Long explained that the company is conducting a new test that will impose additional fees on an account holder if Netflix can see that the account is being used outside of the account owner’s home. The trial is initially only being conducted in Chile, Costa Rica, and Peru, and is, predictably, framed by Netflix as an innovative change:
…accounts are being shared between households – impacting our ability to invest in great new TV and films for our members. So for the last year we’ve been working on ways to enable members who share outside their household to do so easily and securely, while also paying a bit more.
Basically, original account holders whose passwords are being shared outside of the home will pay 2,380 CLP in Chile, $2.99 USD in Costa Rica, and 7.9 PEN in Peru per each user. Netflix is also creating systems that will make it easier for password sharing users to migrate their shared account to a new subscription.
Netflix doesn’t state how it’s determining whether a password user lives in the house. Presumably it’s by IP addresses, MAC IDs, or some other identifying metric. So it’s not yet clear whether this is something that can be bypassed by utilizing a VPN or other IP address masking technology.
Again though, executives have, for years, noted that password sharing isn’t actually a big deal. Execs at HBO (at least before the AT&T acquisition) repeatedly noted that it doesn’t really hurt these companies’ bottom lines in part because, much like with traditional piracy, there’s no guarantee these users would actually subscribe if they lost access.
Most streaming services already impose limits to how many streams can be running simultaneously under one account anyway, forcing you to pay more money for accounts with greater simultaneous streaming limitations. So it’s not like passwords could be shared with an unlimited number of followers, or this was having a profound impact on Netflix’s bottom line — already buoyed by a recent price hike.
But as competition gets more heated in the streaming space it’s both hurting market share and forcing companies to spend top dollar for content creation. So companies like Netflix, well out of the honeymoon stage, are now going to be looking to wring more money from each existing subscriber in any way possible, a trend that’s only going to accelerate.
