Netflix is ​​taking a necessary risk in dealing with its 100 million freeloaders

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When Netflix co-founder Reed Hastings said in 2016 that we “love people who share” accounts, the company had a commanding lead in the streaming industry and four years of meteoric growth ahead of it. No one had heard of Disney Plus or the streaming wars yet.

But after the platform lost subscribers early last year, Hastings called time for this glib attitude to password sharing, which has given rise to an estimated 100 million Netflix freeloaders worldwide.

In recent days the company has launched password crackdown in the US, UK and over 100 other countries. In the US, she told customers that if they want to share their password, they have to pay $7.99 a month to add someone away from home, or $6.99 if they’re willing to have an ad-supported account.

The crackdown and new advertising push reflect the harsh reality of the streaming business model that Netflix pioneered. In boom times, investors were willing to overlook eight- or nine-figure quarterly losses as long as subscription growth was strong. Now, however, new signups have slowed and competition is intense. In the United States, the average household has 5.5 streaming subscriptions, notes Jennifer Chan, global strategy director at research group Kantar.

“Overall home streaming penetration hasn’t changed much since the end of Covid,” said Chan. “So the goal for streamers now is to keep their current customer base and become the priority subscription so consumers don’t cancel, and if they do, how to win them back.”

Investors meanwhile want to see a path to profitability, putting heavy pressure on most major streaming services to cut costs and find new ways to generate cash.

Netflix is ​​profitable, but NBCUniversal’s Disney Plus, Paramount Plus, and Peacock are still racking up heavy losses. Warner Bros. Discovery, which aggressively cut costs last year after the companies merged in a $40 billion merger, recently told investors it expects to turn a profit in its streaming activity a full year ahead of schedule and that this part of the business made $50 million in profits last quarter.

Like Netflix, Warner has made big changes to its streaming service. It combined its HBO Max service on Tuesday, home to Succession, white lotus AND game of Thrones – with Discovery Plus, specializing in low-cost unscripted programming like 90 day fiance. The combined service has been rebranded as Max, and the company hopes the broader offering will boost customer numbers and engagement.

Disney CEO Bob Iger plans a similar move later this year by merging Disney Plus and Hulu, which focuses on general entertainment aimed at adults, into one app. Iger said that would boost sales of Disney’s ad-supported subscription packages, another step toward meeting its goal of making a profit in streaming next year. Meanwhile, he also faces investor concerns about subscriber growth: The company’s streaming services have lost customers in the past two quarters.

Netflix may face similar problems retaining customers as it reduces password sharing options. In early trials, Netflix said some users abandoned the service, with as many as 1 million cancellations in Spain alone, according to Kantar. While many come back, either adding new accounts or opting for the cheaper ad-supported version, there’s still some risk, says Chan.

“If people have to cancel, they will be exposed to life without Netflix” and perhaps switch to other services, he said. “I think people will come back, but they might not regain the full subscriber base.”