The era of password sharing for Netflix is coming to an end soon. Netflix plans to enforce password-sharing rules “more broadly” by the end of Q1 2023, the company announced in its earnings report today.
The company also announced that CEO Reed Hastings is stepping down after 25 years of leading the company and will pass the baton to Ted Sarandos, who was already co-CEO, and Greg Peters, Netflix’s former chief operating officer. Hastings is not leaving the company entirely and will instead assume the role of executive chairman.
Once it launches password sharing, Netflix expects a “cancellation response” in every market, but that the long-term benefits of people paying for additional accounts will result in “improved overall revenue.” It doesn’t provide pricing information or a specific date, but “later in Q1’23” suggests it could go into effect sometime in April.
The writing had been on the wall for months. In October, the streaming giant introduced the ability for users to easily transfer their profiles – a way for the service to encourage users to open their own account if they’re currently sharing it with a friend or family member. Netflix has also rolled out a new tool that allows you to manage the devices remotely with your account and sign unwanted friends or family members out of your account.
“It’s our job to give them a little push and create features that make the transition to their own accounts easy and simple”
Netflix has already tested several ways to address password sharing in South America and began asking users in Chile, Costa Rica and Peru to pay for an additional sub-account if the streamer detects that someone using the account is outside their house lives. In May, a report of Rest of the world suggested that this test against password sharing didn’t go too well, with subscribers in Peru stating they were not formally aware of the policy and that the level of enforcement varied between users.
“Our job is to nudge them and create features that make the transition to their own accounts easy and simple,” Peters said during the earnings call when answering a question about password sharing.
Separately, the service also began letting users in Argentina, El Salvador, Guatemala, Honduras and the Dominican Republic buy additional “houses” for anyone living outside the subscriber’s primary household. The crackdown on password sharing is just one of the methods Netflix is using to appease investors as subscriber growth continues to slow. Netflix reported about 7.6 million new global subscribers in the fourth quarter of 2022. The number beat analyst expectations, but still represents a slight decrease from the 8.2 million subscribers it added around the same time last year.
The company has released a strong lineup of content in recent months, including Glass Onion: A Mystery of the Blades, Wednesdayand Harry and Megan. It also rolled out a new ad-supported tier in November. While Netflix says it is “satisfied with the initial results,” it may struggle to get off the ground, according to Netflix data from the subscription analytics company Antenna.
The $6.99 Basic plan was Netflix’s least popular plan in the month of November, with only 9 percent of new Netflix subscribers in the US signing up for the plan. Around the same time, Digiday reported that Netflix returned some money to advertisers after it failed to meet viewership targets. However, there are some signs of improvement. In December, data from Antenna obtained by The Wall Street Journal indicates that 15 percent of new subscribers have signed up for the plan.
“Overall, the response to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at least in line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, although the impact to 2023 will be modest as it will slowly increase over time,” the company writes.
The new level has some limitations, including no offline downloads and 720p video quality. But it specifically excludes certain pieces of content due to licensing restrictions. As my colleague Jay Peters points out, it’s hard to figure out what’s locked until you sign up for the ad-supported plan and search for the shows or movies you want to watch.
“We won’t be bigger than Hulu in the first year, but hopefully we can be at least as big in the next few years,” Spencer Neumann, Netflix’s chief financial officer, said during the earnings call. “We wouldn’t get into a business like this if we didn’t believe it could be greater than at least 10 percent of our sales — and hopefully much more over time.
It’s starting to look like 2023 could be a less exciting year for Netflix as it progresses limit content spending to $17 billion — a cut seen in this year’s skinny movie lineup.
Revelation: The edge recently produced a series with Netflix.
Update, 6:40 PM ET: Updated to add statements from Greg Peters and Spencer Neumann.