NFLX Netflix Inc

By Lillian Rizzo and Joe Flint 

Think twice before sharing that Netflix password.

The streaming service for years turned a blind eye to password sharing, but recently started prompting some of its users to verify their identity through a text message.

Netflix Inc.'s rivals, including AT&T Inc.'s HBO Max, Walt Disney Co.'s Disney+ and Comcast Corp.'s Peacock, often email their customers when they notice multiple logins from various locations, according to people familiar with the companies' policies. The emails usually say that the service wants to ensure the user's account wasn't hacked, the people said. But they also serve as a gentle reminder to customers that companies know when more than one person is using the account, industry experts said.

Netflix's efforts to prevent password sharing come as the streaming field grows more crowded and competitors amass more subscribers. Recently Disney+ surpassed 100 million global customers.

A Netflix spokesman declined to say whether all users would see verification requests, only saying that the effort was designed to help ensure that people using Netflix accounts are authorized to do so. Netflix hasn't cut off any subscribers for sharing a password, a person close to the company said.

With more than 200 million subscribers -- nearly 74 million of which are in the U.S. and Canada -- Netflix is running out of room to grow in North America if it doesn't nudge all of its users to pay for a subscription. Many industry experts said it was only a matter of time before Netflix got tougher on password surfers, who are costing the company subscribers and revenue.

"They have gotten away with it for years," said Neil Begley, an analyst at Moody's Investors Service, of streaming freeloaders. "If free is over, most people won't begrudge the company for capturing its due revenues."

Password sharing is so common that it is part of the cultural zeitgeist. During a 2018 Netflix special, the comedian Ali Wong joked that she watched her previous Netflix special using her sister-in-law's login. "To this day, I do not have my own account," the comedian said at the time.

When the NBC talk-show host Jimmy Fallon introduced Peacock at a NBCUniversal event in New York last year, he pretended to use the credentials of the company's chairman to log in. "I can't wait for us all to log in on the same account," he told the audience.

Password sharing costs companies a lot of money. U.S. streaming platforms lost an estimated $2.5 billion in revenue in 2019 because of password sharing, and that amount is expected to increase to $3.5 billion in 2024, according to Parks Associates, a research firm.

Leichtman Research Group reported that 30% of Netflix subscribers share their passwords, while 23% of Disney-controlled Hulu's subscribers and 20% of Amazon.com Inc.'s Prime users share their account credentials, based on a survey of nearly 2,000 people between June and July 2020.

The proliferation of new services has likely made the issue more pressing. The number of major platforms more than doubled in the past year and a half, increasing the incentive to trade one login for another.

Just a couple of years ago, all it took was a Netflix subscription to watch "Friends," "The Office" and "Grey's Anatomy," which The Wall Street Journal in 2019 reported were the three-most-watched shows on the platform. Users today would have to subscribe to three separate services -- HBO Max, Peacock and Netflix -- to watch all three, at a collective cost that ranges from about $28 to $42 a month, depending on the pricing plan chosen.

All streaming services allow for a certain amount of concurrent streams, making it possible for customers to share their account without too much frustration. Netflix offers tiered subscriptions that allow more simultaneous streams on a single account. At the cheapest tier, $8.99, one person can watch at a time, while the most expensive tier, $17.99, allows four viewers at once.

Bradley Jasper, a 30-year-old salesman in Altoona, Pa., said he subscribes to a handful of streaming apps including Netflix and Hulu and watches Disney+, ESPN+, Apple Inc.'s Apple TV+ and Discovery Inc.'s Discovery+ by using promotional offers. He shares his accounts with a few friends and family members.

"I feel that as someone who pays for the four-user account, I shouldn't be punished for actually sharing," said Mr. Jasper, referring to Netflix.

According to Netflix's terms of use -- which every customer must sign off on when setting up any account -- any content viewed is for the account holder's "personal and non-commercial use only and may not be shared with individuals beyond your household."

The Covid-19 pandemic, which had millions of Americans hunkered down at home for months on end, led to growth for streaming platforms but likely exacerbated the password-sharing problem, according to analysts.

"The covid pandemic caused a few things, an acceleration in streaming is one of them," said Mark McCaffrey, PwC's U.S. technology, media and telecommunications sector leader. "The services that feel they've gained a pole position are now trying to figure out if they have the ability to recapture lost revenue."

Netflix's stance on password sharing has evolved as the company has grown. In 2016, co-founder and co-chief executive Reed Hastings told investors that account sharing was something "you have to learn to live with because there's so much legitimate password sharing, like you sharing with your spouse, with your kids. So there's no bright line, and we're doing fine as is."

The company's attitude had changed by 2019, when Chief Product Officer Greg Peters told investors that the company was monitoring password sharing and figuring out "consumer-friendly ways to push the edges on that." At the time, he said Netflix had no big plans to announce any changes.

Bruce Leichtman, media analyst at Leichtman Research Group, said Netflix needs to balance the benefits of making it easy to share an account with the effect it has on subscriber growth.

"Most streaming services will need to look at these trade-offs as they grow," he said.

Write to Lillian Rizzo at Lillian.Rizzo@wsj.com and Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

March 18, 2021 05:44 ET (09:44 GMT)

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