A crackdown on streaming service password-sharing is coming

In my family, password-sharing is its own love language. My sister gets my Hulu password in exchange for her husband’s Peacock premium login. My boyfriend’s parents subsidize our HBO Max viewing; their grandchildren watch Disney+ using my credentials. My parents spent years watching Netflix courtesy of a neighbor. And one of my best friends, a television buff, accesses all those services plus Paramount+ without paying for any of them herself.

Don’t tell me you don’t do it, too. As streaming services proliferate, password-sharing is fast becoming one of the TV industry’s costliest problems. In 2019, research firm Parks Associates estimated that piracy, which includes account-sharing, cost US video providers $9.1 billion, with nearly a third due to shared and stolen logins; by 2024, the company projects it to grow to $12.5 billion.

But cracking down on password-sharing isn’t exactly going to be easy. Believe it or not, streamers admit they benefit from temporary password-sharing when it comes to building brand affinity and audience growth. And convincing people to start paying up in a challenging economic environment with plenty of competition may be even harder than it sounds.

“[Streaming services] don’t necessarily want people to go elsewhere,” Paul Erickson, research director of entertainment and consumer technology at Parks Associates, told Marketing Brew. “We’ll see them navigate that difficult middle ground where they’re not trying to give the service away, but they’re also not trying to drive people away either.”

Lock and key

Sharing credentials outside of one’s own household technically violates the terms of service for streaming services like HBO Max and Hulu, which implore users not to share credentials outside of one’s own household.

Of course, it’s still happening in droves. Netflix, which has 222 million members around the world, disclosed this month that an estimated 100 million additional households access the service using borrowed credentials. A March survey from Leichtman Research Group found that about one-third of Netflix subscribers in the US share their credentials with others.

In its most recent letter to shareholders, Netflix says account-sharing makes it “harder to grow membership in many markets.” Some other video providers say shared credentials makes it harder for all kinds of services to thrive.

“It is not just a problem for the company that is not controlling their passwords, but it is a problem for everybody in the industry, because all that content that is used without anybody paying for it affects the supply and demand of all content,” Tom Rutledge, chairman and CEO of cable operator Charter Communications—which is, like everyone else, pushing into streaming—recently told shareholders.

But there’s a benefit to password-sharing hidden in those eye-popping figures. Temporary credential-borrowing between family and friends can help streaming services grow their brand affinity and build cultural clout. “Sharing likely helped fuel our growth by getting more people using and enjoying Netflix,” the company wrote in its letter to shareholders.

Luckily for ad-supported streamers, password-sharing doesn’t seem to pose a considerable issue when it comes to ad targeting, Erickson said, since targeting is often conducted at the IP-address level.

Another benefit to password-sharing? At least they’re watching. “These people are still in the fold,” Erickson said. “They’re not going and watching someone else’s service.”

The worst offenders

But streamers want to minimize excess password-sharing, and have implemented some rules to limit the practice. AT&T CEO John Stankey, whose company owned WarnerMedia streamer HBO Max until it was spun off to Discovery earlier this year, said the company has approached the issue by flagging “rampant” abuse, when account credentials are being used by many different households.

Other ways to crack down include capping the number of simultaneous streams to make large-scale sharing inconvenient. Hulu, for one, limits same-time viewing to two screens.

Netflix is taking it a step further. In Chile, Costa Rica, and Peru, Netflix is testing charging users extra so viewers outside of households can keep watching; that extra charge is likely to expand to the United States within a year or so, chief operating officer and chief product officer Greg Peters told investors this month.

Tread carefully

While Netflix’s move could help “better monetize the people who are already watching,” Erickson said, the approach could also backfire if some people factor in password borrowers when evaluating the cost of the service. In other words, the cost of services may be harder to justify when non-household users start getting boxed out.

“If you’re going to literally make this individual subscriber to individual subscriber, then you have to radically rethink your pricing model,” Stephen Beck, founder and managing partner of the consultancy cg42, told Marketing Brew. So far, that’s not happening; instead, streaming services price-points continue to rise to cover the high cost of content.

Plus, more viewers per account—even out-of-household ones—can equal more stability when it comes to subscriber churn, the Achilles heel of the streaming industry that affects both subscription and advertising revenues. In other words, a user who knows friends or family are using their Netflix subscription may end up paying another month instead of canceling.

“A password crackdown across the industry would lead to more volatility because people will swing to the content that they want,” Beck said. “They won’t stick around on that service for the periods of time when the content is not fresh and not interesting.”

Beck cautioned that content remains the key investment for streamers to continue attracting viewers and fueling their businesses. In an ultra-competitive streaming world, even a streamer’s most loyal customers may turn elsewhere if faced with less-than-enticing programming combined with headaches related to account-sharing.

“The danger is thinking that their brands are bigger than the brands of the content that goes through them,” Beck explained. “The minute that you think that is the minute that you’re lost.”