Streaming service Netflix is dealing with a sharp drop in subscribers by considering changes to its service that it has long resisted.
An unexpected drop in subscribers sent Netflix shares into freefall Wednesday, forcing the company to consider experimenting with ads and — hold onto your remote — cracking down on millions of freeloaders who use passwords shared by friends or family.
The surprising net loss of 200,000 subscribers rattled investors, who had been told by the company to expect a gain of 2.5 million subscribers. Netflix shares sank 35% on the news, falling to their lowest level since early 2018.
Netflix estimates that about 100 million households worldwide — or roughly one out of every three households using its service — are streaming for free. “We’ve just got to get paid at some degree for them,” co-CEO Reed Hastings said during a shareholder call Tuesday.
Netflix has already been experimenting in Latin America with programs that use a soft touch to convince the unsubscribed to sign up. In Costa Rica, for instance, Netflix plan prices range from $9 to $15 a month, but subscribers can create sub-accounts for two other individuals outside their household for $3 a month. On Tuesday, Hastings suggested that the company may adopt something similar in other markets.
Just how Netflix will erect barriers remains unclear, and Hastings indicated that the company probably will spend the next year assessing different approaches. In one test last year, Netflix prompted viewers to verify their accounts via email or text.
Some current subscribers say even a gentle nudge to reduce password sharing might push them to sign off.
Alexander Klein, who lives near Albany, N.Y., has subscribed to Netflix since 2013 and shares his account with his mother-in-law. While he likes the service, a string of price increases and the loss of licensed shows has annoyed him — and any password-sharing crackdown might be the last straw.
“If they start cracking down on password sharing and I’m stuck paying the full $15 (a month) just for one person watching at a time, that’s frustrating,” he said. “If they decided to do that I’d likely cancel.”
Netflix is bracing for more subscriber losses even before it attempts to weed out freeloaders. The company predicted its customer base will shrink by another 2 million subscribers by the end of June. That would still leave Netflix with 220 million worldwide subscribers, more than any other video streaming service.
Despite some fears that a Netflix crackdown on password-sharing could encourage other streaming services to follow suit, experts say that’s not likely.
“I think we would see competitors take different strategies here,” said Raj Venkatesan, a professor of business administration at the University of Virginia. “Some will follow the lead of Netflix and crack down on password sharing. Others will use this as a differentiator and promise simplicity by saying you can have one password for the family.”
For years, amid rapid global growth, Netflix has looked the other way at the not-so-secret practice of subscribers sharing passwords beyond their households. And Hastings has spoken passionately in the past about keeping Netflix ad-free.
But competitive pressure is on the rise. Deep-pocketed rivals such as Apple, Walt Disney and HBO have begun to chip away at Netflix’s dominance with their own streaming services. The easing of the pandemic is giving consumers entertainment options beyond binge-watching their favorite shows, and rising inflation is making families think twice about how many different streaming services they’re willing to pay for.
All of this has given investors major jitters for months. The Wednesday selloff came on top of earlier trouble for the stock, which has lost 62 percent of its market value since the end of 2021, erasing $167 billion in shareholder wealth.
