Netflix’s latest experiment shouldn’t scare streaming freeloaders yet

The streaming king announced Wednesday that it’s trying out a new feature in Chile, Costa Rica, and Peru, where subscribers can add “sub accounts” for two people who don’t live with them at a heavily discounted price of $2 to $3 per month. The beneficiaries get their own log-in, password, and platform profiles.

The disclosure immediately prompted claims that Netflix is testing the waters for a broader clampdown on password sharing, a popular practice in which members of different households violate the company’s terms of service by paying for a single subscription while logging in from multiple locations. One hyperbolic headline, via NPR: “Netflix plans to start charging for password sharing, and customers aren’t happy.”

A deeper look at Netflix’s announcement and the company’s recent history, however, suggests such declarations miss the mark.

While Netflix has completely reasonable grounds for taking aim at password sharing—research firm Parks Associates estimates that U.S. streaming platforms lose roughly $3 billion in revenue annually from the practice—most signs point to the company nibbling around the edges of the problem for now.

Though a Netflix press release Wednesday referenced password sharing and its negative impact on company revenue, the announcement did not mention plans to cut off access to households engaging in the practice. A TechCrunch report also hinted, albeit with no attributable source, that Netflix “doesn’t see this new test as a crackdown,” but rather as “an option it wants to try out to see if it makes sense for members.”

In addition, Netflix already has dabbled with password policing, to minimal effect. 

In March 2021, the company notified some users that “if you don’t live with the owner of this account, you need your own account to keep watching.” Freeloaders could maintain their access, however, via a two-factor authentication code easily obtained from the paying customer. 

In a subsequent earnings call, Netflix executives downplayed the move, describing it as an “experiment.” The Wall Street Journal reported that Netflix didn’t terminate any subscribers’ accounts during the trial.

“We will test many things, but we would never roll something out that feels like turning the screws,” Netflix co-CEO Reed Hastings said at the time. “It’s got to feel like it makes sense to consumers, that they understand.”

Concerns about a broader password-sharing crackdown and the need for a quick revenue infusion are understandable given Netflix’s recent swoon, which has led to a 39% year-to-date decline in its share price. 

The company missed analysts’ subscriber growth estimates in the final quarter of 2021 and issued an uninspiring forecast for the start of 2022. Some investors worry that Netflix reached a saturation point in the U.S., its most lucrative market. Netflix continues to raise its prices, already higher than those of many streaming peers, at a time when its competitors are introducing lower-cost, ad-supported options. Netflix’s other non-streaming ventures, such as its nascent mobile gaming endeavor, certainly haven’t inspired much confidence, either.

A password clampdown, however, carries an air of desperation. For years, Netflix officials have turned a blind eye to password sharing because it sees streaming grifters as potential subscribers one day. You catch more flies with honey than with vinegar, the thinking goes.

Netflix has spent a quarter-century building its business on consumer-focused innovation and high-quality content. Taking aim at password moochers would send a troubling signal to subscribers and Wall Street: We’ve run out of good ideas.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Your purchase is complete. Amazon closed its $8.5 billion acquisition of film studio MGM after U.S. regulators scrutinizing the deal declined to oppose it, Bloomberg reported Thursday. The decision means Amazon will not face a protracted antitrust battle over the purchase, which raised some concerns about the e-commerce giant’s growing power in the streaming space via its Prime Video offering. European regulators blessed the deal earlier this week after concluding that Amazon’s acquisition of MGM’s video library, which includes the James Bond and Rocky franchises, would not harm competition.

Earning their stripes? Tech executives could face up to two years in jail if they fail to quickly cooperate with U.K. regulators investigating companies’ compliance with proposed legislation aimed at better policing online content, the Guardian reported Thursday. A new draft of the U.K.’s landmark online safety bill, sent to Parliament by Downing Street, specifies that tech officials must fully comply with regulators’ information requests within two months. A previous version of the bill, which has undergone numerous revisions over the past four years, gave a 22-month grace period to tech executives.

Anything but bored. Yuga Labs, the startup behind the popular Bored Ape Yacht Club non-fungible token collection, plans to partner on a new video game and coin as part of its broader blockchain ambitions, TechCrunch reported Wednesday. The announcement comes one week after Yuga Labs acquired the CryptoPunks and Meebits NFT collections, a deal likely valued in the $100 million range that provides the upstart with high-value properties in the NFT market. The coin will carry the Bored Ape Yacht Club branding, but a decentralized autonomous organization with loose ties to Yuga Labs will issue it amid a federal crackdown on crypto startups selling tokens that mirror unregistered securities.

The hits keep coming. An earthquake in northeast Japan forced shutdowns of several automotive and electronics suppliers, further straining global supply chains, Reuters reported Thursday. The 7.4-magnitude quake, which struck close to the site of the 2011 Fukushima disaster, sent production offline at Sony, Renesas Electronics, and Murata Manufacturing plants in the region, among others. The outfits combine to make vehicle microchips, electric capacitors, image sensors, and other supplies shipped worldwide.

FOOD FOR THOUGHT

So you’re saying there’s a chance? U.S. Rep. Ken Buck is not a happy camper. The Colorado Republican, a staunch critic of large tech companies’ outsize power, lashed out Wednesday at a House GOP committee created to tackle Silicon Valley giants. In an interview with the Washington Post, Buck forecasted that Republicans wouldn’t pass meaningful antitrust legislation if they retake the House following the November midterms—certainly music to the ears of Apple, Amazon, Google, and their Big Tech peers. Buck said the GOP committee, organized last year by House Minority Leader Kevin McCarthy, appears more focused on tech companies’ content moderation practices and data privacy regulations.

From the article:

The remarks show frustrations among Republicans at the vanguard of the antitrust movement are starting to spill over into public view as House GOP leaders hold fast in their opposition to sweeping competition changes. 

The focus of the briefing, as outlined by Buck, isn’t entirely surprising. McCarthy’s office last year spoke out against a raft of antitrust proposals advanced by a bipartisan group of lawmakers that includes Buck. Another key figure in the push, Rep. Jim Jordan (Ohio), top Republican on the House Judiciary Committee, has been a vocal critic of the most aggressive antitrust bills on the table.

IN CASE YOU MISSED IT

Why Cruise’s self-driving cars are still in first gear, by Jonathan Vanian

Ethereum just kicked off a critical test that will decide its future, with $26 billion at stake, by Taylor Locke

‘Googlegeist’ survey reveals employees aren’t happy with pay, by Colin Lodewick

YouTuber offers to cover fine for Russian TV producer’s antiwar protest, by Chris Morris

Startup whose A.I. will help track drug runners’ boats gets $5 million in funding, by Jeremy Kahn

Rebuilding social capital is the next great leadership imperative, by Chris Capossela

BEFORE YOU GO

Shades of gray matters. If you thought the COVID vaccine wars were crazy, just wait for brain implants. Fortune’s Jonathan Vanian reported Thursday that a Pew Research Center survey showed six in 10 Americans would consider getting a surgically implanted computer chip installed in their brain, so long as they could flip the chip on and off. Nearly 80% of respondents, however, opposed brain implants that would boost cognitive abilities. The poll dropped as the Elon Musk–founded startup Neuralink aims to launch a brain chip clinical trial later this year.