Netflix’s crackdown on password sharing will begin in the coming months

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Streaming giant Netflix will begin cracking down on password sharing in the first quarter of this year, after releasing the company’s earnings report to shareholders last week.

The practice of sharing passwords with people outside of the subscriber’s household will become more complex and is likely to result in the additional cost of sharing a single subscription across multiple locations.

“While our terms of use limit Netflix use to one household, we recognize this is a change for members who share their account more broadly,” Netflix said in its shareholder report.

“As we roll out paid sharing, subscribers in many countries will also have the option to pay extra if they want to share Netflix with people they don’t live with. As is the case today, all members will be able to watch it on the go, whether on TV or mobile.”

Based on a test of tougher new rules in some Central and South American countries last year, the company admitted it expected a negative reaction in the near term.

Related: Netflix co-founder Reed Hastings steps down as CEO of the streaming company

“As we work through this transition — and as some borrowers stop looking because they don’t convert to extra members or full-pay accounts — short-term engagement, as measured by third parties, such as Nielsen’s The Gauge, could be negatively impacted,” said the statement.

“However, we believe the pattern will be similar to what we’ve seen in Latin America, with engagement growing over time as we continue to deliver a broad range of programs and borrowers sign up for their accounts.”

Netflix hasn’t been more specific than “later in the first quarter of ’23” on when the crackdown will begin.

The new model could see Netflix users in, for example, Australia paying around AU$4 more a month if last year’s trials in Costa Rica, Chile, Peru, Argentina, El Salvador, Guatemala, Honduras and the Dominican Republic are a guide. These countries were targeted by the company because password sharing seemed to be particularly common there.

Subscribers had no restrictions on mobile devices such as smartphones, tablets or laptops, to allow legitimate users to still access their accounts while travelling.

But the new system could end your access to your account to watch a Netflix show at a friend’s or relative’s house, as well as sharing a single subscription among multiple homes.

Netflix’s director of product innovation, Chengyi Long, explained in an updated October blog post how the new system might work. Only one home will be allowed on a single Netflix account, but can be used on multiple devices. An additional monthly fee will apply to add additional households (in most Latin American countries it was $2.99). During the trip, the account will only be accessible from a tablet, laptop or mobile phone. Subscribers will be able to log in to remove unwanted families from their account.

“Today’s household account sharing compromises our long-term ability to invest and improve our service,” he said.

“So we’ve been carefully exploring different ways to let people who want to share their account pay a little more.”

Related: Sharing TV streaming passwords is illegal, says UK copyright watchdog

In 2022, Netflix lost 200,000 customers in the first quarter alone and admitted it expects to lose another two million in the second quarter. The company attributed the decline to a number of factors, including increased competition and the war in Ukraine

Long did not outline how Netflix plans to enforce the new system.

In trials in Latin America, if a change of location is detected for an account that has been in use for more than two weeks, the holder receives an in-app notification giving them the option to change their home address or pay a fee to add the new address.

In an interview with Variety on Jan. 19, Netflix co-CEO Greg Peters admitted cracking down on shared passwords “wouldn’t be a universally popular move” and the company will start enforcing the new regime by offering customers they continue to share accounts “a kind nudge” to pay extra for multi-family use.

In its shareholder report the same day, Netflix reported a total of 231 million paid subscriptions in 2022, $32 billion in revenue and $5.6 billion in operating income.

Netflix Australia declined to comment, saying last week’s shareholder communication on the matter was the most up-to-date.

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