Why Netflix’s password-sharing fee might actually happen

Netflix has started testing a new feature that will be concerning to many users. The streamer is testing a password-sharing fee to charge accounts that share access with individuals who aren’t part of the same household. As with any new Netflix feature tested in a limited number of markets, there’s no guarantee that Netflix will go forward with the move.

But it sure looks like we’re closer than ever to seeing Netflix tax password-sharing. Some analysts believe that the fee could bring in an additional $1.6 billion in revenue per year if applied globally. Given Netflix’s slowing growth, the move may be inevitable.

Is Netflix password-sharing legal?

For years, Netflix allowed password-sharing to happen outside of the rules. You could borrow passwords from someone you didn’t live with. Or lend your password to someone outside the family.

Netflix was aware of the practice and turned it into a PR win. The company wasn’t going to do anything about offenders. While frowned upon, Netflix password-sharing did not come with any sort of repercussions. You didn’t have to pay an extra fee, and you didn’t face any legal issues.

You can still share your password with others if it doesn’t ruin your binging. Each subscription tier permits a certain number of simultaneous streams. If you share your password with more people than the number of streams in your plan, not all of them will be able to use the service simultaneously.

As for the Netflix password-sharing fee test, it is underway in three markets as follows:

Subscribers on Netflix’s Standard and Premium plans will be able to add sub accounts for up to two people they don’t live with. Each of those accounts can have their own profile, personalized recommendations, login, and password. And, Netflix’s announcement continues, “at a lower price: 2,380 CLP in Chile, 2.99 USD in Costa Rica, and 7.9 PEN in Peru.”

Netflix customers in those countries might face difficulties sharing their passwords while the test is happening. Netflix will likely enforce the new fees because that’s the purpose of the test, after all. The company wants to see if the feature is feasible and can be implemented widely.

Netflix will also want to see how customers will react. Some will stop sharing their passwords. Others will pay the extra fee to add extra friends to their accounts. There may also be people who pay for their own Netflix accounts rather than piggy-backing on their friends and families.

And needless to say, some people will cancel their Netflix accounts entirely.

It’s unclear what sort of revenue Netflix can expect from the password-sharing fee. But we already have some estimates on the matter.

Cowen & Co. analysts shared their estimates with Variety. They think Netflix could add an extra $1.6 billion in global revenue annually from the fee. That’s a 4% increase over Netflix’s $38.8 billion projection for 2023.

The company estimated that about half of non-paying Netflix password-sharing households will become paying customers. Of those, half will create brand new accounts.

The analysts also showed the results of a different Netflix-related survey based on 2,500 US consumers. The firm found that about 10% of the 116 million broadband households in America have someone who watches Netflix without paying a subscription.

Why Netflix might charge a password-sharing fee

Benchmark Co. does not share Cowen’s bullish look on Netflix’s possible decision to tax password-sharers. The Wall Street analysts think that the incremental revenue from the fees would be less than 4%. The fee wouldn’t be a “growth game-changer,” and it could cannibalize “full-ride member growth.”

But Netflix’s growth has slowed down, especially in mature markets like the US. Moreover, Netflix’s spending on original content has increased by 25% compared to last year, reaching $17 billion for 2022. Assuming Cowen’s $1.6 billion estimate, the company’s upside would amount to 10% of that. But Benchmark Co. is nowhere near that bullish.

Also, the competition is fiercer than ever, with other streamers putting more pressure on Netflix than in previous years.

With all that in mind, password-sharing fees seem inevitable for the Netflix experience. That is, unless Netflix can figure out a different way to increase sign-ups or bring in more revenue. Some rival companies offer cheaper subscriptions with ads, while others are at least looking at the possibility.

More Netflix coverage: For more Netflix news, check out our coverage of the latest new Netflix movies and series to watch.