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What we can learn about password sharing from Netflix's earnings

· 4 min read

Tackling password sharing was one of two major initiatives mentioned in Netflix’s earnings announcement yesterday, along with Netflix’s new ad-supported tier.

As part of their shareholders letter and earnings call, a number of data points around password sharing came up that would be very interesting to anyone running a subscription business.

Converting password sharers is a net positive to revenue & subscriber growth

Netflix called out Canada as an example, where they saw, post their password sharing changes, an increase in paid subscribers and revenue growth accelerating and outpacing similar markets like the US.

Not only do they have more subscribers and faster revenue growth, the converted password sharers come with no “real incremental costs” as costs associated with their usage of the product were already being paid. For Netflix this is part of them increasing their profit margins over the coming quarters.

Cancellers come back

While the news and anyone sharing an account may have predicted mass cancellations that doesn’t appear to have panned out as net subscribers and revenue has grown in key markets where changes have been rolled out.

While some people did cancel their subscriptions due to the changes, according to Netflix this is relatively short lived as account sharers start to activate their own accounts or convince existing members to add them as extra members.

Engagement is a great predictor of password sharer conversion

Gregory Peters called out password sharers who are “watching as much of our shows as a normal paying account .. have very strong likelihood to convert” and that this “tapers off” with people who are less engaged.

Said another way this means a user who is sharing and getting value is very likely to become a paying customer if nudged to convert. Those who aren’t getting any value may not convert, however this will have minimal impact as they are not really using the product anyway.

Enabling someone to pay for multiple users is valuable

It may seem obvious to those who work in B2B SaaS, but allowing multiple users to be paid for by a single person is a great way to enable growth and Netflix recognizes this. They called out that they intend to support password sharers both getting their own account or being added as an extra member of someone else's. Making it easy for extended families to continue being on one subscription makes sense as does enabling your ex-roommate to finally get their own account.

Having a 1:1 relationship with customers is important both in the short term and long term

One often forgotten aspect of account sharing is that you cannot easily communicate with all the people behind one account which makes it difficult to re-engage or grow an account.

Netflix mentioned that their understanding of willingness to pay was also much clearer now that it wasn’t distorted by people splitting their bill.

What Netflix’s earnings have shown is that detecting account sharing is a tricky problem but done right it has a positive impact on revenue and the number of paying users. Users may threaten to cancel but those that find value in the product will continue to use it even after needing to get their own account.

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