On Tuesday, officials from Netflix Inc. (NFLX stock) outlined their strategies for preventing customers from sharing their accounts on the streaming service when it launched early in 2019.

Netflix (NFLX stock) officials said that they will provide users who are currently using other people’s accounts the opportunity to convert that profile to their own subscription in a letter to shareholders in connection with the release of their third-quarter results. Additionally, they will give account users a choice to create “subaccounts,” paying extra to let others use their Netflix subscription.

The letter states, “We’ve settled on a considered method to commercialize account sharing, and we’ll start rolling this out more generally starting in early 2023.” “After taking into consideration customer feedback, we are going to give the possibility for borrowers to move their Netflix profiles into their own accounts, as well as for sharers to manage their devices more simply and to form subaccounts (“extra member”), if they wish to pay for family or friends.

The strategy sounds a lot like the trials Netflix (NASDAQ:NFLX) has been conducting in Latin America since executives declared earlier this year that they would try to curb password sharing. In that trial, users were allowed to watch Netflix (NFLX) in a single house, but they had to pay an extra $2.99 for any additional home where they wanted to stream content from their Netflix account.

Executives at Netflix (NASDAQ:NFLX) have long known that customers frequently share their passwords, allowing others to use the streaming service for free. Despite this, they said they were not concerned about the practice. That changed earlier this year when the business revealed its first year-over-year loss in customers. At the time, management predicted that around 100 million homes were using the service without paying, even though there were 222 million paying members at the time.

The practice is prevalent, according to research conducted by outside parties. 53% of Americans confess they share login information with persons outside their primary home, according to an Aura poll from 2021.

With a surge of streaming competition from companies like Walt Disney Co., Apple Inc., and others, Netflix officials openly started an overhaul that included a crackdown on password sharing. This includes the launch of a less expensive, ad-supported tier, which officials claimed in a letter sent on Tuesday may help retain customers who had been using someone else’s account to access the service. This tier is anticipated to launch in some nations during the fourth quarter.

“We expect the profile-transfer option for borrowers to be especially popular in countries with our lower-priced ad-supported plan,” they added.

However, there are worries that after years of allowing the practice of password sharing to spread, Netflix may see blowback from customers.

According to Third Bridge analyst Jamie Lumley, Tuesday’s decision by Netflix (NASDAQ:NFLX) to tighten down on password sharing “has the potential to tap into a big income opportunity.” However, “from a technological aspect as well as in terms of the backlash from consumers, which has already been observed in [Latin American] countries, our specialists are pessimistic about its possibilities of success.”

Greg Peters, the chief operating officer and chief product officer of Netflix, stated in an interview with executives on Tuesday that the company’s leaders “have been working really hard to try and find a balanced position essentially, an approach toward this that supports customer choice and, frankly, a long history of customer-centricity that we think has informed how we think about establishing our service, but balancing that with making sure that as a business we are getting the best return on our investment.”

You noticed that we tested a few different strategies in various nations, and based on the input we’re getting from customers, we sort of settled on a strategy for paid sharing that we think strikes that balance.

Separately, Netflix (NASDAQ:NFLX) revealed on Monday that it was expanding its profile transfer feature internationally. According to a blog post by product manager Timi Kosztin, users who use your account may transfer their profile when they start their own membership while maintaining their personalized recommendations, viewing history, My List, saved games, and other preferences by using the Profile Transfer feature.

One test being conducted in Chile, Costa Rica, and Peru verifies the primary account holder through an IP address (also known as the series of numbers that identifies any device on a network), and not a geographical location, a Netflix spokesperson previously told MarketWatch. However, Netflix has not publicly stated how it may enforce any password-sharing restrictions. That’s in part because if a user tried to use their own Netflix account while away from home on a mobile device, such a phone or laptop, enforcement based on the geographic location of the primary account would encounter issues.

A Netflix (NASDAQ:NFLX) official said MarketWatch on Tuesday that, other than the letter, they would not have any further information to disclose regarding the password-sharing crackdown.

NFLX Stock Price Decreased

Netflix’s growth problems in 2022 have caused its stock (NFLX stock) to plummet, plunging 60% so far this year while the S&P 500 index SPX, -0.65% has dropped 22.8%. Following the announcement of the third-quarter results, which exceeded forecasts for subscriber growth and earnings, the stock increased 15% in after-hours trading on Tuesday.

 

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