Netflix’s Password Sharing Fees And Ad Insertion Won’t Fix Its Problems

Yesterday, investors lost a lot of confidence in the future of the company, causing the stock to plummet. The service lost 200,000 subscribers in the wake of the report, and word is that it will lose a couple million more as time goes on. The market doesn't like that the era of constant, huge growth is over.

The proposed solutions for what currently ails it does not seem like they will produce the intended results. In the past, the company has referred to how many people use password sharing to access the service, usually a friend or family member. They have plans to fix that. This is from their investor letter.

The 100M+ households using another household's account is how best to monetize sharing. These households are already enjoying our service and this is a big opportunity. Sharing helped fuel our growth. We have always tried to make sharing within a household easy, with features like profiles and multiple streams. These have been very popular, but they have created confusion about when and how they can be shared with other households. In March, we introduced two new paid sharing features, where current members have the choice to pay for additional households, and we started testing different approaches to monetize sharing.

The 100 million password-sharers are going to have to pay a fee if they want to keep doing this.

While in theory, this is all upside, a certain percentage, however small, will convert to paying users, the blowback from this will be tremendous and create even more annoyance with Netflix than we have already seen between price hikes and debates about its content quality. There are other services that have to deal with password sharing. They will be the only streaming service that will actively root out and ban these people unless they pay. They will lose their loyalty and PR if they chargepassword sharing fees.

The second idea that is being thrown around is to create a cheaper tier of the service. Again, this misses a key point, that the price of the service is too expensive with or without ads compared to its competitors.

There are three tiers of the service, ranging in price from $10 to 15.50 a month. None of its rivals costs more than $10 a month, and its own$15 tier eliminates 4K content and more than two screens being able to watch at the same time. In the year of our lord 2022, the $10 tier doesn't even have HD content.

It's true that some of the competitors have ad-supported models. We're pretty sure that we're going to end up with a situation where the ad-supported models are still more expensive than the other models.

The main problem is that the constant price hikes are coming home to roost. There are at least six major streaming services out there. Why does it cost more? When its rivals are producing high quality content, that's not a very compelling argument. The revenue problem in its own right is caused by the fact that most of the tier prices need to be knocked down $5 in order for it to stay competitive. This is the situation they have gotten themselves into.

There is no easy fix, but punishing password sharers and putting ads in content will hurt more than it helps. We will see if they figure that out before they implement the new plans.

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The Herokiller series and The Earthborn trilogy are my sci-fi novels.