{"id":9004111224651858,"date":"2023-02-21T17:05:36","date_gmt":"2023-02-21T21:05:36","guid":{"rendered":"https:\/\/www.pragmaticinstitute.com\/?post_type=resources&p=9004111224651858"},"modified":"2023-02-21T17:06:21","modified_gmt":"2023-02-21T21:06:21","slug":"case-study-a-look-at-netflixs-paid-sharing-experiment","status":"publish","type":"resources","link":"https:\/\/www.pragmaticinstitute.com\/resources\/articles\/product\/case-study-a-look-at-netflixs-paid-sharing-experiment\/","title":{"rendered":"Case Study: A Look at Netflix’s Paid-Sharing Experiment"},"content":{"rendered":"

Background\u00a0<\/span><\/h2>\n

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Netflix is one of the largest streaming services in the world, with over 230 million subscribers. The company was founded in 1997 as a DVD-by-mail rental service. In 2007, Netflix launched its streaming service, allowing users to watch TV shows and movies on their computers. Initially, the streaming service was offered as a free add-on for DVD rental subscribers, but in 2010, Netflix began offering its streaming service as a standalone service.<\/span><\/p>\n

Netflix mainly competed against Amazon Prime (September 2008) and Hulu (October 2007) for market share in the first decade after they launched streaming. However, in the last five years, some of Netflix\u2019s biggest competitors today entered the market, including Disney+ (November 2019),\u00a0 AppleTV+ (November 2019) and HBOMax (May 2020).\u00a0<\/span><\/p>\n

The influx of new services launched the \u201c<\/span>streaming wars<\/span><\/a>,\u201d and they slowly started chipping away at Netflix\u2019s goliath-sized market share. In fact, in the first quarter of 2022, <\/span>Netflix lost more subscriptions<\/span><\/a> than it gained for the first time in 10 years. The company lost <\/span>1.2 billion <\/span><\/a>subscribers by the end of Q2 last year.\u00a0<\/span><\/p>\n

While these streaming services don\u2019t have as many subscribers as Netflix, they are growing fast and pose a real threat to Netflix\u2019s potential growth.\u00a0<\/span><\/p>\n

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\"Streaming<\/p>\n

The Problem\u00a0<\/span><\/h2>\n

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Account sharing has been a long-standing issue for the company, with over 100 million households estimated to be sharing accounts. There are even some state and federal laws designed to address the problem.\u00a0<\/span><\/p>\n

In 2011, Tennessee passed a \u201c<\/span>Login Law<\/span><\/a>\u201d that makes it illegal to share passwords to sites like Netflix and iTunes.The<\/span> Computer Fraud and Abuse Act <\/span><\/a>(CFAA) prohibits sharing passwords and can be considered a federal crime. However, enforcement is rare.\u00a0<\/span><\/p>\n

As Netflix continues losing prospective and current subscribers to other streaming services, they are concerned that password sharing could limit their growth in ways detrimental to their longevity.\u00a0<\/span><\/p>\n

However, at times, password sharing was embraced by the platform and largely overlooked.\u00a0<\/span><\/p>\n

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\"Netflix<\/p>\n

Now, the company is looking to reverse its stance on password sharing. As a result, they are pursuing <\/span>revenue growth<\/span><\/a> at the expense of <\/span>revenue retention<\/span><\/a>.\u00a0<\/span><\/p>\n

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A Business Problem, Not A Market Problem\u00a0<\/span><\/h3>\n

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The market likes the relaxed password-sharing approach because many people flocked to Netflix when it first launched for convenience and affordability. Netflix wants to protect its revenue stream and increase its market share.\u00a0<\/span><\/p>\n

NPR conducted a recent survey<\/span><\/a> asking what users want from a streaming service. Their top concerns were cost, ad-free options and original programming.\u00a0<\/span><\/p>\n

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\"NPR<\/p>\n

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But Netflix isn\u2019t focusing on the market needs, and in some cases, is doing just the opposite of what the market wants:\u00a0<\/span><\/p>\n

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  1. Subscription fees <\/span><\/a>increased in January 2022 (from $14 to $15.50 for the standard plan). And they\u2019ve offered a new ad version at a lower cost.\u00a0<\/span><\/li>\n
  2. In 2023, Netflix plans to<\/span> reduce the number of originals released.\u00a0<\/span><\/a><\/li>\n
  3. They plan to phase out <\/span>30-day free trials.\u00a0<\/span><\/a><\/li>\n
  4. Netflix has no interest in<\/span> live TV<\/span><\/a> or<\/span> live sports.\u00a0<\/span><\/a><\/li>\n
  5. Netflix has also<\/span> canceled several popular shows.\u00a0<\/span><\/a><\/li>\n<\/ol>\n

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    And most notably, they\u2019re cracking down on sharing logins outside the household.\u00a0<\/span><\/p>\n

    \u201cThey are taking the easiest path to increasing revenue, but they are not solving a market problem. In fact, they might be creating a market problem, which could backfire, resulting in them losing market share,\u201d said a Pragmatic expert.\u00a0<\/span><\/p>\n

    Every company needs to increase their revenue, that\u2019s true. There are other ways they could have gone about doing that wouldn\u2019t alienate their base.<\/span><\/p>\n

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    If the listened to their market, they might find other options:\u00a0<\/span><\/p>\n