Netflix's password sharing crackdown: Everything we know

The days of password sharing may be coming to an end at Netflix, spelling trouble for everyone still using their parents' account. When will the streamer implement its planned crackdown on sharing passwords, and how will it work? Here's what we know: 

What is password sharing, and is Netflix planning to end it?

Netflix's terms of service say a user's account "may not be shared with individuals beyond [their] household." But many subscribers do just that, and according to Netflix, the result is that more than 100 million households don't pay for the service. The company didn't seem to care about this for years — and at times, even encouraged account sharing. "Love is sharing a password," Netflix once famously declared on Twitter.

But this attitude has officially come to an end. Netflix chief product officer Greg Peters said in April 2022 the company is "not trying to shut down" account sharing completely, but it's looking for ways to make money off these viewers who aren't paying anything.

How is Netflix planning this crackdown?

In March 2022, Netflix said it was testing a way to crack down on password sharing in Chile, Costa Rica, and Peru. This would involve prompting subscribers to pay more per month to share their accounts.

In the test, Netflix users were able to add "sub accounts" for up to two people who don't live with them. Their subscription fee would go up, though the total would come out to less than if those two people both signed up for their own separate Netflix accounts. "An extra member will have their own account and password, but their extra member slot will be paid for by the person who invited them to join their Netflix," the company explained.

Alternatively, users watching on someone else's account could transfer their profile to a new account while keeping their viewing history, list, and recommendations. Netflix also tested a feature asking users to enter a verification code sent to the owner of an account to continue watching — something that could, for instance, affect those using the account of someone they aren't necessarily in regular contact with. Netflix says it can detect what device the service is being used on via IP addresses, device IDs, and account activity.

After this initial testing, Netflix confirmed in October 2022 it will proceed with rolling out the "ability for borrowers to transfer their Netflix profile into their own account, and for sharers to manage their devices more easily and to create sub-accounts."

Netflix hasn't specified how it will enforce its policy against non-paid sharing when it rolls out in the United States and elsewhere, but Variety reports that the streamer "will not terminate someone's account even if they're sharing passwords, nor is Netflix likely to impose additional fees without a customer's consent," at least for now. According to The Wall Street Journal, Netflix is considering a plan for the U.S. similar to what it tested in Latin America, where password borrowers would continue getting prompted to enter a verification code sent to the owner of the account until that owner pays more.

When will the password-sharing crackdown happen?

In a company shareholder letter, Netflix said it expects to "start rolling out paid sharing more broadly" later in the first quarter of 2023, so the crackdown appears to be right around the corner. Netflix chief product officer Greg Peters said the rollout will be staggered "as we work through sets of countries."

Netflix has admitted, though, that some users will likely cancel their accounts rather than pay more.

"From our experience in Latin America, we expect some cancel reaction in each market when we roll out paid sharing, which impacts near term member growth," the company said, and Peters acknowledged, "This will not be a universally popular move." But Netflix told shareholders that "as borrower households begin to activate their own standalone accounts and extra member accounts are added, we expect to see improved overall revenue."

How much more will subscribers be asked to pay?

Netflix hasn't announced what the pricing will look like for U.S. subscribers. But to give you a rough idea, when the company tested this out in Costa Rica, adding a "sub account" cost an additional $2.99 a month. According to The Wall Street Journal, Netflix has discussed charging account sharers an amount "only slightly below" the $6.99 monthly fee of its ad-supported subscription tier.

Does this mean I won't be able to watch Netflix while traveling?

So if Netflix is getting strict about not letting users stream outside of their own household, does this mean watching while traveling will be off-limits?

According to the company, no. In a shareholder letter, Netflix clarified that "all members will be able to watch while traveling, whether on a TV or mobile device," even after the password-sharing crackdown is rolled out. Also, when Netflix ran a test cracking down on password sharing in five Latin American countries, streaming on mobile devices, tablets, or laptops wasn't affected, Bloomberg reports.

Why is Netflix doing this?

Netflix announced its plan to crack down on password sharing in April 2022 after it lost subscribers for the first time in over a decade — 200,000 of them. The company said this could partially be blamed on losses from suspending service in Russia amid the war in Ukraine. But the earnings report still stunned analysts, as Netflix had projected it would gain 2.5 million subscribers that quarter, so the company's stock took a dive.

Seeking to quickly assure shareholders it was taking action to boost revenue, Netflix said it was working on "more effective monetization of multi-household sharing." Co-CEO Reed Hastings told shareholders at the time that Netflix had been thinking about this for years, but "when we were growing fast, it wasn't the high priority to work on." After this changed, it became top of mind.

Since then, Netflix has bounced back somewhat and returned to adding subscribers. But the company remains focused on growing revenue, emphasizing this as its most important metric over even subscriber growth. "We've been increasingly focused on revenue as our primary, top line metric," Netflix executive Spencer Wang said.

Netflix's other plan for growing revenue was introducing a new ad-supported subscription tier, which launched in Nov. 2022 for $6.99 per month. But this tier reportedly had a slow start, with The Wall Street Journal reporting it accounted for just nine percent of new Netflix sign-ups in Nov. 2022.

It remains to be seen, then, how much of a boon the password-sharing crackdown will be to revenue growth. But some analysts "see an influx of several billion dollars in new revenue if the company is able to manage the process effectively," Deadline reports. In January 2023, Netflix said that between "launching paid sharing and building our ads offering," "we believe we have a clear path to reaccelerate our revenue growth."

Update Jan. 25, 2023: This story has been updated with the most recent developments.

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