Netflix on Tuesday started informing U.S. subscribers via email that it will implement a planned paid sharing charge – disclosing at a steep price of $7.99 per month for extra users outside the primary household, along with other policies that at least one analyst firm says are designed to push users to sign up for new accounts rather than share.
Netflix started sending emails May 23 but it’s unclear when users that share passwords and live in different households will be blocked or prompted to make a change. Along with the U.S. the password sharing crackdown is being rolled out more widely around the globe.The U.S. rollout was delayed slightly from plans to launch in Q1 but still comes ahead of the end of the second quarter and follows paid sharing charges introduced in several other markets earlier this year.
Netflix since last year has made it clear it would pursue charging for different households sharing accounts, previously disclosing an estimated 100 million users (including around 30 million in the U.S. and Canada) access Netflix but don’t pay for the streaming service. Alongside the introduction of a lower-priced ad-supported plan in November, paid sharing is one of the main avenues the SVOD is using to monetize existing but unpaid users and improve profitability.
The high price for paid sharing, or “extra members,” is notable, as it’s $1 per month above Netflix’s Standard plan with ads, which costs $6.99 per month in the U.S., and about $2 less than the Basic ad-free plan. As analysts from Wolfe Research noted it’s fairly high in the U.S. as well as in Europe (noting £4.99 in U.K. and €5.99 in France, which are both around the price of the standard tier with ads in the respective markets).
The extra member slots must be activated in the same country associated with the primary account owner and can only be added to Netflix’s ad-free Standard plan (priced at $15.49 per month) and Premium plan ($19.99 per month), so not to the Basic ($9.99 per month) or Standard with Ads ($6.99 per month). Netflix said a user’s plan determines how many extra member slots can be added but it wasn’t immediately clear if there’s a specific cap yet in place.
And while paying for an extra member means that those users could get features of the more premium ad-free Netflix plans for roughly half the price or less, they don’t get all the same benefits as a primary household account owner. For example, extra members can watch Netflix on only one device at a time and can also only download titles to one phone or tablet. Extra members get their own account, password and profile, but are limited to one profile and the monthly $8 charge must be paid for by the person who invited them to join (aka the primary account holder). And if a primary account holder cancels their subscription, extra member slots will also be canceled.
Paid sharing to boost subs, revenue
Taken together, Wolfe Research analysts led by Peter Supino suggested the rules are created to encourage new signups rather than sharing.
“These policies and prices create material friction for lenders and borrowers and are designed to favor new subscriptions,” wrote Supino in a May 23 note to investors. “With the ad supported plan priced at $7 and generating ARPU greater than the company average and the $8 sharing fee near the $10 Basic tier price, and with Netflix having an estimated 100M sharers globally, the P and Q are both exciting.”
Earlier analysis from Macquarie Research projected a paid sharing rollout in the U.S. – at an accurately predicted $7.99 price point – could catalyze growth on the streamer’s nascent ad-supported tier in the (which just recently disclosed reaching 5 million monthly users ) as users opt for the lower-priced plan. The firm modeled three scenarios for different uptake and based on the paid sharing strategy estimated annual incremental revenue between $1.17 billion to up to $3.5 billion from both the add-on charge and ad tier revenue estimates for the full-year 2024.
Netflix isn’t just launching paid sharing in the U.S. but also in more than 100 countries. Wolfe Research said the high fees and broad rollouts “enhance our confidence that paid sharing will boost subscribers and revenue materially at nearly 100% incremental margins.”
And the firm pointed to the timing of the launch – five weeks before the end of Netflix’s self-imposed Q2 timeline, saying it suggests management has high confidence after the first quarter delay.
As for driving new signups, Wolfe Research expects “millions of paid-sharing driven net adds in the 2H’23.” The firm noted Netflix will have to deal with press blowback and subscriber cancellations before realizing financial benefits it anticipates, but Wolfe sees upside to net adds given Netflix’s pricing strategy and thinks Wall Street consensus for the second half of the year could prove to be conservative.
“Consensus is looking for 11M net adds in 2H’23 despite no price increases, paid sharing tailwinds and price cuts in emerging markets earlier this year. Could Netflix do 15M+ net adds in the 2H’23? We think so!” wrote Supino.
Netflix in Q1 added 1.75 million global paid subscribers.