Netflix To Launch Paid Password Sharing In U.S. In Coming Weeks As Part Of Global Rollout

Netflix plans to phase in “paid sharing” — the company’s preferred term for cracking down on the loaning of login credentials — in the U.S. in the coming weeks.

The U.S. debut during the second quarter (April through June) is part of a “broad rollout” across the world in the current quarter, the company said in its quarterly letter to shareholders. “In Q1, we launched paid sharing in four countries and are pleased with the results,” the letter said.

The news was delivered along with a mixed batch of first-quarter financial results, with subscriber gains and revenue coming in a bit shy of Wall Street expectations and earnings per share a bit better than expected.

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The decision to finally lower the financial boom on customers for sharing passwords followed a period of many years when the company winked at the practice as it was gaining scale. In recent years, the billions in lost revenue began to take on increasing importance, especially as financial pressures mounted in the increasingly competitive streaming sector. Co-CEOs Ted Sarandos and Greg Peters have both acknowledged that there could be a degree of backlash from some subscribers, but the long-term payoff remains a key strategic objective.

Pricing has not yet been specified in all territories, but the company said it did expect a financial impact on second-quarter and third-quarter results. The timing of the big push in the second quarter is a bit later than previous plans for the first quarter, but the company believes the learning from existing tests will help it refine the setup as it goes global.

“We’re pleased with the most recent launches of paid sharing, and while we could have launched broadly in Q1, we found opportunities to improve the experience for members,” the shareholder letter said. “We learn more with each rollout and we’ve incorporated the latest learnings, which we think will lead to even better results.”

In order to implement the changes, the company continued, “we shifted out the timing of the broad launch from late Q1 to Q2. While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome for both our members and our business.”

The foray in Canada, New Zealand, Spain and Portugal in the first quarter persuaded Netflix execs that “we have the right approach” to the delicate task. More than 100 million households are currently engaged in password sharing, the company estimates, and it says it is merely trying to derive at least some revenue from those tertiary viewers.

“As with Latin America, we see a cancel reaction in each market when we announce the news, which impacts near term member growth,” the company said. “But as borrowers start to activate their own accounts and existing members add ‘extra member’ accounts, we see increased acquisition and revenue.”

In Canada, which Netflix sees as a “reliable predictor” of the U.S. rollout, the paid subscriber base is now larger than before the password monetization scheme began. Revenue growth has accelerated in Canada and is now growing faster than in the U.S., the company said.

As the rollout continues, viewership stats from Nielsen could take a near-term hit, but is expected to rebound based on testing last year in Latin America, the shareholder letter noted.

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