During Q1 2022 earnings call for investors, Netflix executives revealed it would be charging for account sharing and is considering adding advertising. Piracy Monitor agrees that this is about revenue, although piracy gets just a side-eye glance.
Netflix had recently announced testing ‘paid account sharing’ by charging for it in Latin America in recent months. On the surface, it’s easy to find justification. This quarter was the first time that the number of Netflix subscribers decreased, plus, a 2022 survey by Leichtman Research Group said that about a third of Netflix users share their accounts.
So why did they do it? Here’s what the transcript said:
- Account sharing, increasing competition, and the fact that consumer acquisition has not returned to pre-COVID levels combined to impact revenue
- Netflix growth rate has flattened, so revenue growth must be sustained through other forms of monetization
- Long-term, the overall addressable market of broadband households for streaming is unchanged, but competition leaves Netflix with a smaller slice of that pie.
- Netflix missed its 2.5 milllion net ‘adds’ by 2 million, but this was attributed to the exclusion of Russia.
- There are two groups of Netflix viewers: Those who pay and those who don’t. Netflix sees the latter as an opportunity because they are familiar with the service
Still, does this justify, effectively, a price increase?
Read transcript of the Netflix Q1 2022 Earnings Call (April 19, 2022, .PDF)
Why it matters
By intuition, Piracy Monitor would argue that Netflix’ best defense is to loosen the definition of what constitutes a household, as a disincentive to piracy. If there are five users on an account, does it matter who they are?
Forces other than piracy are at work
One of those forces is the character of the Internet as a channel of distribution. Netflix is competing against ditributors that some will say are lax about policing infringing instances of valuable content. Ask the music industry how it feels about how entire catalogs of music and video by top-tier artists are freely available on YouTube. Not to mention movies that are otherwise available only through legal paid streaming or AVOD models. Cynics will say that the laxity is intentional.
Another force is competition.
The average number of streaming services taken by consumers has continued to climb. 2022 research by Antenna says the average is up 150% since 2019. This number varies from analyst to analyst; from as few as 4 to as many as 7. March 2022 research released by Nielsen implies that consumers haven’t yet reached the limit of their spending for streaming services, although they find that consumers find themselves increasingly overwhelmed by choice and an inability to find what they want despite the number of services they take.
Another force is cost
CDN carriage is part of the ‘bill of materials’ for any streaming service – and by charging for usage by individuals judged to be un-associated with a subscriber’s household but using accounts from that household, Netflix could recover some of that cost. Technologies that could detect this were demonstrated at the April 2022 NAB conference.
Higher prices are not the only possible response
One response might be to invite “guest users” to subscribe to Netflix via a “switcher’s” discount or free service for an introductory period and reduced price for a year.
A price increase is a big move and it’s not consumer-friendly.
Even if a price-hike is justifiable from a cost standpoint, Piracy Monitor questions whether what is effectively a price increase is sufficiently anti-consumer to drive illegal use and theft of service for re-distribution to others.
The bottom line is the bottom line
Netflix has openly admitted its concern in public forums over the possibility that its opportunity has peaked, crowded by aggressive competitors, and that the company can’t guarantee revenue growth to its investors without changes to its business model.
Estimates by Cowen & Co. analysts, reported by Variety in March, say, that “if Netflix rolls the program out globally it could add an incremental $1.6 billion in global revenue annually, or about 4% upside to the firm’s 2023 revenue projection of $38.8 billion.”