The Impact of Netflix Cracking Down on Password Sharing

Netflix Stock Image

Netflix, a leading streaming service, recently announced plans to crack down on password sharing.[i] This move is aimed at preventing unauthorized access to the platform and ensuring that only paying customers have access to its content.[ii] However, the plan raises several concerns and questions, particularly with regard to the law and data privacy.

Outgoing CEO, Reed Hastings, recently indicated that password sharing is a threat to Netflix’s declining growth rate.[iii] The company’s most recent shareholder letter notes, “Today’s widespread account sharing (100M+ households) undermines our long-term ability to invest in and improve Netflix, as well as build our business. While our terms of use limit use of Netflix to a household, we recognize this is a change for members who share their account more broadly.”[iv]

Netflix’s new position is a far cry from its former stance on password sharing. In 2017, the company tweeted, “Love is sharing a password.”[v] And in 2016, Hastings stated that “Password sharing is something you have to learn to live with.”[vi] The company's plan to figure out who is sharing passwords is not yet clear, but it is likely that the platform will look to user profile data, device activity, and IP address tracking. How far is too far with data usage? Will Netflix crack down on kids going off to college, long distance relationships, and travelers? In today’s mobile world, location tracking is not merely enough. Which patterns of platform usage are indicative of password sharing? In practice, the company’s policy may backfire, creating not only privacy and legal issues, but also consumer trust concerns.

If Netflix suspects password sharing, how will Netflix seek to enforce its terms of service? Will the company make intrusive inquiries into customers’ lifestyles that force them to prove they are acting within the spirit of Netflix’s terms? Prosecution feels hard to imagine and remains unlikely if the brand wants to keep its consumer-friendly image, but times are certainly changing in the entertainment industry. Rising rates and a slowing tech sector have translated into a renewed focus on revenue and profitability over growth. Netflix’s crack down may be a part of a larger trend and it remains to be seen whether password sharing is a violation of the Computer Fraud and Abuse Act. As the media and entertainment space evolves, and streaming services compete for attention, Netflix’s stance on password sharing speaks to larger trend of competition for consumers.

[i] The End of Netflix Password Sharing is Nigh, The WSJ, Sarah Krouse.

[ii] Id.

[iii]Netflix Q1 2022 Shareholder Letter.

[iv] Netflix Q4 2022 Shareholder Letter.

[v] @Netflix, TWITTER, March 10, 2017.

[vi]Your Shared Netflix Password is Safe, CNBC, Anita Balakrishnan.