Netflix password crackdown accelerates SVOD monetisation push

TLDR version: Netflix’s push to charge for password sharing in ANZ is now underway. This reflects the SVOD industry’s shift away from driving viewer growth and onto monetisation. Rising prices for SVOD services are another consequence of this shift. SVOD players are trying to soften the blow with ad supported services, but there are opportunities for the FTA TV and Pay TV industry as well.

Netflix leads the way on password sharing fees

Netflix is now implementing stricter measures to combat password sharing, which it plans to have implemented by June. Users who are sharing passwords began to be emailed last week, reminding them that the standard Terms of Use for Netflix confines the service to one household. In future, each Netflix account will be associated with a location, and devices will be associated with that location through, for example, IP addresses.

This restriction has been extensively breached (arguably with Netflix’s implicit encouragement) in the past, but the industry is moving into a new phase of monetisation. Where Netflix leads, the rest of the industry will follow.

It will cost $7.99 a month extra to add an extra person to your Netflix account, and the number of extra persons possible depends on your Netflix plan. Users of the Basic plan will not be able to add anyone, while users of the Standard plan can add one, and users of the Premium plan can add up to two extra locations.

This move will assist Netflix’s profitability drive in various ways:

• It will generate marginal revenue amongst households that persist with password sharing.
• It will safeguard its investments in content acquisition
• It can clarify the advertising value of its audiences and improve the monetisation of its new ad-supported services by clearly identifying user locations and collecting more granular and personalised data on users in those locations
• It can also develop more personalised content recommendations to improve viewer stickiness.

Trials on various markets suggest that there is an initial impact on Netflix subscription rates, but that this is offset over a few months. In Australia, our most recent survey found that just over a third of respondents were sharing a password, but that over 40% of those would pay a nominal fee of $5 to share a password. Just over 20% would cut off the service, while around a third would cut off their freeloaders. If these results are borne out, Netflix can expect an improved revenue position in the Australian market.

Incidentally, this move underlines Netflix’s position as industry leader and innovator. There is something audacious about this crackdown that only a dominant player can get away with. It is Netflix, not Apple TV+, that is the Apple of the SVOD world.

Why does this matter?

The SVOD drive for profitability has ended the priority of viewer growth. Netflix will be followed by other SVOD players who are looking to stabilise SVOD business models (e.g. Disney). This is not to say that subscriptions will fall, but that growth will no longer follow the exponential trend we saw during the pandemic, where 18-24 months of subscriber growth were compressed into six months.

For the FTA TV and pay TV industries, this means a reduction of the relentless competition for viewers. Both FTA viewing and pay TV subscriptions have been falling steadily over recent years, but there is now good reason to think this decline will ease.

For pay TV, the cost of two or three quality SVOD services is now approaching the cost of a basic Pay TV subscription. In relative terms, pay TV is getting more attractive again, after a long period when it fell in popularity. This will help Foxtel and Sky NZ to stabilise their core businesses, albeit at a diminished level.

For FTA TV, this is an opportunity to reiterate their unique selling point: “it’s free”. The growing sophistication of BVOD offers in ANZ looks increasingly attractive in markets where paid options are getting more expensive. This is particularly so in economies where disposable incomes are falling as interest rates rise. Since high interest rates are now forecast to persist into 2025, there is a wide window of opportunity for the FTA TV industry to re-engage viewers and stabilise their ad revenues.

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