Over the past decade, video content consumption has evolved. Watching a TV show no longer requires a set-top box, or even a TV. Streaming video providers such as Netflix and Hulu have revolutionized the way people think about and view video content, allowing for out-of-home use across a range of connected devices. With this increased portability comes a risk not associated with traditional Pay TV: password sharing.
Jacob Roscoe, Tom Waterman / December 21, 2015
Many streaming video subscribers freely give their passwords to friends and family members, allowing the account to be used by non-paying individuals. Estimates of the prevalence of password sharing find that between 10% and 20% of streaming video viewers are using a shared password. The effects of password sharing are significant: one research firm, Parks & Associates, estimates password sharing to cost streaming video providers worldwide $500M annually.
Impact on Streaming Video Providers
Despite the potential revenue impact posed by password sharing, some major streaming video providers do not seem particularly concerned. HBO and Netflix are two key examples. In an April 2015 interview with CNN Money, HBO CEO Richard Plepler said that ‘password sharing is not a big issue’, having previously mentioned that he sees password sharers as a great marketing opportunity for the next generation of HBO subscribers. Netflix CEO Reed Hastings takes a similar stance, even encouraging immediate family members to share an account with the introduction of custom profiles and a family plan that allows up to four concurrent streams. Hastings caveated that there is a limit to acceptable sharing, labeling the case of accessing Netflix with a boyfriend’s uncle’s password as inappropriate.
Many Pay TV operators, who have been rolling out TV Everywhere (TVE) – a streaming service through which its paid video subscribers can access many of the channels and programs included in their at home TV package – have been publically quiet on the issue. This is in part due to their nascent entry in the space, though Charter Chairman and President Tom Rutledge spoke out in October remarking that ‘TVE is not well secured and devalues programming’.
Companies employ a spectrum of policies to mitigate password sharing, some key levers include limiting the number of devices and/or concurrent streams (simultaneous viewing sessions). For example: Dish restricts accounts to one streaming session whereas DirecTV offers customers 5 concurrent streams. Each of these policies represents a trade-off between providing an easy-to-use product that will be well received by legitimate account holders, and implementing adequate security measures to prevent illicit account use and dissuade password sharing.
It seems likely that password sharing is driving subscription price increases – paying subscribers would therefore be subsidizing non-paying users. In October, Netflix increased the price of their two stream plan by $1, and Goldman Sachs analysts attributed the price change to password sharing, arguing that the new pricing would incentivize some account holders who share their passwords to select the one stream plan and encourage accounts with multiple users to upgrade to the four stream premium offering.
Future of Password Sharing Policies
Streaming video providers present different pictures of what constitutes acceptable usage. These are likely to evolve over time as the market becomes more mature. A key reason for the relatively relaxed current policies is that while providers ultimately do not want subscribers sharing password with persons outside the household, they are not willing to risk market share or future growth potential with new policies that could frustrate their existing customer base. As the streaming video services market continues to mature and growth eventually slows, monetizing non-paying streamers will become more important. Especially with competition levels continuing to rise – over 30 new services launched in 2015 in the US alone.*
The joint impact of slowed growth and increased competition will incentivize streaming video providers to re-examine password sharing as a potential revenue growth opportunity, although finding strategies to convert the recipients of shared passwords to paying customers will remain a challenge. New entrants to the streaming video market should also consider password sharing in their initial product policies to avoid customer headaches from policy adjustments down the line, as well as to maximize revenue potential.
With AT&T and NBC Universal poised to launch streaming video offerings in early 2016, the shift towards streaming video does not seem likely to wane. As viewership of traditional Pay TV programming continues to migrate towards streaming video, we will watch to see how market participants move to address password sharing.
*All streaming video providers presented in the diagram are available in the US, with the exception of DisneyLife, which is a UK-only offering