Netflix estimates that over 100 millions households are freeloading off the video-streaming service through password sharing, including over 30 million households in the US and Canada.
The company supplied the estimate as Netflix announced it’s going to start coming up with ways to entice some people to pay up even more.
In a Tuesday letter to shareholders released alongside its quarterly results, Netflix acknowledged struggles to grow its paid user base, and reported a rare drop in total user subscriptions, from 221.8 million in Q4 to 221.6 million in this year’s first quarter.
“Our relatively high household penetration—when including the large number of households sharing accounts—combined with competition, is creating revenue growth headwinds,” Netflix wrote in the letter. In the US and Canada region, Netflix reported its subscriber base fell from 75.2 million in Q4 to 74.5 million in Q1.
To reaccelerate revenue growth, Netflix plans on using “more effective monetization of multi-household sharing.” A month ago, the company signaled it’ll do this by asking subscribers to pay an extra $3 per month to allow someone else outside their household to access their Netflix account. The company is currently testing this “Add an Extra Member” system in Chile, Costa Rica, and Peru.
In the shareholders’ letter, Netflix noted the company’s decision to turn a blind eye to password sharing all these years likely fueled the video-streaming service’s growth. However, the company now wants the account holders supplying the freeloaders to pay up, though it could take a year or two for its solution to fully roll out.
“We've always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households,” the company said.
The big question is whether Netflix will be able to monetize these freeloaders, or if they’ll go elsewhere amid already intense competition in the video-streaming space. One solution it's considering is a cheaper, ad-supported tier.
For now, the company said, “there’s a broad range of engagement when it comes to sharing households from high to occasional viewing. So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”