Netflix’s expected password-sharing crackdown puts college students on edge

As Netflix inches closer to rolling out password-sharing guidelines in the United States, college students who use accounts connected to family or friends are bracing for changes to their streaming habits.

The company has said to expect new password guidelines in the coming months, although it hasn’t provided specifics about what they would look like. Netflix in February outlined password-sharing protocols for users in Canada, New Zealand, Portugal and Spain that call for users to set a “primary location” for their Netflix accounts — and that add additional monthly fees for out-of-household “sub accounts.”

While Netflix hasn’t said whether the U.S. plan will ultimately resemble these earlier changes, some worry that a crackdown on password sharing could shake up streaming for college students who’ve just left home, as well as burden lower-income students and their families.

Sam Figiel, a sophomore at Mercer University in Georgia, said access to Netflix is required for many of his peers’ classes. Figiel, who uses his mother’s account, said nearly everyone he knows at school watches Netflix, although he and some friends might move away from the platform if password sharing ends.

“Without Netflix, I would have to find a way to compensate for classes, but the only other way I could compensate would be going to another streaming platform,” Figiel said. “My parents are paying for three kids in college. They have all their own expenses. They pay for all of our car payments, all of our phone bills, so they don’t really have a lot of extra money to spend.”

Netflix has long touted how it puts subscribers first. Yet the gradual password-sharing changes have created uncertainty for college students who might not have, or want to spend, disposable income for their own subscriptions.

Netflix spokesperson Kumiko Hidaka directed CNBC to the company’s earlier announcements for information on its previous steps, but declined to comment further. Chengyi Long, the company’s director of product innovation, said in February that more than 100 million households were sharing accounts, amounting to about 43% of the company’s 231 million paid global memberships, as of this month.

According to a 2022 survey by Parks Associates, 40% of U.S. households share or use shared passwords, a rise from 27% in 2019. People in the 18-to-34 age group, which accounts for 30% of all Netflix users, are more likely to exchange passwords than older viewers. Netflix reported 74.3 million paid streaming subscribers across the U.S. and Canada in its fourth quarter.

Vrisha Sookraj, a junior at the University of Maryland who watches Netflix from her parents’ account, said it’s the go-to streaming platform for nearly everyone she knows. But she’s worried the prospective policies could push some younger consumers away.

Sookraj suggested that a student plan, similar to cheaper subscription plans offered by Spotify, Hulu and Amazon Prime, could allow for more flexibility while accommodating different income levels. Still, she’s on the fence about whether she would pay the monthly fee herself.

“Maybe it’s not that expensive, but at the end of the day, saving money is saving money,” Sookraj said.

Netflix executives have acknowledged that while the change should help the company’s financial results, it might not be so popular with users. Co-CEO Ted Sarandos said at a December conference that the paid-sharing model “feels a lot like the way you’d manage a price increase,” adding that it will be “really revenue positive” and “market expanding.”

But, he added: “Make no mistake, I don’t think consumers are going to love it right out of the gate.”

Netflix last month said users in Canada, New Zealand, Portugal and Spain can create up to two “sub accounts” for users not living in the primary location for a monthly fee per extra user: CA$7.99 in Canada, NZ$7.99 in New Zealand, 3.99 euros in Portugal and 5.99 euros in Spain.

The company hasn’t shared what a U.S. pricing model would look like — if it follows that example.

In countries listed above, users can also ask non-household members to establish their own individual accounts by transferring their profiles to a new account, which will maintain personalized recommendations and viewing history from the original account.

The guidelines came after a trial period in Chile, Peru and Costa Rica that began in May.

The company has worked to support “customer choice and frankly a long history of customer centricity,” Netflix executive Greg Peters, who became co-CEO in January, said during an earnings call last October.

Still, he said, the company needs to balance those goals with the need to “get paid.”

For Netflix, the calculus pits subscriber growth against monthly fees — and not for the first time. In November, Netflix launched a new tier dubbed “Basic With Ads” that costs $6.99 per month — a bid to bring in more viewers at a lower price point.

Some Wall Street analysts believe there could be a hiccup immediately after a U.S. password crackdown, resulting in higher churn in the second quarter, followed by possible revenue growth.

Wells Fargo analysts think password sharing could be a bigger near-term catalyst for revenue than the introduction of the ad-supported tier.

In a January note, Macquarie analyst Tim Nollen speculated that the average revenue per user could rise if enough free users get pushed off the platform and then rejoin as paid subscribers or are added as sub accounts. He told CNBC this week that he expects many users who drop the service to come back pretty quickly given the scale of Netflix’s content base, although he anticipates some initial churn for the next quarter.

“There are a lot, lot, lot of U.S. users that are not paying for it, and so I think they’re very sensitive to the backlash that they’re going to get when they institute this,” Nollen said. “It’ll take some time to get to the point they really know what they’re doing and they really can start to make money out of it.”

If Netflix charges extra for sub accounts in the U.S., these added costs may prove challenging for Thuan Tran, a senior at Duke University from Vietnam who shares his own account with his sister and partner. While he acknowledged that many Duke students have the financial means to support added costs, he said significant changes to the subscription structure would make him think twice.

“When your whole shtick is that you can share an account with people that you love in different places … and then now you reverse that and then go and charge people more if they want more profiles or screens, then that’s kind of going against a lot of the things that made your site attractive to a lot of viewers,” Tran said.

Even if the cost of a subscription could rise for borrowers, some college students think Netflix is too important to give up.

Elizabeth Danaher, a sophomore at the University of Missouri-Columbia studying communications and film, said Netflix has enabled her to watch films with her family in Illinois while she’s away at school, especially with her father, who edited “A League of Their Own” and “Home Alone 2.” She said it would “definitely hurt” if the cost structure prohibits her from accessing Netflix — which she considers a vital “source of information” — though she said she and many of her peers would likely shell out a few dollars a month.

“I think at the end of the day, Netflix is probably a necessity to me,” Danaher said.

According to a study from Leichtman Research Group that has yet to be released, roughly 66% of households nationwide have Netflix. About 14% of all households that have Netflix borrow it from someone else and do not pay, according to the online survey of 3,500 adults across the U.S. That jumps to 21% for consumers aged 18 to 34.

“What sharing did was help them grow the company, but now what it’s doing, it’s limiting their potential growth of subscribers,” President and Principal Analyst Bruce Leichtman said, adding that Netflix lost nearly a million subscribers last year in the U.S. and Canada.

Leichtman estimates sub accounts could cost an extra $3 each and says, according to survey data, about half of both sharers and borrowers say they would pay a fee at that rate. About 10% in both categories said they would pay the extra charge but would also look to downgrade their account.

Of those survey respondents who share their login credentials, about a quarter say they would drop Netflix after a policy change that would cost them additional monthly fees per sub account, compared with a third of borrowers. Though Leichtman said it’s unlikely to play out to that degree as people settle into paying a few extra dollars per month under new policies.

Aravind Kalathil, a senior at the University of Missouri-Columbia, said he uses a stranger’s Netflix account that’s been logged in on his apartment’s smart TV. Kalathil and his roommates don’t know who owns and pays for the account, and are prepared to have their access cut off without warning should password restrictions go into effect.

“In the end for us, it probably will not have the biggest effect because our families all have Netflix accounts and we will make it work, but it just adds extra hassle and annoyance to something that in the end is kind of expendable with the amount of streaming services out there,” Kalathil said.