Netflix’s Password-Sharing Policy: A Potential Revenue Stream through Pay-to-Peek?

During his recent visit to India, Ted Sarandos, co-CEO of Netflix, stated that India is one of the fastest-growing markets for the streaming platform. Netflix saw a 30% growth in viewing engagement and a 25% increase in revenue in India in 2022. Sarandos emphasized the need for the India team to focus on local content, as it has been shown that shows that become local hits first tend to go on to become global sensations. This was the case with Squid Game from South Korea, Money Heist from Spain, Dark from Germany, Sacred Games, and Delhi Crime from India. Sarandos believes that the key to creating a global hit is authenticity in the local content.

While Netflix is aiming to conquer the Indian market, it faces a challenge in the form of password sharing. Known for its stance of “love is sharing a password,” the company has recently started rolling out a system that charges fees for extra member sub-accounts in four countries, including Canada, New Zealand, Portugal, and Spain, with plans to extend it to more countries, including the US. However, this crackdown on password sharing could potentially affect the platform’s growth.

There are mixed views on the impact of the platform’s stance on password sharing. Some argue that ending the sharing of passwords could negatively impact growth, while others believe that offering good content at a lower price point could introduce new digital revenue streams. Regardless, it is clear that local content will play a key role in the success of Netflix in India and beyond.

Monetizing account sharing

Netflix’s recent move to introduce a password-sharing fee could work in its favor in the long run, according to Indrajeet Mookerjee, President of South & West at Dentsu Creative India. While the platform’s subscription rates are relatively high, the password-sharing fee is still lower than a full subscription fee, as seen in countries where it has already been introduced.

Despite the potential benefits, cracking down on the password-sharing policy is a risky move for Netflix, particularly as the platform has been seeing some improvement in its performance. In the December quarter, it added over 7.5 million subscribers, outperforming analyst forecasts.

However, Netflix’s decision to focus on local content in India could help attract more subscribers and offset any potential loss resulting from the password-sharing fee. India has one of the largest digital video-viewing audiences after the US and China, and users are subscribing to Netflix for the quality content it delivers.

It remains to be seen how the password-sharing fee will impact Netflix’s subscriber base in India and beyond. Nonetheless, the platform’s move to crack down on password sharing highlights the importance of finding innovative ways to generate revenue and stay competitive in the OTT market.

OTT market: A crowded space

Netflix is currently ranked fifth in terms of paid subscribers in India, with Disney+Hotstar leading the way followed by Amazon Prime and SonyLiv. However, Netflix’s co-CEO Ted Sarandos believes that engagement is a more accurate measure of the platform’s success than the number of paid subscribers. He believes that the key question is whether people are willing to spend their viewing time on Netflix.

While engagement is important, subscription is also crucial for Netflix. This is why the platform has introduced a new policy on password sharing, as it seeks to address one of the main issues it faces in the Indian market: pricing. Compared to its competitors, Netflix is the only platform that relies solely on subscription fees. Over the past three years, the company has reduced its prices by 18%-60% across various plans in an effort to improve its competitiveness and deepen its penetration in the Indian market. Despite these efforts, however, Netflix is still considered relatively expensive.

To address this issue, Netflix is reportedly planning to introduce an ad-supported model, which could help it achieve better penetration in the Indian market. According to Indrajeet Mookherjee, president of Dentsu Creative India, an ad-supported model could help Netflix penetrate beyond urban markets into tier-II and beyond. It could also help Netflix compete more effectively with its rivals, who have already introduced ad-supported models to monetize their content.

Overall, while engagement is a key metric for Netflix’s success, subscription is also critical, especially in a market as price-sensitive as India. By introducing an ad-supported model, Netflix could attract more subscribers and achieve greater penetration in the Indian market.

The India story

According to industry sources, Netflix is currently ranked fifth on the paid subscribers chart in India, with Disney+Hotstar, Amazon Prime, and SonyLiv leading the way. However, Netflix’s chief content officer, Ted Sarandos, believes that the measure of the platform’s success is engagement rather than the number of paid subscribers.

While engagement is critical, the subscription cannot be overlooked. This is one of the main reasons why Netflix is introducing a new policy on password sharing. Netflix has struggled with pricing, as it is the only subscription-led platform among its contemporaries. To combat this, Netflix has reduced its pricing by 18% to 60% across plans in India in the last three years to increase its penetration in the market.

Netflix has produced around 100 shows in India since its launch, with 28 titles released last year. Despite some hits and misses, India has become Netflix’s priority market. Sarandos shared with Chopra some of the Indian stories that have worked for Netflix, with RRR and Gangubai Kathiawadi among the most popular.

Sarandos said that understanding local tastes and culture is critical to success in a new market. The team that runs Indian content for Netflix is based in India and understands local culture and storytellers. Their understanding of the local audience, culture, history, and challenges in getting movies and series made has allowed them to create content that resonates with Indian viewers. Sacred Games was their first attempt at creating Indian content, and it was a success that received recognition both nationally and globally.