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Netflix password crackdown has Wall Street’s attention

Netflix may find out soon just how many of its viewers will agree to pay to use its services.

The video-streaming giant announced last week it is taking a firmer stance against people sharing account passwords, testing a feature that prompts non-paying viewers to buy a subscription. A Netflix spokesperson wrote that the test was “designed to help ensure that people using Netflix accounts are authorised to do so.”

While several analysts are confident that most won’t want to give up access to shows like Bridgerton, the question brings uncertainty at a time when rival services are adding millions of subscribers.

While several analysts are confident that most won’t want to give up access to shows like Bridgerton, the question brings uncertainty at a time when rival services are adding millions of subscribers.Credit:Netflix

A key question for Wall Street is how many will become paying users. While several analysts are confident that most won’t want to give up access to shows like Bridgerton or The Queen’s Gambit, the question brings uncertainty at a time when rival services are adding millions of subscribers.

On the most basic Netflix plan, users can only stream on one screen at a time. The most popular plan, allows two simultaneous streams while the premium plan allows three. But there has never been a limit on sharing an account when you aren’t streaming at the same time.

Netflix has underperformed as investors consider its post-pandemic prospects. The stock is up about 3 per cent over the past six months, compared with a 13 per cent rally in the Nasdaq 100 Index.

For Benchmark Co.’s Matthew Harrigan, the underperformance will probably continue “as global consumers are disgorged from their couches” amid the coronavirus vaccine rollout. The password crackdown could dampen Netflix’s pricing power, he noted.

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Last week, Needham called user churn – the number of customers who drop their subscriptions — the top risk for Netflix in 2021.

Meanwhile, BMO Capital Markets is more optimistic, saying the strategy could “help drive some incremental gross subscriber additions.” Bloomberg Intelligence recently wrote that a crackdown “could increase revenue 10 per cent,” although the move “risks alienating users, which could prompt elevated churn.”

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