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Why Netflix password sharing could get more difficult

With the launch of Apple TV+, HBO Max, Disney+ and NBC's Peacock just around the corner, the streaming video market isn't just about to get crowded — it's also about to get (even more) expensive. If you added up the cost of all those services, you'd have a bill approaching what you would have paid for one of those pricey cable packages that we all thought we were ditching by switching to streaming. One way that streaming services have managed to remain affordable for many people, intentionally or not, is through password sharing. By being able to split an account, younger users and low-income households can access entertainment without having to break the bank. But that might be changing soon.

Rumors of Netflix cracking down on password sharing have been floating since the company missed the mark on its quarterly earnings report. Now the trade group Alliance for Creativity and Entertainment (ACE) — which counts among its members Netflix, Amazon, Comcast and a collection of other companies — has added the issue of password sharing to its agenda. According to a report from TorrentFreak, the group is working on establishing "best practices" on "improper password sharing," "inadequate encryption" and other issues that lead to what the group considers to be unauthorized access to content.

For streaming services, shared passwords have become a bit of a sore spot that there's not a ton they can do about other than complain. During a recent earnings call, Netflix chief product officer Greg Peters told investors that the company was "looking at the situation" of password sharing. A study published last year by business intelligence firm Magid suggested that Netflix loses $135 million each month, assuming just 10 percent of its paid subscribers have handed out their password to someone else. Other reports have suggested Hulu loses as much as $1.5 billion per year to password sharing. A survey conducted by CordCutting.com found that between 15 to 20 percent of people access popular streaming services through someone else's account, with Hulu seeing the highest level of sharing despite having the cheapest monthly price.

Despite these gaudy figures, the idea that password sharing amounts to or is the equivalent of piracy — which is essentially what the ACE trade group has suggested — is a misguided way of viewing this behavior. According to the CordCutting.com survey, the vast majority of password sharing is children using their parents' account or significant others sharing access to an account. These are the types of arrangements that should effectively be built into the model. Even for kids going off to college and no longer living under the same roof as their parents or partners who don't live together, these are situations in which shared accounts should be considered the norm rather than some attempt to screw over the company and gain unauthorized access to content.

For most services, having multiple streams coming from the same account is built into the subscription model. Netflix's standard package allows two simultaneous streams, while its premium subscription allows up to four screens to stream at one time. Hulu's base package also allows two accounts to stream at the same time and lets users purchase additional access to allow more simultaneous viewing. Amazon allows three streams of different programs at the same time. But none of these services have a limit on how many times a person can share their password and few offer any sort of location-based restrictions or track where the views are coming from. So in theory, a person could share their password with an unlimited number of people as long as the actual number of simultaneous streams never surpasses the limit allowed by the streaming service.

Disney+ might spell the end of this more liberal approach to streaming. Earlier this year, Disney announced a partnership with Charter to work together to limit access to Disney streaming properties through password sharing. While the details on the plan are sparse, the companies announced that they would "work together to implement business rules and techniques to address such issues as unauthorized access and password sharing." That means attempts to share access to Hulu (which Disney now owns a majority stake in), ESPN+ and the forthcoming Disney+ will be limited through whatever restrictive system the companies come up with.

Assuming it works as intended, it's not out of the realm of possibility that the same account sharing mitigation tactics may come to other streaming services in the not-so-distant future. Charter recently became the latest member of the ACE trade group and is likely to push its solution out to other members. Upon joining the group, Charter CEO Tom Rutledge issued a statement that said, “We are very pleased that ACE and its coalition of members have committed through this initiative to take on unauthorized password sharing and other content security practices, and we look forward to working together on this important issue." It seems entirely likely that Charter will make its mission to push the group toward a solution that will cut down on password sharing.

The timing for that really couldn't be worse if you're a person who cares about being involved in the media zeitgeist. With more streaming services set to launch with high-profile exclusives on the way that will likely command the conversation at different points of the year, sharing accounts is likely to be one of the primary ways that people will stay connected. Prices for single streaming services have already been jacked up high enough that less fortunate families have had trouble staying connected. Earlier this year, Earnin published data that suggested Netflix's latest price hike resulted in subscriber numbers dropping among low-income households. It seems likely that even middle-class homes will have to start making decisions as to what services they want to keep and what ones they want to ditch. Companies like Charter may believe that limiting password sharing will force people to pay for services. Instead, it's more likely to push them toward piracy or simply not accessing the content at all and potentially being left out of pop culture conversations.