Netflix password-sharing crackdown seems to be working

By Emily Bary

Data indicate that fewer users in the U.S. and U.K. are leaving Netflix as a result of recent changes -- at least compared with Canada, where the account crackdown was carried out earlier

Netflix Inc.'s expanded password-sharing crackdown seems to be having the desired effect -- and it's rolling out more smoothly than it did in test markets.

The streaming-media company is in the midst of trying to maximize revenue opportunities by clamping down on people who borrow Netflix (NFLX) credentials instead of paying for their own memberships. After testing the initiative in several markets, Netflix launched its crackdown in a larger set of countries, and despite some complaints, users seem to be sticking with the service.

See more: Netflix to charge $8 per shared account in U.S

Fewer Netflix subscribers in the U.S. and U.K. are "churning," or leaving Netflix, compared with subscribers in Canada, where the password-sharing crackdown rolled out earlier, according to market researchers at YipitData who have been tracking the launch. This trend suggests that Netflix's management "has been able to successfully improve the user experience [and] communication" relative to that initial rollout, YipitData told MarketWatch.

Another interesting trend is that new plan sign-ups have increased in the U.S. as a result of the clampdown on account sharing. Netflix is giving accountholders the option to pay to add additional users to their existing plans, but it appears that more U.S. users instead are opting to set up new accounts of their own, at least compared with Canadian users, who "may be the most generous with their plans" in terms of adding other paid users.

Read: Here's everything new coming to Netflix in June 2023 -- and what's leaving

Signs of initial success with the broader password-sharing crackdown seem to have helped Netflix's stock recently, with the shares up 9.5% in the past two full trading sessions. The stock was off 0.9% in premarket trading Wednesday, however.

Jefferies analyst Andrew Uerkwitz is upbeat about Netflix's positioning as it takes this tougher tack on account sharing, especially as streaming rivals Walt Disney Co. (DIS) and Warner Bros. Discovery Inc. (WBD) move to strip some content off their own platforms in a bid to cut costs and shake up elements of their branding. At the same time, he notes that Netflix's initiative is still in its early days.

See also:Streaming nirvana is about to become more expensive -- and offer less content

"We are a bit cautious in the very near term (next 30-45 days) as we would expect a lot of noise about the password sharing changes," Uerkwitz wrote in a note to clients Tuesday, adding that Netflix's management might end up taking a conservative view in its next quarterly commentary.

He rated Netflix shares a buy and lifted his price target to $440 from $405 in his latest note.

What's worth streaming in June 2023: Hulu cooks up more of 'The Bear' and Netflix brings back 'Black Mirror.'

-Emily Bary

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05-31-23 0920ET

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