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Netflix password sharing and the power of behavioural economics

Nexflix did not appears to implement this change until they realized the importance of measuring their viewership, especially as other streaming platforms were on the rise.

It was revealed last month Netflix was planning to introduce a new cheaper subscription model by the end of 2022
It was revealed last month Netflix was planning to introduce a new cheaper subscription model by the end of 2022 - Copyright AFP Hector RETAMAL
It was revealed last month Netflix was planning to introduce a new cheaper subscription model by the end of 2022 - Copyright AFP Hector RETAMAL

By the end of March, video streaming service Netflix has plans to advance the crack down on password sharing for U.S. subscribers. This announcement has been met by surprise, outrage, and confusion as consumers ponder how their Netflix accounts will be affected.

Jadrian Wooten, a professor of economics at Virginia Tech, has provided his perspective on the issue to Digital Journal

Password sharing has been a recurring issue for Netflix since they transitioned from a DVD-based subscription platform to a digital. According to Wooten: “Initially, Netflix encouraged multiple people to login together, which was part of their brand. However, when reporting subscriber growth in their annual reports, they have noted that subscription numbers are missing many people who share accounts.”

This was not an easy decision. Certainly, Nexflix did not appears to implement this change until they realized the importance of measuring their viewership, especially as other streaming platforms were on the rise. He adds: “To hold a strong competitive advantage, Netflix made the decision to end password sharing.”

Since Netflix’s announcement, many subscribers have taken to Twitter to express their frustration. For many, password sharing accommodates family members who live out of state or alleviates financial burden amongst family members.

However, this does not necessarily mean the required amount of the frustration that many people are experiencing with the recent change can be explained by a concept in behavioural economics called loss aversion.

“This concept refers to the tendency for people to react more strongly to the prospect of losing something compared to the happiness they feel from gaining something,” explains Wooten.

In terms of Netflix, Wooten finds that many people on social media are threatening to quit Netflix, yet this is unlikely to cause a significant drop in their overall subscription numbers.

Looking at the digital media strategy, Wooten observes: “Netflix believes that cracking down on password sharing will realistically increase the number of subscribers, especially now that they offer a lower-priced, ad-supported option.”

In addition, other streaming services such as Disney+ have also adapted ad-supported streaming packages with lower costs. As for password sharing, Wooten predicts they may follow suit.

“It is highly likely that other streaming services will follow Netflix’s lead in cracking down on password sharing, although they may initially delay – to attract new customers who may cancel their Netflix subscription,” says Wooten.

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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