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Netflixs clampdown on password sharing expected to build scale, revenue

The recent announcement by American streaming service Netflix to clamp down on users sharing their passwords, media experts said, is aimed at building scale and revenue. The company is testing a feature where users will need to verify accounts to curb rampant password sharing that affects its revenues.

According to experts in the sector, nearly 40%-45% of any platform’s viewership comes from shared accounts and such clampdowns, supplemented with cheap mobile-only plans, could help scale revenues for services looking to break even, especially when they’re investing heavily in exclusive content.

In a limited test that it rolled out last month, Netflix now throws up a prompt to certain users that says: “If you don’t live with the owner of this account, you need your own account to keep watching.” Below that, there’s an option to get a code emailed or texted to the account owner, which can be entered to continue watching. “This test is designed to help ensure that people using Netflix accounts are authorized to do so,” Netflix said in a statement.

“It is meant to drive scale in a value-conscious market such as India where the content cost remains just as heavy,” Karan Taurani, research analyst at Elara Capital Ltd said. While the Reed Hastings-owned platform may be investing over Rs2,000 crore annually on content in India, Arpu (average revenue per user) of around Rs400 per month (considering all bundled plans) across 4.3 million subscribers may not yield profits or even help break even. The fact that the company knows big gains can come from a market like India, Taurani said, is evident in the fact that nowhere before India had the service rolled out cheap, mobile-only plans, presumably to encourage people across sections to subscribe to the service.

Neeraj Roy, founder and chief executive officer (CEO), Hungama Digital Media, said all OTT platforms are struggling with the issue of password sharing and it will remain a concern in the foreseeable future. The fact that mature platforms are taking a call on it shows that their natural growth is under pressure and they’re looking for fixes.

“While the first blow (from borrowed or stolen passwords) is in the form of lost revenue, other factors include higher costs, breaking content licensing agreements, and customer data security breaches,” Divya Dixit, senior vice-president, marketing, direct revenue and analytics, ALTBalaji said.

Yet, the clampdown strategy is a double-edged sword. On one hand it can drive more subscribers since viewers cannot share the same account, on the other, it can lead to lesser consumer engagement as a significant chunk of consumers still might not be willing to buy separate subscriptions, said Dixit. While the strategy may lead to some revenue jump initially, there are so many free options available for users who may not want to come back, said Mehul Gupta, co-founder and CEO at SoCheers, an independent digital agency.

Greg Armshaw, senior director solution sales, APAC at Brightcove Inc., a global provider of cloud solutions for video, agreed that while the ideal expectation is to have superfans of a service encourage others to pick up subscriptions, the lack of access can also lead to piracy of content.

“The rise of exclusive content on various streaming services has raised privacy concerns. With affordable pricing, we see a significant adoption and change in the consumer’s spending habits to pay for good quality content, and we are hoping this only gets better,” said Dixit of ALTBalaji that prices annual subscriptions at Rs300. Live Mint


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