Password sharing crackdown by Netflix, Disney+Hotstar to boost their bottom line, say industry players

OTT platforms have long grappled with the challenge of password sharing, which has been a cause of revenue leakage for the industry, according to the industry players.

However, with recent measures taken by Netflix and a similar move expected by Disney+Hotstar to curb this practice, the tide may be turning as the experts believe that cracking down on password sharing will not only prevent revenue loss but also drive overall subscription growth, ushering in a new era of profitability for OTT platforms.

Following Netflix's lead, Disney+Hotstar is now taking measures to limit password sharing among its premium users. The company intends to implement a fresh policy that permits premium users to access their accounts from a maximum of four devices. This decision is aimed at tackling the problem of password sharing, especially in a significant market for Disney, according to media reports.

Recently, Netflix announced that it has finally ended password sharing in India. It said that only the members of a household will be able to access one account.

The OTT platform started sending out emails to people sharing passwords outside their households. Netflix has granted members the capability of transferring a person's profile, along with their viewing history and personalised recommendations.

Uday Sodhi

Uday Sodhi, Senior Partner and Co-Founder, Kurate Digital Consulting, said that India currently has close to 50 million subscribers for OTT video platforms and each customer has around 2-2.5 subscriptions. Free/AVOD OTT has around 500 million users.

Password sharing has been a significant issue for OTT platforms and this leads to revenue leakage for the platforms. Most leading OTT platforms have reduced the rates of their plans over the last few years. Most of them have monthly plans of around Rs 99-150 per month. At this price point, it's attractive for customers to purchase their own subscriptions. Estimates suggest that OTT platforms can double their subscribers if they are able to effectively stop password sharing, Sodhi said.

“I don't see any revenue loss because of stopping password sharing or restricting password sharing. Some viewers might drop off in the short term but the overall subscriptions will go up and this will help the OTT platforms grow their revenue. Netflix data across the world shows an increase in subscriptions after they restricted password sharing,” Sodhi added.

Nitin Burman, Vice-President and Head- Non-Subscription Revenue, Arha Media believes that India being a mobile-first market, restricting password sharing would definitely lead to a minimum of 2x to 3x growth in revenue.

Furthermore, he went on to say that the number of unique users will increase with this practice as most people watch content on their mobile phones and this practice will lead to each user buying their own subscription. 

Restricting password sharing will force users to buy their own subscriptions for themselves as most content is still viewed on mobile devices, he added.

Burman also believes that this move can lead to growth in the ads revenue. Explaining the thought behind it, he said, “Ads today contribute even more than 50% of overall revenues for a lot of hybrid platforms. With this new landscape, there are chances of low ad-based plans being rolled out. This is also a great move that can lead to growth in ads revenue as this step will enable platforms to serve better-targeted ads to users.”

Although, as per him, new plan options should be introduced. He added, “This will allow more users to choose from what they want and how much they want to pay. All these users were freeloaders till now and accepting them to start paying high-end plans can lead them to drop out from the platform.”

Ranjana Adhikari

Ranjana Adhikari, Partner, Induslaw, said that it is fair and sensible for OTT platforms to impose such restrictions keeping in mind the huge amount of investments that they make in content creation.

"India already has some of the lowest priced OTT streaming plans in the world and though the market has seen growth in terms of user base, the average revenue per user (ARPU) has not seen a corresponding rise as per industry experts. The streaming market in India is no longer in its nascent stage and given that users are willing to pay for quality content, it is only reasonable for OTTs to nudge users now to take up individual subscriptions as penetration of cheap mobile data and smartphones continues," Adhikari said.

"This is definitely expected to have a significant positive impact on OTTs' revenues and enable them to invest in a wider variety of original and licensed content," she added.

Ashish Karnad

Ashish Karnad, Executive Vice President and Head, Media and Digital, Hansa Research, said that in India's streaming industry, the practice of sharing passwords was started by the OTT platforms as an acquisition strategy to attract new users. While this did work very well in the beginning, it is now proving to be a bane for the established OTT players with a significant amount of consumers sharing passwords beyond just their families.

"So, while the consumption of OTT platforms is increasing, the overall revenue and hence the ARPU is not showing the growth it needs to show," he added. 

Sodhi said that at Rs 99-150, there is no reason for consumers to share passwords. It costs more to watch one movie in the theatre.

“That strategy has worked for Netflix across the world. It will have a positive impact on the revenue of the other OTT platforms also. I don't see scope for reducing prices below Rs 99 per month. At this price there is no real need to share passwords and inconvenience yourself,” he added.

Karnad said that while Disney+Hotstar and Netflix are taking measures to address the problem of password sharing in India, the efficacy of the plan relies on various factors such as the number of consumers who opt for individual subscriptions and the effectiveness of the newly-enforced regulations.

The effectiveness of these rules depends on how they are implemented, the user response, and the state of the market. If done correctly, it could increase the revenues, he stated.

According to Karnad, recent efforts by Netflix to crack down on password sharing have resulted in a surge of new subscribers. According to the data by Antenna, a market data platform for subscription-based services, Netflix experienced a significant increase in new user sign-ups in late May, surpassing even the numbers seen during the COVID-19 lockdowns. It is expected that a larger number of individuals will either opt to pay for an additional member or create a new account. If this happens, it could lead to an increase in the number of subscribers.

“However, this is a double-edged sword. While it is expected that this move will increase ARPU, it might get some current subscribers to also move away from subscriptions. It is important to first understand the behaviour of the shared users – what kind of content they consume, the commonality/diversity in their consumption, the extent of engagement of all the shared users etc. as that will have a significant impact on if users will subscribe individually going forward. Of course, the affordability and value for money aspects are also important factors that users will consider before subscribing individually,” Karnad said. 

“It is also noteworthy that some of the other OTT players who are yet to reach a critical mass have not made any such moves (to restrict passwords) probably as they still see this as an opportunity to get new users into their fold. This aspect only adds to the complexity in the marketplace,” he added.

“Streaming platforms rely on various revenue sources to maintain their operations and financial stability. These sources include advertising income, product placement and sponsored content, licensing and distribution deals and strategic alliances. Advertising income is generated through free or ad-supported versions of content, while sponsored content is included in original programming. Licences and distribution deals increase content options and licence fees. Successful streaming platforms can profit from the popularity of their series and characters through merchandise and consumer goods. Partnerships and co-branding can open up new revenue streams as well,” Karnad said.

“Stricter login policies may impact revenue from subscriptions, demand for material, new revenue models, and partnerships and exclusivity. The effects of stricter login requirements will depend on user reactions, platform explanations of subscription advantages, and the competitiveness of the streaming market. To maintain financial health and long-term sustainability, streaming platforms must adjust their strategies to address the potential impact,” he added.

Karnad also explained that while debates about its impact on user experience continue, it cannot be ignored. The financial stability of streaming platforms depends on their ability to balance revenue generation, user experience, and subscription growth. Netflix and Disney+Hotstar may consider new subscription models or increasing advertising to offset potential revenue losses.

It may result in increased revenue, better analytics and user data, increased content investment, and improved content delivery, according to Karnad.

“However, it also has significant disadvantages, including user resistance, decreased word-of-mouth advertising, increased churn, piracy competition, and legal difficulties. Individual user subscriptions might be resistant, which would lead to turnover and poor viewership. Additionally, more stringent login requirements can result in higher instances of piracy, which would make it harder for the platform to keep devoted subscribers. Platforms must overcome these problems to preserve their reputation and brand awareness,” Karnad said.

Karnad added that using low-cost AVOD, converting freeloaders who exchange passwords can be a fruitful tactic. Platforms can persuade users to move from password sharing to lawful, ad-supported viewing by providing a more plausible entry point and access to premium content. Lowering entrance barriers, providing an ad-supported model, exposing users to premium content, focusing advertising and data collection, and providing upselling opportunities are all ways to implement this strategy.

“The user experience, revenue stability, content accessibility, and competition are obstacles to this technique. Ad-supported programming could be less enjoyable to watch, and platforms need to carefully balance subscription and advertising revenue to maintain overall financial viability. Platforms must set themselves apart from rivals and offer a unique value to entice freeloaders away from password sharing,” he added.

According to a YouGov Survey, half of urban Indians (50%) are willing to pay an extra fee lesser than an actual subscription fee to share their account with family or friends. The number increases to three in five (60%) among people who pay for a Netflix subscription.

In addition to this, consumers in India are also more likely to think that video and music streaming services should offer more group subscriptions – over three in five (62%) say so.

When it comes to paying an additional charge for renting or other premium services above the subscription cost, the largest proportion of urban Indian respondents seem comfortable (48%). A little over a third (35%) are not comfortable and 17% are unsure of their view, as per the survey.

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