Netflix blames 100 million password sharers for stalled subscriber growth

Netflix announced in March that it plans to crack down on password sharing, and in its first quarter earnings letter to shareholders (pdf), it gave a big clue as to why.

First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers. Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets – an issue that was obscured by our COVID growth.

Netflix has 222 million “paying households,” but it estimates the service is shared with over 100 million “additional households,” 30 million of which are in the US and Canada. That indicates there is a massive swath of people who aren’t paying Netflix directly for the ability to stream their favorite shows.

Right now, the company is testing a new feature in Chile, Costa Rica, and Peru where subscribers can add “sub accounts” for up to two people outside of their home at reduced prices. It’s unclear when the test might be expanded to more countries, but given how many people who watch Netflix could be paying but aren’t, it seems likely that Netflix wants to roll it out more broadly sooner than later.

Netflix also revealed Tuesday that it lost subscribers for the first time in a decade last quarter.