It's an open secret that many Netflix (NFLX) subscribers "share" their login credentials with friends and/or relatives.
If recent European tests are any sign, the streaming giant is finally thinking about cutting down on the behavior, by lowering the number of simultaneous streams supported by what are currently its two most expensive plans. And though such a move naturally risks sparking a consumer backlash, it could also provide a lift to Netflix's subscriber growth and average selling prices (ASPs) in the U.S. and some other developed markets.
Earlier this week, CordCutting.com and Italian site TuttoAndroid reported that Netflix is testing a pricing overhaul in European markets in which the company would launch an "Ultra" subscription plan that has the features of its current Premium plan, which costs €14 ($16.35) per month in a slew of European markets and $14 per month in the U.S. Like the current Premium plan, the Ultra plan lets accounts play up to four streams at the same time in either HD or (if a particular show or movie supports it) 4K resolution.
Notably, the Ultra plan is priced at €17 ($19.86) per month in the test. The Premium plan is still being offered, but only supports two simultaneous streams instead of the four that Premium subs currently enjoy. And Netflix's popular Standard plan -- which costs €11 ($12.85) or $11 per month in the U.S. and supports HD (but not 4K) streaming -- only supports one stream in the test, rather than the current two.
Users seeing the test aren't witnessing any changes to Netflix's Basic plan: It still costs €8 ($ 9.34) per month in Europe and $7.99 in the U.S. and supports one standard-definition stream.
A Netflix spokeswoman confirmed the test to CNET. "In this case, we are testing slightly different price points and features to better understand how consumers value Netflix," she said.
Clearly, if Netflix rolled out the pricing revamp on a large scale, Standard and (to some extent) Premium subs who are sharing their login credentials with other households would need to either think twice about doing so, or upgrade to a more expensive plan. And judging by both surveys and anecdotal evidence, the number of Netflix subs faced with that dilemma could be meaningful.
Last year, a U.S. Reuters survey found that 12% of adult streaming viewers admitted to "using an account/log-in information that belongs to someone outside your house." Among consumers aged 18 to 24, the figure rose to 21%. Assuming that some consumers were embarrassed to admit to such activity, Reuters's survey numbers might slightly understate how prevalent it is.
To date, Netflix has avoided cracking down on password-sharing, arguing that doing so risks snaring consumers engaged in "legitimate" sharing (for example, subscribers who share their log-ins with spouses or children). Lowering the number of streams supported by the Standard and Premium plans, though, would let the company reduce how much password-sharing occurs without engaging in a case-by-case crackdown that upsets "legitimate" sharers caught up in it.
And that, in turn, could drive an uptick in subscriptions among consumers borrowing someone else's login credentials. This could especially be a big deal in the U.S. -- both because of how common password-sharing has become here, and because high penetration rates have begun impacting its U.S. subscriber growth.
There are an estimated 126 million households in the U.S., and Netflix expects to end Q2 with 57.9 million U.S. streaming subscriptions. Exclude households that lack Internet access and/or can't afford Netflix, and the company's U.S. penetration rate is likely over 50% even before accounting for households using borrowed credentials. In addition, a December 2016 comScore survey found that 75% of U.S. Wi-Fi-connected homes subscribing to one or more over-the-top (OTT) streaming services included Netflix among them.
All of this makes it a good time for Netflix to try and coax U.S. password-borrowers to get their own subscriptions. Meanwhile, Netflix's very high customer satisfaction rates and still-reasonable pricing arguably position it well to convince households that need support for two or more simultaneous streams to keep their various Netflix-viewing members satisfied to sign up for a costlier plan.
Such upgrade activity would provide a fresh boost to Netflix's average selling price (ASP). With the help of the price hikes carried out last fall, Netflix's global ASP rose 14% annually in Q1, with 12% growth recorded in the U.S.
There is, of course, a risk that a broad rollout of Netflix's pricing overhaul in developed markets -- judging by how its latest price hike was rolled out, there's a good chance that Netflix will be more cautious in price-sensitive emerging markets -- would anger many consumers who have come to take their plan's support for two or four simultaneous streams for granted. However, with Netflix's plans remaining far cheaper than a typical pay-TV plan, and surveys indicating the company still has a fair amount of headroom to hike prices, the backlash might not be too severe.Time will tell whether the pricing overhaul that Netflix is experimenting with in Europe becomes something more than a test. But either way, the fact that Netflix is even considering such a move speaks volumes about how confident the company remains about its pricing power and customer loyalty as Amazon.com (AMZN) , Disney (DIS) and others take their best shots at the streaming video giant.