Netflix reveals details about crackdown on password sharing

Yahoo Finance’s Allie Canal joins the Live show to discuss the latest surrounding Netflix’s fight to end password sharing.

Video transcript

RACHELLE AKUFFO: Netflix cracking down on password sharing and now laying out the rules of requirement. Yahoo Finance's Allie Canal joins us now with more. Allie, we knew it was coming. Still stings though.

ALEXANDRA CANAL: Still stings. We knew it was coming, and now we have the first few details on what this will look like. Netflix updating the FAQ pages for those countries that are already in the midst of this crackdown. So think Chile, Costa Rica, Peru. But the US is right behind them, expected somewhere in Q1. So it's important to see the changes that will be happening to accounts.

Number one, Netflix will require users to identify a, quote, "primary location" for all accounts that live within the same household. So users will need to sign into the home Wi-Fi of the primary location at least once every 31 days to ensure that their device is not blocked. Now, if someone is traveling or uses a device that's not often connected to that home Wi-Fi, the main account holder will have to verify that device through a temporary code which will grant the device access for seven consecutive days.

Now, it's unclear at this point, if you can request multiple temporary codes following that seven-day period. My thought goes to myself who's still on her parents Wi-Fi along with maybe college kids. I would just kind of call up my parents every seven days. Give me this code. That's unclear right now. So I do think there are a few kinks that Netflix will have to work out. For example, if you're an account holder that has multiple homes, how do you identify your primary location?

So I'm not anticipating a very smooth-sailing ride here, but Netflix is certainly using all the tools at its disposal to determine which account is associated with that primary location. They said they look at IP addresses, device IDs, account activity to make sure the device signed in is within that primary household. So they're very committed to this, and they're really hoping that, over the long term, this could add to profitability.

RACHELLE AKUFFO: I'm sure they're probably hoping people get fed up and just end up having their own Netflix accounts given how many of us share our passwords. So in terms of that, though, in terms of monetization, what's the outlook been so far for Netflix's ad-supported tier? Are they gaining more subscribers?

ALEXANDRA CANAL: Yeah, well, we have some positive news to kick off 2023 on that ad-tier front. According to a report from The Information, Netflix told advertisers that signups for its ad tier doubled in January from December, and that's a sign that this new offering is gaining traction and obviously good news since at the end of last year we saw that the ad tier was reportedly struggling. There were multiple reports that Netflix was failing to meet the estimates that they set out, that they weren't attracting those new users.

At the time, analysts seemed to shrug it off. They said this is still early days and that over time the ad tier will gain momentum, which seems to be happening right now. Obviously ad supported coupled with that crackdown on password sharing, that's been seen as a lifeline for Netflix to really get the revenue and the profitability that they want over the long term, especially with all of this competition.

So I think moving forward, especially throughout this year, investors are going to be hyper focused on specific details from both of those initiatives to see if Netflix can get it done.

RACHELLE AKUFFO: We'll have to see. I know you'll update us on that. Allie Canal there. Thank you so much for that update.