Netflix's password crackdown worked. It could have more tricks to lure subscribers.

• Netflix added almost 30 million subscribers in 2023 after cracking down on password sharing in May.
• Customers balked at the idea, but in the end Netflix prevailed.

When Netflix announced it was mulling a ban on password sharing a few years ago, subscribers immediately balked.

Many threatened to ditch their subscriptions, screaming #CancelNetflix, while others followed through and decisively closed their accounts.

Nobody liked the idea. I certainly didn't. But let's be honest: We knew this had to happen.

For years, Netflix turned a blind eye to password sharing, even winkingly encouraging it on social media. But that was when Netflix was in an exponential growth phase that carried the company to its 2021 share price high of more than $690.

In 2022, Netflix reported losing subscribers for the first time in more than a decade — about 200,000 accounts in the first quarter of that year and close to 1 million in the second.

Couple those losses with the fact that the streaming landscape had become much more crowded than it was in 2007 when Netflix first started offering its library online. Think Hulu, Disney+, Prime Video, Paramount+, and others.

So, say you're one of Netflix's co-CEOs: You see your company is bleeding subscribers, your competitors are circling you like vultures, and, at the end of the day, you're beholden to your shareholders.

And wow, look, an internal analysis report drops on your desk. It reveals that there are about 100 million households around the world who are accessing Netflix without a paid account, including a cheap Business Insider reporter leeching off his ex.

Truly, how could you let this go on?

Sorry, the password crackdown worked

To the dismay of the #CancelNetflix-ers, the password reckoning has paid off — handsomely.

In the third quarter of 2023, Netflix reported that it added 8.8 million subscribers, vastly exceeding expectations. The fourth quarter numbers yielded even better results: 13.1 million global subscribers for a total of more than 260 million, Business Insider's Lucia Moses reported. That's a gain of nearly 30 million over 2022.

Two moves likely helped Netflix boost those numbers, according to Jadrian Wooten, an economics professor at Virginia Tech who writes the newsletter Monday Morning Economist.

While Netflix was preparing its password-sharing crackdown, it introduced an ad-based subscription at about $7 a month, which was $3 less than its cheapest ad-free offering at the time and slightly cheaper than a Hulu account. The company also provided an option for households to add users to their existing accounts for about $8 a month.

"So that was sort of a move that was done both to geographically expand to other countries and offer a cheaper version, but it also introduces sort of this second tier for people who were sharing an account, and they could then bump down to that next part," Wooten told BI. "So the idea is they wouldn't pay for a full account on their own, but maybe if they lost access, they would drop down to that ad-tier part."

Stinks, but fair enough.

What about those who threatened to cancel their Netflix accounts?

Wooten previously told Virginia Tech News that, despite the online outrage, the overall impact on Netflix's subscription numbers likely wouldn't be substantial.

Part of that phenomenon can be attributed to something economists call "stated preferences versus revealed preferences."

"The idea behind it is that what we say we want is very different than what we actually do," Wooten told BI. "The revealed behavior," he continued, is "the true behavior of somebody's actual preferences rather than just what they say they're going to do. And so you see that this is really a perfect example."

What's next for Netflix?

A knee-jerk reaction for someone reading this could be: Well, this is upsetting. I don't want Netflix — a company valued at more than $238 billion — and other platforms to feel empowered to squeeze more out of customers.

We're already paying so much for other subscriptions. (About $219 a month, according to one study.) What else will Netflix take away from us?

We could frame it that way. Netflix — now seeing how many people are willing to pay for its content — will perhaps increase subscription prices, as it already has done, add more ads, or other caveats to accessing its library.

From an economist's perspective, though, the password-sharing ban can be viewed as part of a continuing trend from Netflix to introduce more subscription options, Wooten said.

"So the idea is that they're going to bring people in at different price points," he said.

One option Wooten said he could see Netflix roll out is a cheaper subscription that limits the amount of content a customer can watch.

It's similar to Spotify's 15-hour limit on audiobooks per month for its premium customers. That's about two average audiobooks a month, according to the music streaming company.

"I would not be surprised if Netflix introduces some sort of cap on the amount of things you can watch at an even lower price tier, sort of creating these different gaps where people can become subscribers at the level that they're comfortable with," Wooten said. "And that's really what matters in a lot of these streaming things: Who is the biggest and who has the most people?"

A Netflix spokesperson did not respond to a request for comment.