Last week, Netflix said it was launching a test in three Latin America countries (Chile, Costa Rica and Peru) to address password sharing. Customers will be able to add up to two Extra Member accounts for about $2-$3/month each, on top of their regular monthly fee.
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According to estimates by Cowen & Co. analysts, if Netflix rolls the program out globally it could add an incremental $1.6 billion in global revenue annually, or about 4% upside to the firm’s 2023 revenue projection of $38.8 billion. The firm’s estimate assumes that about half of non-paying Netflix password-sharing households will become paying members; further, the model predicts that of those, about half will opt to sign up for their own separate paid account.
“We think Netflix’s recent efforts reflect a natural progression across more mature markets, and could add incremental subs and [revenue] if the test is rolled out globally,” the Cowen team, led by senior research analyst John Blackledge, wrote in the note.
According to Cowen’s monthly proprietary survey of 2,500 U.S. consumers, about 10% of the country’s 116 million broadband households include someone who watches Netflix but is not a paying sub. The firm acknowledged that some of that sharing “is likely occurring within the same family household and/or among roommates,” which would comply with Netflix’s terms.
Cowen maintains an “outperform” rating on Netflix’s stock with a 12-month price target of $600/share.
Meanwhile, other Wall Street analysts are less bullish on Netflix’s move to monetize password freeloaders. Benchmark Co. analyst Matthew Harrigan, in a note last week, expressed skepticism that it would be a “growth game-changer,” opining that the strategy “cannibalizes full-ride member growth.” He pegged the incremental revenue lift at less than 4% revenue, even with generous assumptions about how many piggybackers Netflix might be able to convert to Extra Member accounts.
As Netflix’s overall subscriber growth has slowed down, particularly in mature markets like the U.S., the streamer is looking to monetize password-sharing after years of tolerating — and even celebrating — the practice.
In a 2017 tweet that has recently been recirculating on Twitter, the main Netflix account posted, “Love is sharing a password.”
Love is sharing a password.
— Netflix (@netflix) March 10, 2017
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