Adobe Really Wants To Help Netflix With Its Dumb Password Sharing Cash Grab
We've already noted how Netflix's password sharing crackdown is a dumb cash grab. The company already cordons users off into pay tiers based on a number of different criteria, including how many simultaneous streams a single account can already use at one time. And it just got done imposing a major price hike on most of its subscribers, with more on the way.
Then the company started to see actual competition in the streaming space. Wall Street doesn't much care that the market has changed, and, as Wall Street always does, demands quarter-over-quarter growth at any cost. So Netflix developed an ingenious plan to nickel-and-dime existing users with additional fees if Netflix determines passwords are being shared outside of the home.
The change hasn't come to the U.S. yet, but it's expected to soon. Enforcement overseas has been a bit of a mess, with inconsistent billing, enforcement, and messaging to consumers. It's all a giant headache for a problem" Netflix used to make clear wasn't actually a problem:
Love is sharing a password.
- Netflix (@netflix) March 10, 2017
Enter Adobe, which apparently thinks it can help Netflix crack down on this nonexistent menace with machine learning systems that study user behavior in intricate detail. To sell Netflix on the idea, Adobe apparently claims that Netflix is suffering somewhere around $9 billion annually in potential losses due to password sharing, which Adobe more clinically dubs credential sharing":
Adobe prefers the term credential sharing' to password piracy' but doesn't downplay its implications. Citing a 2020 study, Adobe says that up to 46 million people in the U.S. could be accessing streaming services with credentials that aren't theirs while paying nothing for the privilege.
Citing potential losses of $9bn per year - three times those of rival Disney+ - Adobe says Netflix suffers most from credential sharing. The company believes that if streaming video is to avoid the fate of streaming music where free content is expected, action is needed sooner rather than later.
I don't know where Adobe is getting the insane $9 billion estimate from. Other analysts like Cowen and Co have suggested that Netflix stands to make $1.6 billion extra annually from a password sharing crackdown, and even that seems generous.
One, such analysis doesn't factor in that Netflix is already monetizing password sharing through limits on concurrent streams. Two, users are already facing blanket price hikes and will not be responsive to new hikes, no matter how cleverly they're messaged. And three, the Cowen estimate believes that half of all password sharers would sign up for a new account, which is overly generous.
Other analysts are highly skeptical that Netflix's password crackdown pays significant dividends at all:
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.
There's a real risk that Netflix only annoys customers with greater fees and restrictions at a time they're already losing customers and facing more streaming competition than ever. And with Wall Street demanding growth at any costs, there's a high chance Netflix pushes its luck on both password sharing and finding annoying ways to monetize the account data Adobe is collecting.
If you're noticing a lot of egomania, fuzzy numbers, and wishful thinking on Netflix's part, that's because as Netflix has shifted from innovation to turf protection, it joined the Motion Picture Association and adopted much of the broader cable, broadcast, and entertainment industry's (sometimes facts-optional) rhetoric... especially when it comes to the diabolical menace that is password sharing.