Why blocking “Password sharing” by Netflix can be the next big thing?
Exploring the effects of blocking password sharing on Netflix
As I write this article, Netflix stock has already tanked and has gained the attention of almost everyone across the globe. The stock’s poor performance can be blamed on the loss of consumers, uncertainty about the business decision of blocking password sharing, and due to rising competition.
While you can be suspicious about the business but when you consider the above reasons, How would you react to the statement that these are in fact good news for Netflix?
The Issue
Netflix had a unique business model but when the business bloomed, other players joined the party, and profits fell. Now when there are so many players in the space, things will remain competitive for a while. The profit margins are expected to be low for some time and then some of these players would automatically leave the market and a great consolidation exercise would happen. Until then, either the businesses would have to bear losses, or live with very low-profit margins.
In these times, companies can’t increase their profits on the existing product without revolutionising it. High prices won’t justify the product cost and the customer base would shift to alternate platforms. That’s something no one wants.
Netflix is currently fighting the game of price where it is losing against the big pocket players such as Apple TV+, Amazon Prime Video, Disney, etc.
What’s Netflix doing in this competitive market?
Netflix is working on its product and might launch new programs in the future. Their investments in 3D, Metaverse, and gaming can offer it new browny points in the future but so far nothing is concrete and it has to innovate its existing product to survive the competition.
Thus, they are planning to revolutionize their content distribution platform. They have come up with a strategy for preventing password sharing. It will force the customers to get their own subscriptions and thus add revenue to Netflix accounts. This strategy will give Netflix a breathing line and help Netflix move to its next phase which would include a new USP/ content/ Business model.
Currently, Netflix is forced to compete on the product pricing with the majority of its competitors (who are low-priced services). Adopting a system that prevents password sharing would result in two situations:
- Competitors who would stick to the existing model where the subscription can be shared with any number of devices would have to take a loss. It’s a bleeding game and no one knows how much loss they would have to take before the great consolidation begins (Unfortunately, consumers have a habit of sharing their passwords and saving money.)
- Competitors who would adopt the system of blocking “password sharing” would have to compete with Netflix’s content. Customers who would have to buy a product because they cannot experience it via free means would rely on the quality of content. Netflix believes that they have good content and they can win in terms of content quality.
Finally, in terms of competition, the result would be to take a loss, or compete with Netflix in the content.
Netflix is changing the arena of fight. It is shifting the fight from price to content where it leads.
What about the customers who would quit the platform?
That’s the last question and perhaps the most important one for any company. The answer is simple “Losing consumers who don’t add profit is healthy”.
Netflix has been doing a lot of research on its content, pricing, and product. Their expansion, with unique pricing models and native language contents, in the developing countries is a testament to that. The idea of that research was to identify what is loved by the population and how they select a product. Now when the majority of its experiments are over, Netflix understands that they have sufficient data to develop a product suiting the needs of its customers. Any customers who can’t add profit and just want to freely avail its services are not good for the business.
To make it more simple, think about Apple raising its product prices without caring much about the low-income group who won’t be able to buy its product. Microsoft doesn’t offer low-priced versions of Microsoft products to individual users and simply sticks to their business users. Netflix also understands that they will have to let go of a lot of users who can’t be part of their high-profit margin business model. It’s not a complete loss to them because they already have plans to board some of these users via “phone only” subscription systems.
In short, they would lose the customers who are not adding anything to their revenues and that’s a good thing. Losing those customers will offer them space on their serves and ease their network. Some of these customers, who have already experienced the services would eventually come back via low-cost subscriptions and thus again start contributing to the revenue.
Closing words
This is a big attempt by Netflix to correct its product reach. It will be a good step to select the customer group that is contributing to its growth and understands its needs. It will help Netflix to develop the product in a more focused way.
But there is a real problem standing in its way and it’s the competitive products. With Google Movies, Apple TV+, Prime Videos, and Disney + in its foray, Netflix must find suitable partners before it’s too late for it to make a value proposition.
