The streaming platform Netflix announced in 2023 that the sharing of passwords will be more restricted. The goods offered by Netflix are typically characterized as Information goods, which means that the initial setup of the platform and the movies themselves cost money, but the creation of each additional account costs nearly nothing for Netflix. However, every newly created account translates directly into revenue for the company.
What happens then for Netflix if users start sharing their accounts? That was the case in previous years, and Netflix lost significant revenue as users would share accounts instead of subscribing individually. In response, Netflix implemented stricter controls on account sharing, and many analysts did not predict any significant changes.
But on the contrary, Netflix saw a significant increase in revenue. According to reports, once sharing was restricted, many users who previously accessed the platform via shared accounts signed up for their own. In the first quarter of 2024, Netflix added nearly 9 million new subscribers globally. As a result, they have reached a record high of 269.6 million subscribers and underscored the effectiveness of the new policy.
This new policy raises an interesting question: Is protecting separate accounts a new important characteristic for Business Models that are based on the subscription-based model in order to gain the highest possible revenue?
For Netflix, the answer seems to be yes. By setting up stricter controls on shared accounts, Netflix transformed lost revenue into new subscriptions, demonstrating that limiting access can actually create additional revenue.
But from my point of view, newer companies entering the market and do not want to offer a Freemium model but solely offering a subscription-based model should not heavily focus on the restriction of password sharing in the beginning. The reason for me is that users start to see the real value of a platform by using it and the newly gained subscribers of Netflix could be a result of previous entrainment and the knowledge of what that platform has to offer. That is why platform sharing could also benefit companies in the beginning and the restriction should be focused on in a later stage.
In conclusion, restricting the shared use of digital services could represent a key characteristic of the subscription-based model. By ensuring that each user subscribes individually, companies can tap into previously unrealized revenue without significant additional costs. But firms should focus on the value creation and user acquisition first and ensure that the value is on the highest level.
Reference:
Delouya, S. (2024, April 19). Netflix cracked down on password sharing. The result? Millions of new subscribers. CNN Business. Retrieved September 12, 2024, from https://edition.cnn.com/2024/04/18/business/netflix-earnings-first-quarter/index.html
