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Why Netflix is finally cracking down on password sharing

Netflix (NFLX) is cracking down on password sharing.

In a blog post, the streaming giant revealed it is currently testing an additional charge between $2 to $3 for subscribers who share accounts with people outside of their household.

The new pricing model will first be tested in Chile, Costa Rica, and Peru. The company did not give an indication if or when this rollout would happen in the U.S.

Netflix "always made it easy for people who live together to share their Netflix account, with features like separate profiles and multiple streams in our standard and premium plans," Netflix product innovation director Chengyi Long wrote in the post.

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But, ultimately, that functionality has "created some confusion about when and how Netflix can be shared. As a result, accounts are being shared between households — impacting our ability to invest in great new TV and films for our members," she continued.

Jon Christian, founding partner of OnPrem Solution Partners, told Yahoo Finance that the test will help the company "two-fold."

"First, it increases their total subscribers, often a market indicator for success. Secondly, more subscribers paying will generate more revenue for Netflix. The ability to add subscribers will require new ways of monetization. At a time when there are multiple options for consumers, platforms may be more diligent on subscriptions," he explained.

Netflix cracking down on password sharing
Netflix cracking down on password sharing (mphillips007 via Getty Images)

In addition to price increases for shared accounts, the company will also enable people who share their account to transfer profile information either to a new account or sub-account — thus keeping the viewing history and personalized recommendations.

"If family subscriptions also enable insight into each user, this could be hugely beneficial from a data point," Christian said.

"The creation of unique user profiles enables a platform to understand the varying personas among users. The more data the platform has on their users, the better customized the viewing experience may be. It will also be a boon to the advertising revenue on the platform," he continued.

Netflix has long turned a blind eye to password sharing. Even the company's CEO, Reed Hastings, noted that "password sharing is something you have to learn to live with."

However, the streamer has faced obvious headwinds in recent quarters as subscriber growth slows amid increased competition and sky-high production costs.

Since reaching record highs in November 2021, Netflix shares have cratered 52%. So far, 2022 has not aided the slump, with shares down a whopping 45% year-to-date.

"The concern is the the growth outlook," Dave Heger, Edward Jones senior equity analyst, previously told Yahoo Finance Live, citing the company's disappointing subscriber outlook as a catalyst for the sell-off.

The company forecasted a net add of just 2.5 million subscribers in Q1 2022, compared to 3.98 million during the first quarter last year. The weak guidance sent shares plummeting.

Amazon closes $8.5B MGM deal

Amazon (AMZN) closed its $8.5 billion acquisition of MGM on Thursday in a sign of how the hot streaming industry is likely to see more big changes.

The news comes after the deal received clearance from the European Union's antitrust regulatory, and was not challenged by the U.S. Federal Trade Commission.

"The storied, nearly century-old studio — with more than 4,000 film titles, 17,000 TV episodes, 180 Academy Awards, and 100 Emmy Awards — will complement Prime Video and Amazon Studios' work in delivering a diverse offering of entertainment choices to customers," Amazon said in a statement.

Many analysts have mulled potential moves from other media giants, with some anticipating that more mega-deals could be on the way.

"The merger of a pure play with a media provider sets the stage for more to come," OnPrem's Christian said.

"The pure play tends to bring with it a massive amount of subscribers and a proven distribution method. The traditional players add the content, and combined with the strong technology platform, there is solid opportunity to be a formidable competitor," he continued.

The move follows WarnerMedia's (T) merger with Discovery (DISCA) and further solidifies Amazon's place in the streaming wars against its biggest competitors: Netflix (NFLX), Disney (DIS), and Apple (AAPL).

"This is a sign of just how competitive this space is," Evercore ISI Senior Managing Director Mark Mahaney told Yahoo Finance when the merger was first announced in May 2021.

"The cost of participation in this club is going to rise ... and the table stakes are extremely high," he continued — echoing that "there is going to be more consolidation" as more platforms come to market.

“You have to be willing to spend probably $10 billion a year in order to be a global streaming company, and I think very few companies can afford to do that beyond the big five players," he added.

Christian agreed, explaining that, "There has been a race to get subscribers."

"This is done with a significant emphasis on content creation and acquisition, investing in streaming platforms, organization build out, and marketing. Strategic M&A is certainly part of this equation," the strategist concluded.

Editor's Note: This article has been updated to reflect the latest Netflix subscriber growth forecast

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193

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