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Password sharing costs Netflix billions — and that's before the price increase

Aarthi Swaminathan
Finance Writer

Freeloading off other people deprives Netflix (NFLX) of at least $2.3 billion in revenue each year, a recent study by Cordcutting.com found. And that number is bound to go up after Netflix announced the largest price hike in the company’s 12-year history.

Netflix is raising the price of its most popular plan from $11 per month to $13 per month, while the basic plan will jump from $8 to $9. Netflix’s most expensive plan will rise from $14 to $16 per month.

Password sharing is a double-edged sword for streaming services. (Photo: Screenshot/”Stranger Things” via Netflix)

To calculate the amount lost from password sharing, the survey asked 1,127 U.S.-based people aged 18 to 81 about their streaming usage.

Looking at existing user numbers, the company estimated that for Netflix, about 24 million people who used the service didn’t pay for it. The missed opportunity of charging them the base cost of a subscription, which is $7.99, was estimated to be at least $2.3 billion of revenue lost yearly. Other streaming services lose around a quarter of what Netflix does from password sharing.

(Graphic: David Foster/Yahoo Finance)

Password sharing ‘a positive thing, not a negative thing’

It’s unlikely that Netflix CEO Reed Hastings will start policing password sharing. At the Consumer Electronics Show in Las Vegas in 2016, he said that he saw password sharing as the first step for the company to win over another user.

“We love people sharing Netflix whether they’re two people on a couch or 10 people on a couch,” said Hastings. “That’s a positive thing, not a negative thing.”

Beyond Netflix, though, efforts have been made to police password sharing. That means freeloaders may soon be forced to buy their own subscription. Also at CES, U.K.-based startup Synamedia presented a tool that uses machine learning to detect password sharing.

If Netflix decided to charge these users, according to the survey, they could generate at least $112 million in revenue every month.

About 60% of respondents said that they were willing to pay for a Netflix subscription if they were caught. Less than 40% said they would get one for Hulu, and even fewer for Amazon Prime at 27.6%.

The icons of streaming services Netflix and AmazonPrime Video are pictured on an iPhone on Thursday, Nov. 15, 2018 in Gelsenkirchen, Germany. (AP Photo/Martin Meissner)

‘Gen X-ers are the most honest’

Amazon Prime Video, another streaming service they looked at, is estimated to be losing at least $540 million in yearly revenue, while Hulu loses around $480 million.

According to the survey, millennials do the most password sharing for Netflix and Hulu, while Baby Boomers freeload off other people for access to Amazon Prime Video.

Most freeloaders use their parents for Netflix and Amazon, and women were more likely to do so particularly for Netflix, while men relied on them for Amazon Prime Video.

“Gen X-ers are the most honest,” Flose Boursiquot, on behalf of Cordcutting.com, told Yahoo Finance. She added that out of three groups, Gen X-ers are the most likely to “keep things honest… [and] pay for the services themselves.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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