Last week, we heard the revelation that Netflix lost 1 million Spanish users due to account-sharing curbs. It made many doubt the wisdom of the move. But looking at the data, losses should have been much higher!
Netflix implements account-sharing curbs in Spain
A basic Netflix account without ads costs €7.99 ($8.80) monthly in Spain. Netflix’s introduction of account-sharing curbs on February 8, 2023, made things more complicated and, potentially, more expensive for users:
· They were asked to set their primary location
· They could set up two “sub accounts” for people who don’t live with them for €5.99 ($6.60) per month per location.
What Kantar said about account-sharing curbs
Kantar’s Worldpanel Entertainment on Demand study in Spain looked at behavior between January and March 2023. The company reached this conclusion about the impact of Netflix account-sharing curbs:
“The immediate result was a loss of over 1 million users of the service, causing an instant impact on the company’s bottom line.”
The company said there was “no strong demographic skew” among those that canceled, which signaled that the result was an “outright rejection” of account-sharing curbs. It went on to say that a significantly higher proportion of remaining users (10%) planned to cancel in the second quarter.
Dominic Sunnebo, global insight director at Kantar’s Worldpanel Division, concluded:
“Some users were expected to be lost in the process but losing over 1 million users in a little over a month has major implications for Netflix and whether it decides to continue with its crackdown globally.”
Misinformation about Netflix in Spain
The Kantar study was misreported, and its implications were inflated in the press. One site misinterpreted Kantar’s words claiming 1 million subscribers had canceled, and another characterized the news as Netflix’s “bleeding users.”
Is this a disaster for Netflix? Do the results in Spain signal a huge problem for the company? Maybe not!
Most users that left Netflix didn’t pay for it
Of the 1 million lost Netflix users, two-thirds were not paying to use it and were precisely the target of the new policy. However, that leaves over 300,000 paying customers that also left, which sounds like a big problem. Let’s take a closer look.
Spain has 2.5 people per household, so the 333,000 users that left may represent 150,000 homes or less. Since there are about 5 million Netflix subscribers in Spain, the company lost roughly 3% over the new policy.
But losses might have been lower than that. Kantar also says that 4% of 18.7 million Spanish households obtained a new streaming subscription in the first quarter. Out of these, Netflix captured 6.6%, some of which were likely former credential sharers. In other words, Netflix added 50,000 subscriptions for a net loss of 100,000 or 2%.
Are the results in Spain out of line with expectations?
Netflix says that globally 100 million households are using credentials borrowed from someone else to access the service. So, of all the households accessing Netflix, 30% are not paying for it. If Spain is anywhere near the global average, 7 million Spanish homes access Netflix, of which 2 million do not pay. Those 2 million homes represent 4-5 million people, all likely accessing Netflix through the main television in the home.
This analysis casts the 1 million number in a new light. I’m surprised more people aren’t quitting Netflix in Spain. Moreover, more of them could be headed out the door soon.
It also shows the potential benefit to Netflix in introducing account-sharing controls. If the company captures just 10% of 2 million sharing Spanish households, it will add 200,000 new subscribers or extra location upgrades.
There are risks, too. Nudging subscribers that aren’t using the service much is always risky, particularly when they need to register their primary address and potentially pay extra. Anger at the change could also inflict damage. If the 10% that say they will cancel Netflix in Spain in Q2 follow through, account-sharing curbs could be viewed as a failure. That said, most people that say they will cancel do not follow through.
What Spain says about the possible impact on the US
The roughly 7 million Spanish homes – 5 million paid and 2 million shared - accessing Netflix contribute about 14 million service users. The 1 million that stopped using it in Q1 represent 7% of all users.
The US has about 67 million paying Netflix homes, and if it conforms to the global average number of sharers, an additional 30 million homes access for free. The 97 million homes using Netflix translate to 200 million users. If 7% of them leave, as in Spain, Netflix could see as many as 15 million fewer users within a month or so of introducing account-sharing curbs.
Netflix in Spain lost 2% of users in the quarter when it introduced account-sharing curbs. If Netflix does the same in the US, it will lose 1.3 million subscribers.
Finally, if Netflix picks up 10% of the homes currently using but not paying for its service in the US, it will add 3 million new subscribers or extra location upgrades.
Fifteen million lost US users, and 1.3 million service cancelations certainly sounds awful, and undoubtedly the press will have a field day with it. But if Netflix picks up 3 million new subscriptions and the cancellers eventually return, it will be a big win. And many other SVOD services are certain to follow Netflix’s lead.
Colin Dixon created nScreenMedia as a resource to the digital media industry as it transitions to the new infrastructure for multi-screen delivery. He brings a wealth of knowledge on digital TV, over-the-top, and IPTV markets garnered from his 20+ years working in those industries. Before founding nScreenMedia, he spent seven years as an analyst and partner with The Diffusion Group. Previously he held senior executive positions at Microsoft/WebTV, Liberate, and Oracle, delivering products and services to the cable, satellite, and IPTV industries.
Dixon is the author of many reports, opinion pieces, and classes, including Getting to Grips with FAST: a Primer on Free Ad-Supported Streaming TV. He holds bachelor's and master's degrees in electrical engineering and has post-graduate business education experience from Stanford.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceVideo staff. They do not represent the opinions of FierceVideo.