Netflix password sharing and the power of behavioral economics

It was revealed last month that Netflix plans to introduce a new, cheaper subscription model by the end of 2022 – Copyright AFP Hector RETAMAL

By the end of March, video streaming service Netflix plans to push ahead with cracking down on password sharing for US subscribers. This announcement was met with surprise, outrage, and confusion as consumers ponder how their Netflix accounts will be impacted.

Jadrian Wooten, an economics professor at Virginia Tech, has offered his perspective on the issue Digital Journal.

Password sharing has been a recurring problem for Netflix since transitioning from a DVD-based subscription platform to a digital one. According to Wooten, “Initially, Netflix encouraged multiple people to sign up together, which was part of their brand. However, when reporting on subscriber growth in their annual reports, they found that subscriber counts are lacking for many people who share accounts.”

This was not an easy decision. Certainly, Nexflix apparently didn’t make this change until they realized the importance of measuring their viewership, especially as other streaming platforms were on the rise. He adds, “In order to have a strong competitive advantage, Netflix made the decision to end password sharing.”

Since Netflix’s announcement, many subscribers have taken to Twitter to express their frustration. For many, sharing passwords accommodates family members who live out of state or reduces the financial burden on family members.

However, this does not necessarily mean that the requisite level of frustration that many people experience in the face of recent changes can be explained by a behavioral economics concept called loss aversion.

“This concept refers to people’s tendency to respond more strongly to the prospect of losing than to the happiness they feel when they win,” explains Wooten.

Regarding Netflix, Wooten notes that many people on social media are threatening to quit Netflix, but this is unlikely to result in a significant drop in their total number of subscriptions.

Reflecting on their digital media strategy, Wooten notes, “Netflix believes that a crackdown on password sharing will realistically increase subscriber numbers, especially now that they’re offering a cheaper, ad-supported option.”

In addition, other streaming services like Disney+ have also adapted ad-supported streaming packages with lower costs. As for password sharing, Wooten predicts they will follow suit.

“It’s very likely that other streaming services will follow Netflix’s lead in tackling password sharing, even if they’re delaying it at first — to attract new customers who may be unsubscribing from Netflix,” says Wooten .


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