Netflix password sharing outrage can be explained by behavioral economics, says expert

By the end of March, Netflix plans to crack down on password sharing for U.S. subscribers. This announcement has been met by surprise, outrage, and confusion as consumers ponder how their Netflix accounts will be affected. Jadrian Wooten, a professor of economics at Virginia Tech, provides his perspective on the issue. 

“Password sharing has been a recurring issue for Netflix since they transitioned from a DVD-based subscription platform to a digital one,” says Wooten. “Initially, Netflix encouraged multiple people to login together, which was part of their brand. However, when reporting subscriber growth in their annual reports, they have noted that subscription numbers are missing many people who share accounts.”

Nexflix didn’t implement this change until they realized the importance of measuring their viewership, especially as other streaming platforms were on the rise. To hold 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, password sharing accommodates family members who live out of state or alleviates financial burden amongst family members.

“The frustration that many people are experiencing with the recent change can be explained by a concept in behavioral economics called loss aversion. This concept refers to the tendency for people to react more strongly to the prospect of losing something compared to the happiness they feel from gaining something,” explained Wooten. 

One question stands: is this a good move for Netflix?

“Although many people on social media are threatening to quit Netflix, it is unlikely to cause a significant drop in their overall subscription numbers,” says Wooten. “Netflix believes that cracking down on password sharing will realistically increase the number of subscribers, especially now that they offer a lower-priced, ad-supported option.”

Other streaming services such as Disney+ have also adapted ad-supported streaming packages with lower costs. As for password sharing, Wooten predicts they may follow suit.

“It is highly likely that other streaming services will follow Netflix’s lead in cracking down on password sharing, although they may initially delay to attract new customers who may cancel their Netflix subscription,” says Wooten.

About Wooten

Jadrian Wooten is collegiate associate professor at Virginia Tech within the Department of Economics and is the author of Parks and Recreation and Economics. Read more about Wooten’s economic perspective on Netflix’s plan for subscribers in his Monday Morning Economist newsletter.