Netflix says password sharing is hurting growth as it loses subscribers for the first time in a decade

• Netflix said on Tuesday that it lost 200,000 paid subscribers in Q1, a first in over a decade.
• It partly blamed the loss on password sharing.
• The streaming company has already started addressing the issue with tests in Latin America.

Netflix reported its first subscriber loss in over a decade on Tuesday in its Q1 earnings report, as it lost 200,000 paid subscribers.

The streaming company blamed a few factors, one of which was password sharing.

Netflix has 222 million paid subscribers worldwide. It estimated that an additional 100 million households are using the service through a password shared with them, including 30 million in North America.

“We realized with all of the account sharing, which we’ve always had — that’s not a new thing — but when you add that up together, we’re getting pretty high market penetration,” Netflix co-CEO Reed Hastings said, in the company’s earnings interview. “And that, combined with the competition, is really what we think is driving the lower acquisition and lower growth.”

The company said that it would focus on how to monetize account sharing, among other things.

Netflix has already started to address the issue.

Last month, it started testing a new feature in three Latin American regions — Chile, Costa Rica, and Peru — in which subscribers would be able to add up to two “extra member” accounts for a small additional fee, on top of their monthly subscription.

“There’s a broad range of engagement when it comes to sharing households from high to occasional viewing,” the company said in its shareholder letter. “So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”

The company suggested that a similar feature could launch in more markets including the US in a year or so.

“We’re trying to find a balanced approach,” Greg Peters, chief operating and product officer, said in the earnings interview. “To set your expectations, my belief is that we’re going to go through a year or so of iterating and then deploying all of that so that we get that solution globally launched, including markets like the United States.”

Netflix projected that it could lose 2 million subscribers in Q2. Its stock plummeted 21% in after-hours trading. 

“As we work to monetize sharing, growth in [average revenue per membership], revenue and viewing will become more important indicators of our success than membership growth,” the company said in the letter.