Netflix's password PR problem won't last long

Feb 14

Welcome to a midweek edition of Unmade.

Today: Why Netflix will weather the storm from its freeloaders, and Seven’s disappointing day on the ASX

Last night we went live with the full program for RE:Made - Retail Media Unmade. You can see the whole thing on the RE:Made website. Come for the 20+ expert speakers; leave with your own retail media playbook.

RE:Made will be your best chance in Australia this year to meet the retail media community in one place. The event is now just a fortnight away, on March 2. Book your ticket now.

The Netflix backlash

It’s been fascinating watching the recent efforts by Netflix to remake its business model.

As news publishers who went through the pain of introducing paywalls when the public’s ten year free trial came to an end know, the public hates to pay for something they once got for free.

The first part of the process came nine months ago, when Netflix shocked the streaming world by finally hitting a quarter where its member numbers went backwards.

The company’s $160bn market capitalisation halved, and a chill swept over any media company involved in streaming.

Netflix responded by announcing a new, cheaper tier supported by advertising, and launched that quickly, with Microsoft as the sales partner.

Incidentally, it looks like locally, the sales reps over-promised, with rumblings in recent weeks of refunds to brands who came in early and did not achieve the reach they had been expecting.

But although globally that helped increase the number of people paying for Netflix to more than 230m (not bad, huh?), that cheaper tier meant lower average revenue from each user.

In the fourth quarter, the company’s overall revenue fell slightly from US$7.93bn to $US7.86bn. Admittedly, it’s not possible to blame that all on the lower price tier - the strength of the US dollar distorts the reporting.

However, the other part of the response, which will soon include Australia, is the one that is causing Netflix a PR problem. The company is cracking down on password sharing.

Only televisions on the same IP address will be able to connect, while other devices will need to connect at least once a month to the home IP address.

That’s a radical change after a decade of quietly (and not so quietly) encouraging widespread sharing.

Netflix @netflix

Love is sharing a password.

There are plenty of users out there who really should have their own subscription if they want to use the service. I’m one of them. Some of my devices are logged in on the password of the partner of the sister of an ex. My television is logged into Netflix via the account of some bloke called Steve who rented my place on AirBNB a year back and left his account logged in. He seems to really like Animal Kingdom (the hacky US reboot, not the awesome Melbourne original).

As much as anyone can be, I’m a rational consumer. I’m wiling to pay for the service once I have to, but if there’s a legal and easy workaround, I’ll take it.

It’s the same as news masthead paywalls. I’m subscribed to The Australian, The Daily Telegraph and the Australian Financial Review because I need to be, in order to see the content. But it feels silly to pay to access the Sydney Morning Herald when Google’s incognito mode, along with duplicate content on The Age and the Brisbane Times, is an easy workaround. The day that ends, I’ll start paying.

Many consumers are more resentful than me about having to start to pay for something though. Consumer psychologists can probably explain why - whether it’s the case that people don’t put a fair value on something they haven’t had to pay for, or because they have made a psychological leap of deciding it ‘should’ always be free.

For the most part, those complaining loudest - and they’re all over social media in the markets where the process has begun - are those who were not paying the bill anyway. That’s why Netflix won’t have a business problem. Few people will boycott their subscription because their wife’s sister’s ex-boyfriend can no longer free ride on their service.

There will be edge cases for the more reasonably disgruntled. For instance, those who regularly watch Netflix at home and on a connected TV in another place. But those will be the exceptions.

Slowly, the freeloaders who miss the service will, initially begrudgingly, then routinely, start to pay for their own subscriptions. I suspect they’ll be the type of cheapskate who will probably take the ad supported tier. That says something about the quality of audience Netflix will deliver its advertisers: not so premium.

Nonetheless, Netflix will be just fine. Last month, the share price finally rose back above $348 - meaning it has now recovered all the ground it lost the day it told the market that its subscriber numbers had fallen.

Netflix has recovered on the share market | Google Finance

Seven West Media sets off the alarm bells

The Unmade Index stayed broadly flat yesterday, although there was bigger movement in both directions on individual media and marketing stocks.

Most notably Seven West Media finished the day down by 4.44% after telling shareholders it is not yet in a position to start paying dividends again; causing raised eyebrows over its decision not to reveal its metro advertising share; and reporting slight drops in profitability and overall revenue.

Unmade’s paying members were able to see the full analysis on the SWM result in yesterday’s edition of Tuesdata.