Netflix Lost 1M Users in Spain After Enforcing Password-Sharing Rules

The video streaming giant Netflix reportedly lost 1 million subscribers in Spain roughly two months after the company enforced its new password-sharing rules in the country, a report from research firm Kantar Group indicated.

Bloomberg was the first media outlet to pick up on this news at a point when Netflix is getting ready to enforce the same policy changes to users within the United States as part of a broad effort to crack down on password-sharing.

“It’s clear this steep drop is due to the crackdown”, commented Dominic Sunnebo, a director at Kantar’s Worldpanel Division in regards to these findings.

This may explain why the number of new paid memberships added from the Europe, Middle East, and Africa (EMEA) region experienced a drop as only 644,000 new users were onboarded compared to 3.2 million during the fourth quarter of 2022.

Europe is a Key Region for Netflix in Terms of Revenue

For Netflix (NFLX), the EMEA region is quite important as it brings nearly a third of its revenues. In Spain specifically, the new password-sharing rules were enforced starting on 10 February this year.

Any members that were located outside the primary residence registered for the account would automatically be kicked out of the service and be forced to pay €5.99 to register a new account.

Netflix tried to make things easier by letting these “borrowers” migrate their profile information and viewing preferences to their new accounts. However, the company was still expecting a temporary drop in paid memberships as a result of the measure.

Last week, Netflix told investors that they were getting ready to enforce paid sharing in the United States – possibly the most important country for the company in terms of revenue – in the second quarter of the year.

The crackdown was delayed at least a quarter as the Los Gatos-based streaming company initially planned to roll out the changes during the first three months of this year.

The streamer’s executives said that they were pleased with the results they were seeing in the countries where the rules have been enforced thus far – which include Spain, Portugal, Canada, New Zealand, and multiple Latin American nations.

They predict that the results they have seen in Canada should be “a reliable predictor” of what should happen in the United States. Temporarily, there may be a drop in usage figures but the decline should ultimately be offset once “borrowers” activate their new accounts.

Netflix is Not Rushing its Crackdown Efforts for Good Reasons

Netflix has been very careful when it comes to rolling out these changes. One crucial piece of the puzzle of this initiative was the launch of an ad-supported package in the countries where paid sharing is being implemented.

The company has been progressively improving what this basic package offers including improvements in the available video quality to 1080p and the possibility of playing two concurrent streams. The enhancements were first rolled out in Canada and… Spain.

The streaming business is possibly trying to avoid attracting too much attention from both customers and the media as even the slightest hint of backlash could unleash a domino effect that may force it to ultimately roll back its efforts.

According to the firm’s estimates, nearly 100 million users are borrowing somebody else’s account to enjoy the service. This results in a significant amount of lost revenue for the company and it is the main reason why Netflix is pursuing this endeavor.

Netflix partnered with Microsoft (MSFT) to administer its advertising platform – the one that should make up for the lower price of the ad-supported tier. At a point when the global economy is slowing down and advertising spending is dropping, it remains to be seen if this is the right move for the firm in the short-to-mid term.

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