Crackdown To The Max

Warner Bros. Discovery this week put out the word that it will start cracking down on password sharing late this year, with a full rollout of new rules in 2025.

The news – delivered by WBD streaming chief J.B. Perrette at the Morgan Stanley investor conference – came as no surprise considering that Netflix’s much-maligned early 2023 “paid sharing” launch ended up hugely benefiting the streamer, which in Q4 added 13.1 million global subscribers to its rolls as some of its peers post sub losses or meager additions. Now everyone wants in. Netflix’s early results spurred Disney to action last month as it notified Disney+ users that starting March 14 they won’t be able to share passwords with anyone living outside their primary residences. So the move by WBD simply codifies what had been a rapidly closing door within the streaming industry. In an effort to grow subscriptions faster than competitors, most major streamers looked the other way for years even though executives were well aware of widespread password sharing. The idea was that they would get addicted to all that great content and eventually get their own subscriptions. Over time, it became clear that many were content to freeload indefinitely. And thus, the current crackdowns.

The industry should probably thank Netflix, whose terrible, horrible, no good, very bad 2022 featured its first sub losses in a decade and led to several changes including eventually the idea that “Gee, maybe we shouldn’t let millions of people watch without paying.” Since then, Netflix has ascended to the top of the streaming heap for reasons that certainly go beyond its crackdown but may not have happened in the same way without it. Netflix stock, which got decimated in 2022, has since more than tripled to levels approaching its all-time high. WBD and Disney, however, not so much, with Disney down more than 40% since its March 2022 peak that just happened to come only weeks before Netflix announced those big sub losses. WBD, meanwhile, has lost nearly two thirds of its market cap since completing the WarnerMedia deal and just this week said it would shutter niche studio Rooster Teeth as it further streamlines operations. If a password-sharing crackdown helps boost subscription numbers without much of a consumer backlash, the real question is why anyone wouldn’t take a hard line. It’s all upside.

Next? Obviously, the direct-to-consumer business remains a complicated beast, with major studios and streamers trying to strike a balance between managing short-term churn while licensing out some content to competitors to bring in cash and gently nudging consumers to at least migrate to lower cost ad-supported tiers that drive higher ARPU. Whether consumers choose higher priced ad free tiers or lower-cost options, either is better than those customers simply riding on someone else’s account. The music industry sued Napster in December 1999 after years of struggling to contain rampant piracy, an action that probably saved the industry and led to its slow ascent to health today largely on the back of, yes… Spotify and other subscription-based music streaming services. Sound familiar? Of course it does. So with Walmart scaling back space devoted to DVD sales as it prepares to acquire Vizio, fear not: The subscription business continues to drive the future, as long as people pay for it.

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