Streaming Services Reckon With Password-Sharing "Havoc"

In 2019, companies lost about $9.1 billion to password piracy and sharing.

On Dec. 9, Charter Communications CEO Tom Rutledge took aim at the "content companies" entering the direct-to-consumer streaming business. The cable executive told a roomful of investment bankers in Manhattan that these new streamers are "creating havoc in the ecosystem."

Rutledge wasn't talking about the proliferation of content or the fight to secure exclusive deals with talent. He was targeting the lax security and rampant password sharing that's prevalent across the streaming landscape. "Half the people in the country live in houses with two or less people in them, and yet these services have five streams," Rutledge added. "There are more streams available than there are homes to use them."

Password sharing has serious economic consequences. In 2019, companies lost about $9.1 billion to password piracy and sharing, and that will rise to $12.5 billion in 2024, according to data released by research firm Parks Associates.

For now, many streamers — including Netflix, Hulu, Disney+ and Amazon Prime — seem content to allow the practice to continue, even while they crack down on illicit password sales. But as services mature, priorities will likely change. "When the growth starts to flatten and you start to look at the balance sheet, you are going to be looking for revenue," says Jean-Marc Racine, chief product officer of video delivery and security firm Synamedia.

The company (which counts Disney, Comcast and AT&T among its clients) conducted a study of two anonymous video providers and said Jan. 6 that it found they were losing more than $70 million annually from password sharing.

There is also a generational gap when it comes to password sharing. A study from Hub Entertainment Research released Wednesday found that 31 percent of all consumers say they’ve given one of their online TV service passwords to someone not living with them. However, among 13-24 year olds, 64 percent have given out a password, compared to just 16 percent of consumers age 35 or older.

“There is a cultural shift particularly among young people, where sharing things with people you know, or them sharing with you, is an accepted way of doing business, and it is an attitude that is going to impact how they consume lots of things, not just TV and movies,” says Jon Giegengack, principal at Hub.

So what can Disney, WarnerMedia and NBCUniversal do once streaming sub growth slows? They could take a cue from Netflix, which is looking for "consumer-friendly ways to push on the edges of [password sharing]," chief product officer Greg Peters said on the company's Oct. 16 earnings call.

"As their domestic growth has flatlined, they are obviously under more pressure to squeeze every possible new user out of the marketplace that they can, so they might get more stringent," says Giegengack. "But I think they might also do things like charge more for those tiers with multiple consecutive streams happening, which would be another way to get revenue out of the people they aren't touching yet."

Netflix has even poked fun at the practice. In a Jan. 4 tweet, the company's India account replied to a spammer by tweeting, "If you want free Netflix please use someone else's account like the rest of us."

Another option is to leverage technology to try and nip the problem in the bud. New software coming to market and being showcased at this year's Consumer Electronics Show is meant to help identify password sharers and pirates, potentially allowing video providers to choose to dangle a carrot (like a discount if a password sharing user creates their own account) or stick (threatening to close an account from a password pirate) to sway their behavior.

"It is quite a complex problem, you have millions of subscribers, you have millions of sharers, so the response has to be automated into the platform so you have a proper solution to deal with the sharers," Racine says. "It takes a bit of time, but we see the leading service providers moving in that direction."

Rutledge, who has made piracy and password sharing a priority through the Alliance for Creativity and Entertainment, of which Charter is a member, is less certain that content companies will stem the tide. "Security is a form of marketing," he told the bankers. "It requires diligence and experience in how to manage, and I don't see that in a lot of the content companies that are becoming distributors. I don't see the DNA in their cultures to be subscription services."

This story appears in the Jan. 8 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.