One of the effects of recent technological and societal advances is that of the sharing economy. Where previous generations were more inclined toward ownership, millennials are tending away from ownership and are more likely to make use of shared services like Uber, Lyft, and Airbnb. About 54% of Americans are using some type of ride-hailing, home-sharing, or maintenance service on a regular basis, according to a report by Country Financial.
The sharing economy and the resulting mindset are also having unintended consequences for those in the streaming industry. Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), and Hulu are the most commonly used direct-to-consumer streaming platforms, together attracting 47% of the U.S. population, according to the study. Unfortunately, not all users are paying for the privilege.
Sharing is caring?
The study found that nearly three in four Americans, or 74% of those using platforms like Netflix and Hulu, are sharing their accounts with others, while 42% are passing around their Amazon Prime login. The research concluded that of those that share, 73% provide account access to family members, 34% to significant others, 10% to friends, and 2% would even share their password with their ex.
With all the sharing of passwords going on, it's easy to conclude that streaming companies like Netflix are gaining fewer subscribers as a result of all the freeloaders.
Showing in the results?
The company's most recent quarter seems to bear that out. Netflix reported second-quarter results that fell far short of its guidance, primarily the result of disappointing subscriber gains. The company added just 5.15 million new customers, much fewer than the 6.2 million additions it expected.
In the company's letter to shareholders, Netflix CEO Reed Hastings said, "The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy, meaning in some quarters we will be high and other quarters low relative to our guidance."
The company did report higher-than-expected growth in the first quarter, adding 7.41 million net subscribers, more than 1 million higher than the 6.35 million it forecast -- which might have been a factor in its second-quarter miss.
A different view
Netflix has long been aware of password sharing and doesn't seem to think it's an issue. In fact, Netflix CEO Reed Hastings said the practice is "a positive thing."
"We love people sharing Netflix whether they're two people on a couch or 10 people on a couch," Hastings said. "That's a positive thing, not a negative thing." The majority of password sharing occurs between immediate family members, and Hastings said that he saw it as a "terrific marketing vehicle for the next generation of viewers."
It's also worth noting that other research came to a different conclusion. A study that looked specifically at Netflix found that password sharing occurred in less than 1 in 10 homes, amounting to about 9% of respondents, according to a study conducted by Ampere Analysis. The research also concluded that the practice was less prevalent in established markets -- like the United States at about 8% -- while newer markets like France had the highest percentage of shared access at about 12% of homes.
"There is a widely held belief that password sharing among Netflix homes is rife, but our data is telling a different story," said Guy Bisson, research director at Ampere Analysis. "One of the most striking things about account sharing on Netflix is that it's amazingly consistent across markets," he said.
Netflix has limits on account sharing and could potentially enforce those rules, but the company believes account sharing leads to additional subscribers, so it's unlikely to begin cracking down on the practice anytime soon. Even in light of its rare miss last quarter, total subscribers grew to 130 million, up 25% compared to the prior-year quarter.
With growth of that magnitude, it doesn't appear that the practice of password sharing is harming Netflix's progress in any meaningful way.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.