Amazon Prime Is Cutting Off Freeloaders. Could Netflix Inc Be Next?

The e-commerce giant is limiting its loyalty service to just two adults per account. Could the move ricochet through the industry?

Jeremy Bowman
Jeremy Bowman
Aug 11, 2015 at 12:00PM
Consumer Goods

If you've been borrowing your buddy's (NASDAQ:AMZN) Prime account, your days of free streaming and two-day delivery are numbered. Amazon made some subtle changes to its account agreement recently that should cut off the hangers-on. 

Introducing a program called Amazon Households, the web giant now allows Prime users to share accounts with just one other adult in the same household. The agreement goes a step further than most at preventing password/account sharing because it requires each user to authorize the other to use their credit card. Before the Household arrangement, users were able to add as many as four other people to their accounts. Amazon Household also allows up to four children on the same membership.

Household does offer some benefits within the families using the accounts -- for one, spouses can now share Kindle books they've purchased together and e-books borrowed from the Kindle Lending Library. Still, the Household program seems most obviously a way to clamp down on unauthorized account sharing, and goad freeloaders into buying their own Amazon Prime memberships.

Prime first, Prime second, Prime forever
Amazon has made no secret of its goal to drive as many shoppers as possible to Prime, its $99-a-year membership service that offers free two-day shipping, access to Prime Instant Video, and the Kindle Lending Library, among other benefits. The loyalty program has been a smashing success. The company has never released hard numbers on the service, but according to surveys global membership is in the 40-million range, and Prime members spend about twice as much on the site as non-Prime members. Retention rates are also estimated to be as high as 95%, indicating overwhelming customer satisfaction with the program.

Given Prime's ability to drive increased purchases and loyalty to the site, it's no surprise to see Amazon making efforts to wean off the Prime moochers. It recently made a big push for new sign-ups with Prime Day on July 15, and seems to be continuing that effort with Households. 

That transition may also represent a maturing of Prime both within the company and in the public eye. There is arguably some benefit to account-sharing for the company, as it increases word-of-mouth and allows people who may not otherwise be able to afford the service the chance to try it out. By cutting off the non-paying users, Amazon seems to believe that Prime has reached a tipping point in the American consciousness and no longer needs the free publicity of sharing. It also may mark its transition from growth to profitability

To share or not to share
According to a study by research firm Parks Associates, password-sharing is set to cost the streaming industry more than $500 million worldwide this year. The survey found that 6% of American households use a borrowed streaming service, such as Netflix (NASDAQ:NFLX), Hulu, or HBO. For the most part, Netflix has operated with a hands-off attitude toward password-sharing, and it's easy to see why: it's in the company's interest to make usage as easy as possible as long as subscriptions are growing. 

A 2013 study, however, found that significant numbers of Netflix and HBO freeloaders would pay for the services if they were forced to. 41% of HBO borrowers and 33% of Netflix ones said they would be willing to pay for the services within the next six months if they had to.

Netflix CEO Reed Hastings has suggested several times that password sharing is not a threat to the company, and that the numbers are insignificant. If Parks Associates' research is correct, that would indicate that about 2 million domestic households would pay for Netflix if password-sharing were cut off. While that would add about $200 million in revenue to the company's coffers, it's probably not worth it. Considering Netflix has over 40 million domestic subscribers already, 2 million would represent less than a 5% increase, and Netflix is already adding more than 5 million domestic subscribers a year anyway. Perhaps most importantly, cracking down on password sharing would mean making the user experience less convenient in one way or another. Netflix would either have to add another level of user verification beyond a simple password, or limit the number of screens the account can be used on.

Related Articles

With the company in growth mode and quickly adding subscribers. it doesn't make sense to tamper with the user experience or do anything to diminish it. It's likely that Netflix and others like Hulu and HBO will eventually crack down on freeloaders, but that probably won't happen until the industry matures, which seems to be at least several years away at this point.