Fare share

Streaming services often fight password sharing, but new research shows the practice can expand their markets and increase profits.

Passing along your password to a friend may seem like a harmless favor, but some of the biggest players in the streaming industry don’t agree. Netflix, Hulu, Disney+, Max, and Peacock have all clamped down in recent years on subscription sharing between households. But does sharing always hurt a steaming or subscription-based business? Not necessarily.

This finding comes from research by graduate research assistant Xiaokun Wu, Emeritus Professor Shinyi Wu, and Dean's Council Distinguished Professor Zhongju (John) Zhang, all in the W. P. Carey Department of Information Systems. Using economic models to simulate how customers behave under different subscription-sharing conditions, the team found that sharing can save customers money while also helping companies acquire new subscribers — if they structure their pricing and policies strategically.

Not all in the family

Many subscription-based services offer family plans that can accommodate multiple viewers, readers, gamers, or other users. These plans typically lower the cost per person. Some require every member to live in the same household; others don't. Either way, sharing allows people to band together and access a service such as Paramount+ at a discount.

Another way to share is through subscription-sharing sites such as GoSplit or ReSubs, which serve as marketplaces where people can list openings on their family plans or join someone else’s group. These sites connect strangers willing to become co-subscribers and divide the cost of premium channels or other digital content, reducing the work of finding participants and managing the arrangement.

“Businesses often see subscription sharing as a threat that can eat into profits,” Zhang says. "But it doesn’t have to. The researchers' analysis shows that sharing can also give businesses an opportunity to expand their markets.

“If someone who would otherwise pay for an individual plan shares one instead, then yes, that hurts the provider because that customer replaces a high-priced subscription with a cheaper one,” Xiaokun Wu says. “But that’s not always what happens. Some customers may not be willing to pay the full individual price themselves. Without subscription sharing, they might not subscribe at all.”

When family-plan sharing brings price-sensitive customers into a service provider’s customer base, the company’s market grows. "If the market-expansion effect is strong enough, plan sharing can increase profits” for the subscription provider, Xiaokun Wu adds.

Some customers are also willing to pay more for an individual subscription rather than coordinate a shared plan, collect monthly payments, or navigate a subscription-sharing site. These customers “care more about convenience, privacy, or control over their accounts,” Xiaokun Wu explains. “They will stay on the individual plan.”

In other words, companies can use pricing and policies to segment their customers,retaining high-value individual subscribers while attracting price-sensitive customers who might not otherwise subscribe. “Market expansion and coverage, in addition to margins, is important for subscription-based services and products,” Zhang says.

Expanding a company's customer base and market coverage can lower acquisition costs and make it more difficult for competitors to gain a foothold. At the very least, earning a smaller margin from a new customer is more valuable than pursuing a larger margin from someone who never subscribes.

When the price is right

Because sharing can generate revenue as well as erode it, Zhang advises company executives to take a measured approach “Businesses should be open-minded instead of trying to stop sharing or banning such practices,” he says. “The key is to monitor the magnitude of the leakage or the cannibalization and strategically adjust prices and product offerings to mitigate the negative impact of subscription sharing on the company’s bottom line.”

Companies that want to discourage sharing can narrow the price gap between family and individual plans. “When they close the price gap, their consumers will no longer be motivated to share the subscription.”

Widening the gap can have the opposite effect: Lower family-plan prices make sharing more attractive to price-sensitive customers, while higher individual-plan prices generate more revenue from those who value the convenience of having their own accounts. But price is not the only consideration. “Account restrictions, verification rules, and payment arrangements can alter how easy or difficult sharing is,” Xiaokun Wu explains. “These elements can affect profits because they will influence who will choose to share and who will stick with an individual plan.”

Ad-supported plans offer companies another way to segment customers by price. Netflix, for example, launched its lower-priced, ad-supported tier in the United States on Nov. 3, 2022, giving customers the option to save money in exchange for watching ads. About six months later, the company began restricting password sharing in the U.S. and other markets.

Reflecting on Netflix's introduction of an ad-supported plan, Xiaokun Wu says, “It was a good strategy to grow the market. Netflix found another source of revenue.”

Customers who join a shared plan rather than remaining unsubscribed can also become another source of revenue. That’s why Xiaokun Wu encourages streaming executives to manage subscription sharing through pricing and plan design rather than trying to eliminate it altogether. “The goal is to keep high-value customers on individual plans while allowing the shared family plans to attract customers who are sensitive to price,” she says.