Netflix, HBO and cable giants are coming for password sharers

A coalition that includes Netflix Inc., HBO and cable industry titans is stepping up efforts to crack down on password sharing, discussing new measures to close a loophole that could be costing companies billions of dollars in revenue each year.

Programmers and cable TV distributors are considering an array of tactics to cut off people who borrow credentials from friends and relatives to watch programming without paying for it. The possible measures include requiring customers to change their passwords periodically or texting codes to subscribers’ phones that they would need to enter to keep watching, according to people familiar with the matter.

Some TV executives want to create rules governing which devices can be used to access a cable TV subscription outside the home. While someone logging in from a phone or tablet would be fine, someone using a Roku device at a second location could be considered a likely freeloader, one person said.

If none of those tactics works, pay-TV subscribers could someday be required to sign in to their accounts using their thumbprints.

“I feel like I’m beating my head against the wall,” Tom Rutledge, the chief executive of Charter Communications Inc., said during an earnings call last month. “It’s just too easy to get the product without paying for it.”

But taking more aggressive measures poses risks. The people using services for free — especially younger ones — may never agree to sign up for a subscription, no matter how many hassles they endure. That means companies would mostly just be alienating paying customers, who could get frustrated and stop using an app or cancel their service. In other words, there’s plenty of downside and possibly little upside.

“If you ask any cohort of young people if they will ever pay for Netflix or video services, the answer is unequivocally no,” said Mike McCormack, an analyst at Guggenheim Securities.

The pay-TV industry is projected to lose $6.6 billion in revenue from password sharing and piracy this year, according to Parks Associates. By 2024, the number could grow to $9 billion, the research firm said.

Two years ago, some of the biggest names in entertainment and technology formed a group called the Alliance for Creativity and Entertainment, which was devoted to reducing online piracy. Last month, the group announced that it’s turning its attention to password sharing. Participants include Netflix, Amazon.com Inc., Walt Disney Co., Viacom Inc., AT&T Inc.’s HBO, Comcast Corp. and Charter.

There’s no consensus on where to draw the line.

People can access streaming programming both from distributors such as Charter and from programmers such as Fox via their mobile apps. Therefore, the two sides of the industry need to work together to thwart password sharers. Charter, which sells cable TV service under the Spectrum brand, has said its recent distribution deals with Fox and Disney will help them address password sharing, but didn’t specify what measures they’d take.

Although industry executives widely agree that password sharing is a problem, there’s no consensus on where to draw the line. Programmers and distributors blame each other for being too lenient in how many people can simultaneously stream from one account. DirecTV and Comcast allow five streams. Fox and ESPN generally allow three.

Online TV services also vary in how generous they are about password sharing. Apple TV+, which launched Nov. 1, allows up to six people to stream from one family plan. Two upcoming services — AT&T’s HBO Max and NBCUniversal’s Peacock — aren’t ready to announce how many streams they will allow, according to company representatives. A spokeswoman for Disney+, which launches Nov. 12, didn’t respond to a request for comment.

Netflix allows just one stream for its basic plan and four streams for its most expensive service. Three years ago, CEO Reed Hastings said password sharing was “something you have to learn to live with, because there’s so much legitimate password sharing — like you sharing with your spouse, with your kids.”

Recently, there have been indications that the company may be reconsidering its tolerance. On an earnings call last month, Chief Product Officer Greg Peters said Netflix was “looking at the situation” and seeking “consumer-friendly ways to push on the edges of that.”

Smith writes for Bloomberg.