Friday Mailing: Disney & Netflix Solve For Password Sharing With Distinctly Different Objectives
Protocol reported yesterday:
Following Netflix’s announcement that it wants to monetize the long-tolerated practice of people sharing their passwords, it looks like Disney+ may be getting ready to do the same.
Disney recently sent out a questionnaire to subscribers in Spain, asking them why they are sharing their Disney+ passwords with people outside of their own household. The survey was first posted to Twitter, and subsequently written up by the Spanish tech news site Genbeta.
Password sharing has emerged as a hot button issue, in large part because charging for it reframes a fundamental change in the long-standing “understanding” between streamer and customer that password sharing was permitted. That makes it one of the thornier problems for Netflix and Disney+ to solve as questions about the streaming business from investors - both fair and unfair - emerge.
So, the question is why are both market leaders picking this risky battle with consumers now? And what do the answers tell us about how each company is positioned for the future?
A key argument and/or assumption I have made, to date, is that Disney and Netflix have advantages over the competition because they have built direct to consumer (DTC) relationships at scale. Netflix built its streaming DTC relationships from scratch, while Disney leveraged DTC relationships with Parks visitors that total hundreds of millions (over 150MM were estimated to have visited Disney theme parks in 2018). [1]
The emerging crackdown on password sharing has implied those relationships are actually built upon incomplete and insufficient, perhaps even inaccurate, information. Effectively, one account may reflect three or four different users, but for whom Disney+ and Netflix have one email address and one credit card number.
So, an obvious answer to the question above is more email addresses and more credit card numbers improve the data on the consumer.
Disney+ Survey
Protocol highlights what the Disney+ survey question reveals about Disney's objectives:
The lengthy list of possible answers suggests Disney is aware there may be a variety of reasons, including altruism (“They can’t pay for the service and I want to help them”), reciprocal sharing (“I exchange my user name and password to access other services”) and watercooler envy (“I want them to have access to the content so I can talk about it afterwards”).
Survey answers like these are not entirely reliable given that a respondent’s first answer is not necessarily a truthful answer. So it’s notable that the survey also includes answers like “I do not care that they have access to my information,” which Protocol notes “could be seen as a way to make people aware of potential privacy issues.” It’s an interesting psychology experiment that implies password sharing is not always altruistic.
What makes the survey particularly notable is that it emerged as Disney+ streaming leadership has shifted away from legacy executives from BAMTech and Hulu, and towards hires from big tech companies:
In March, Disney Streaming named Jeremy Doig, an 18-year Google veteran, as CTO.
Last summer, hired Ajay Arora, formerly at Netflix and Amazon, as SVP of product, commerce and experimentation
This week, it hired Devika Chawla from Netflix and Arun Chandra from Meta for senior roles.
Chandra will oversee Disney Streaming’s viewer experience teams, partner management operations, support channels, and audience insights for subscribers across Disney+, Hulu, ESPN+ and Star+.
So, the implication of this password-sharing survey and these new hires is that Disney is still in the early stages of building an understanding of its streaming consumers.
Netflix
Netflix COO and CPO Greg Peters offered an interesting insight into Netflix's objectives with password sharing on the Q1 2022 earnings call:
[V]iewer penetration is made up of 2 groups. One is a group that's paying us, which is great. And then there is a group of viewers that are not paying us, and they're sharing someone else's account credential. And we really see that second group is a tremendous opportunity because they're clearly well- qualified. They have everything they need to do to get to Netflix. They know what the service is. They found titles that they want to watch. And so now, our job is really to better translate that viewing and the value that those consumers are getting into revenue. And the principal way we've got of going after that is asking our members to pay a bit more to share the service with folks outside their home.
So if you've got a sister, let's say, that's living in a different city, you want to share Netflix with her, that's great. We're not trying to shut down that sharing, but we're going to ask you to pay a bit more to be able to share with her and so that she gets the benefit and the value of the service, but we also get the revenue associated with that viewing.
What Peters seems to be saying here is, “we have the data on those relying on password sharing, we just need the revenue”. Meaning, Netflix seems laser-focused on solving the narrow problem of marginal revenues, as its strength appears to be having been parsing data on its password sharers already.
Netflix is fine-tuning its conversion funnel while Disney runs surveys That reflects Netflix's more sophisticated understanding of the DTC streaming consumer and conversion funnel.
Implications for 2023 and Beyond,
So, the two answers that emerge on why Disney and Netflix are picking this battle on password sharing now are:
a lack of understanding of and a lack of revenue from the password-sharing consumer (Disney) and,
an understanding of but a lack of revenue from the password-sharing consumer (Netflix).
These two different priorities could be interpreted in different ways.
Bullish Disney+, Bearish Netflix
One argument is that after Netflix’s shortcomings in executing its animation strategy, Disney seems better positioned than Netflix in streaming.
I wrote about this in last month’s essay Failing To Reach Its Disney-esque Objectives, Netflix Becomes Reed Hastings' Frankenstein, Meaning, Netflix has fallen short in its long-term aim to beat Disney at animation, and to build out Disney-like IP. (NOTE: Brandon Katz wrote a good article on this for The Observer last year, “Netflix Not-So-Secretly Wants to Be Disney, But Is It Placing the Right Bets?”).
I argued something related in Why Two New Disney+ Discount Deals Reflect Advantages Over Netflix:
I think Netflix's Q1 2022 earnings call reinforced the contrast between Disney’s approach of “concrete” business objectives across its business divisions, and the more abstract and risky growth strategies Netflix has been pursuing with games, a password-sharing clampdown and now the promise of a cheaper, ad-supported model.
Disney may see more upside from solving for password sharing than Netflix because the outcome ties into an existing, sophisticated understanding of the consumer.
Bullish Netflix, Bearish Disney+
The skeptical light on Disney is that Netflix is solving for incremental revenues from a consumer base it already understands very well, while the Spain survey and recent streaming hires suggest Disney is still early in its learning curve about streaming consumers. We also saw this in (which I also wrote about in Why Two New Disney+ Discount Deals Reflect Advantages Over Netflix):
Disney+ subscribers can save up to 25% on their visits to Disney World theme parks most nights between July 8 through September 30, 2022; and,
A new National Geographic Premium with Disney+ subscription bundle
Disney may very well end up being a media powerhouse with streaming, as the PARQOR Hypothesis suggests. But, its password sharing survey in Spain and its recent management shuffles contrast enough with Netflix’s approach to password sharing that gathering Netflix-type data on its streaming consumers may be a long term project. But Netflix continues to struggle to leverage its data advantage into building more Disney-like IP and services for its consumers.
It's a fascinating competitive dynamic with no immediately evident advantages for either streaming service.