Large media companies and streaming services are on to many of you.

If you are among the two-thirds of subscribers that have reportedly shared your Netflix, HBO GO, Hulu, or Disney+ password with friends and family, your provider probably already knows about it.

A recent report from HUB Entertainment Research found that at least 64% of 13-24-year-olds have shared a password to a streaming service with someone else, with 31% of consumers admitting they are sharing passwords with people outside of their home.

The reason many people share passwords is to save money on the cost of signing up for multiple streaming services. Many trade a Netflix password in return for a Hulu password, or hand over an HBO GO password in exchange for access to your Disney+ account. Research firm Park Associates claims that streamers lost an estimated $9.1 billion in revenue from password sharing, and can expect to lose nearly $12.5 billion by 2024 if password sharing is not curtailed.

Oddly, most streaming services are well aware of password sharing and the lost revenue that results from sharing accounts, and most care little, at least for now.

Marketplace notes a lot of the complaints about password sharing are coming from cable industry executives, shareholders, and Wall Street analysts, but for now most streaming services are just monitoring the situation instead of controlling it.

“I think we continue to monitor it,” said Gregory K. Peters, Netflix’s chief product officer, on the 2019 third quarter earnings call. “We’ll see those consumer-friendly ways to push on the edges of that, but I think we’ve got no big plans to announce at this point in time in terms of doing something differently there.”

Netflix sells different tiers of service that limit the number of concurrent streams to one, two, or four streams at a time. The company believes that if customers that share accounts bump into the stream limits, many will upgrade to a higher level of service which will result in more revenue.

Newcomer Disney+ not only recognizes password sharing is going on, it almost embraces it.

“We’re setting up a service that is very family friendly. We expect families to consume it,” Disney CEO Bob Iger said in an interview with CNBC. “We will be monitoring [password sharing] with the various tools that we have.”

The biggest tool Disney has to monitor account sharing is Charter Spectrum, which is aggressively encouraging streaming services to crack down hard on password sharing. Spectrum internet customers who watch Disney+ are now tracked by Spectrum, recording each IP address that accesses Disney+ content over Spectrum’s broadband service. When multiple people at different IP addresses access Disney+ content on a single account at the same time, Spectrum can flag those customers as potential password sharers.

Synamedia, a streaming provider security firm, uses geolocation tools to determine who is watching streaming services from where. If someone is watching one stream from one address and another person is watching from another city at the same time, password sharing is the likely culprit. For now, most companies are quietly collecting data to learn just how big a problem password sharing is and are not using that information to crack down on customers.

Streaming providers are more interested in stopping the pervasive sale of stolen account credentials on services like eBay and shutting down stolen accounts used to harvest content for unauthorized resale. But as sharing grows, so will calls from stakeholders to curtail the practice. Those in favor of vigorous crackdowns on password sharing argue billions of dollars of lost revenue will be lost. If a service like Netflix blocked password sharing, that could lead to dramatic increases in account sign-ups. But less established brands like Disney+ seem more concerned about losing the unofficial extra viewers that are watching and buzzing about shows on its new streaming platform. Find the best residential proxies to access the streaming content that is not available in your location.

Cable companies are frustrated about losing scores of cable TV customers to competitors that may be effectively giving away service for free. That has raised tempers at companies like Charter Communications.

“Pricing and lack of security continue to be the main problems contributing to the challenges of paid video growth,” Charter CEO Thomas Rutledge said in recent prepared remarks with Wall Street analysts. “The traditional bundle … is very expensive, and the actual unit rate of that product continues to rise, and that’s priced a lot of people out of the market. And it’s free to a lot of consumers who have friends with passwords. So our ability to sell that product is ultimately constrained by our relationship with content [companies], and we have to manage that in terms of the kinds of power that the content companies have.”

Charter’s power comes from its willingness to distribute cable networks like The Disney Channel to tens of millions of homes around the country. That forces Disney to listen to Charter’s concerns about piracy and password sharing and the issue is even documented in the latest carriage contract between the two companies.

Cable industry executives believe a crackdown on password sharing is inevitable, eventually. Just as the cable industry was forced to combat cable pirates during its formative years, streaming providers that welcome extra viewers today may lament the lost revenue those subscribers don’t bring to the table tomorrow.

Marketplace reports on the growing issue of streaming service password sharing. (2:19)

The Wall Street Journal believes the majority of Americans are paying for internet speed they never use or need, but their investigation largely ignores the question of traffic bottlenecks and data caps that require many customers to upgrade to premium tiers to avoid punitive overlimit fees.

The newspaper’s examination was an attempt to test the marketing messages of large cable and phone companies that claim premium speeds of 250, 500, or 1,000 Mbps will enhance video streaming. A total of 53 journalists across the country performed video streaming tests over a period of months, working with researchers at Princeton University and the University of Chicago to determine how much of their available bandwidth was used while streaming videos from Netflix, Amazon Prime Video, YouTube and other popular streaming services.

Unsurprisingly, the newspaper found most only need a fraction of their available internet speed — often less than 10 Mbps — to watch high quality HD streaming video, even with up to seven video streams running concurrently. That is because video streaming services are designed to produce good results even with lower speed connections. Video resolution and buffering are dynamically adjusted by the streaming video player depending on the quality of one’s internet connection, with good results likely for anyone with a basic broadband connection of 10-25 Mbps. As 4K streams become more common, customers will probably get better performance with faster tiers, assuming the customer has an unshaped connection that does not throttle video streaming speeds as many mobile connections do and the streaming service offers a subscription tier offering 4K video. Netflix, for example, charges more for 4K streams. Some other services do not offer this option at all.

Image: WSJ

WSJ:

For most modern televisions, the highest picture clarity is the “full” high-definition standard, 1080p, followed by the slightly lower HD standard, 720p, then “standard resolution,” 480p. The Journal study found a household’s percentage of 1080p viewing had little to do with the speed it was paying for. In some cases, streaming services intentionally transmit in lower resolution to accommodate a device such as a mobile phone.

When all HD viewing is considered—1080p and 720p—there were some benefits to paying for the very highest broadband tiers, those 250 Mbps and above.

Streaming services compress their streams in smart ways, so they don’t require much bandwidth. We took a closer look at specific services by gathering data on our households’ viewing over a period of months. Unlike the “stress test,” this was regular viewing of shows and movies, one at a time.

Netflix streamed at under 4 Mbps, on average, over the course of a show or movie, with not much difference in the experience of someone who was paying for a 15 Mbps connection and someone with a one gigabit (1,000 Mbps) connection. The findings were similar for the other services.

There is a brief speed spike when a stream begins. Netflix reached the highest max speeds of the services we tested, but even those were a fraction of the available bandwidth.

Users watching YouTube might launch a video slightly faster than those watching Netflix, and at lower resolution, but this is a function of how those services work, not your broadband speed, the researchers said.

Whereas Netflix tries to load “nice high quality video” when you press play and hence has higher spikes, YouTube appears to “want to start as fast as possible,” said Paul Schmitt, one of the researchers.

A spokeswoman for Alphabet Inc.’s YouTube said the service chooses playback quality based on factors including type of device, network speed, user preferences and the resolution of the originally uploaded video. A Netflix Inc. spokeswoman said the company aims to deliver quality video with the least possible bandwidth. Amazon.com Inc. had no comment.

The Journal finds little advantage for consumers subscribing to premium speed tiers, if they did so hoping for improved streaming video. The unanswered question is why customers believe they need faster internet speeds to get those improvements in the first place.

The answer often lies in the quality of the connection between the streaming provider and the customer. There are multiple potential bottlenecks that can make a YouTube video stutter and buffer on even the fastest internet connection. Large providers have had high profile disputes with large streaming companies over interconnection agreements that bring Netflix and YouTube traffic to those internet service providers’ customers. Some ISPs want compensation to handle the increasing amount of incoming video traffic and have intentionally not allowed adequate upgrades to keep up with growing subscriber demand. This creates a traffic bottleneck, usually most noticeable at night, when even a small YouTube video can get stuck buffering. Other streaming videos can suffer from repeated pauses or deteriorate into lower resolution video quality, regardless of the speed of your connection.

Another common bottleneck comes from oversold service providers that have too much traffic and not enough capacity to manage it. DSL and satellite internet customers often complain about dramatic slowdowns in performance during peak usage times in the evenings and on weekends. In many cases, too many customers in a neighborhood are sharing the connection back to the phone company. Satellite customers only have a finite amount of bandwidth to work with and once used, all speeds slow. Some other providers do not pay for a large enough pipeline to the internet backbone, making some traffic slow to a crawl when that connection is full.

Customers are sold on speed upgrades by providers that tell them faster speeds will accommodate more video traffic, which is true but not the whole answer. No amount of speed will overcome intentional traffic shaping, an inadequate connection to the video streaming service, or an oversold network. Too bad the Journal did not investigate these conditions, which are more common than many people think.

Finally, some customers feel compelled to upgrade to premium tiers because their provider enforces data caps, and premium tiers offer larger usage allowances. Cable One, Suddenlink, and Mediacom customers, among others, get a larger usage allowance upgrading. Other providers offer a fixed cap, often 1 TB, which does not go away unless a customer pays an additional monthly fee or bundles video service.

Data caps are a concern for video streaming customers because the amount of data that can be consumed in a month is substantial. As video quality improves, data consumption increases. The Journal article does not address data caps.

Finally, the Journal investigation confined itself to video streaming, but internet users are also increasingly using other high traffic services, especially cloud backup and downloading, especially for extremely large video game updates. The next generation of high bandwidth internet applications will only be developed if high speed internet service is pervasive, so having fast internet speed is not a bad thing. In fact, providers have learned it is relatively cheap to increase customer speeds and use that as a justification to raise broadband prices. Other providers, like Charter Spectrum, have dropped lower speed budget plans to sell customers 100 or 200 Mbps service, with a relatively inexpensive upgrade to 400 Mbps also gaining in popularity.

Does the average consumer need a premium speed tier for their home internet connection? Probably not. But they do need affordable unlimited internet service free of bottlenecks and artificial slowdowns, especially at the prices providers charge these days. That is an investigation the Journal should conduct next.

Netflix stock lost over 11% of its value late today after the company reported second quarter results that underwhelmed Wall Street, including a surprising loss of 130,000 U.S. customers that left the streaming service during the last three months.

Netflix added 2.7 million customers in the second quarter, a much smaller number than the 6 million it added during the same period last year. As of the end of June, Netflix now has 151.6 million customers worldwide. Wall Street expected between 153-156 million by that time. The $2/month U.S. rate increase during the first quarter for Netflix’s popular two-concurrent stream plan (was $10.99, now $12.99 in the U.S.) helped keep company revenue up 26%, to $4.92 billion for the quarter. But analysts expected $4.93 billion. Profits also declined to $270 million, compared with $384 million a year ago during the same quarter.

The company blamed the lackluster results on the lack of compelling content during the second quarter. In a letter to shareholders, Netflix claimed the recent price increase slowed growth, but the real problem was overheated growth during the first quarter and not a lot of blockbuster movies and shows to watch.

“We think [the second quarter’s] content slate drove less growth in paid net adds than we anticipated,” Netflix executives said.

The company also noted it is raising prices in several European countries including the United Kingdom, Spain, Ireland, France and Germany.

Netflix does not believe competition with other streaming services had a material impact on its subscriber numbers during the quarter, but analysts suggest Netflix should be concerned about forthcoming streaming competition from AT&T/WarnerMedia (HBO Max) and Walt Disney (Disney+). As more services become available, consumers are likely to take a hard look at the streaming services they are watching and ditch those they are not.

Netflix also declared it will not introduce a cheaper, ad-supported version, despite increasing speculation it would.

“We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.” Netflix told shareholders.

The Wall Street Journal reviews the many challenges to Netflix from forthcoming contenders in the streaming wars. (4:36)

Could this be the Netflix of the future?

Investors concerned about the increasing costs of developing new original content for Netflix have caused a drumbeat for the world’s largest on-demand video streaming company to start running advertising inside TV shows and movies.

A new study finds that almost one-third of Netflix customers claim they would not mind seeing advertising if it meant paying a lower price for Netflix.

The Diffusion Group, based in Los Angeles, asked 1,292 current Netflix subscribers if they would switch to a new, lower-priced Netflix tier that included commercial advertising. Nearly 32% of respondents expressed confidence they would make that switch, with 49% opposed and 20% undecided.

A recent streaming conference in Europe seems to have stoked interest in the concept of an ad-supported Netflix, although the company has repeatedly claimed it has no plans for an advertiser-supported tier, dismissing the idea as a concept dreamed up by their competitors, notably Comcast/NBC and Hulu.

TDG Research president Michael Greeson believes advertising on Netflix is inevitable however, driven by a backlash from Wall Street over how much Netflix is spending on content as it continues to lose access to some of its most popular licensed content, being pulled off Netflix by its competitors Disney and AT&T/WarnerMedia.

“Given the rising costs of programming and growing debt, so goes the argument, it is just a matter of time before the company makes a move,” TDG said in its report.

Netflix’s early days of streaming depended on a deep library of popular movies and TV shows that were readily licensed to the company by major Hollywood studios. But in the last five years, those studios have demanded dramatically higher licensing fees, and in the last year they have ended some contract renewals altogether to reserve content for the launch of their own affiliated streaming services, including Disney+ and HBO Max.

“Netflix’s response to its thinning third-party library is to spend more on originals, which it’s gambling will keep subscribers from jumping ship,” Greeson said. “But with half or more of its most-viewed shows being owned by three studios, each of which is launching their own direct-to-consumer services, how long can you convince 55+ million US consumers that your service is worth paying a premium price, especially compared with Hulu (offers an ad-based option), Amazon Prime Video (free with Prime), and Disney+ (coming in a $6.99/month)?”

Greeson

Netflix has faced growing pressure from investors to reduce the level of debt it has accumulated financing those original productions, including pushes for rate increases and advertising. Netflix raised prices, but has publicly opposed advertising. Some investors now want another rate increase, which Greeson warns would be perilous for Netflix’s subscriber count, because their research found the last price increase “strained the limit of the service’s value.” That research was done before subscribers start to discover their favorite shows will increasingly be pulled off the platform. Greeson believes another rate increase will cause at least some customers to flee, stalling Netflix’s growth.

The happy medium in Greeson’s view is the introduction of an ad-supported tier for price-sensitive subscribers, and he predicts Netflix will introduce it in the next 18 months.

“Ads will become an important part of a comprehensive tiering strategy that helps bullet-proof Netflix for years to come,” Greeson said.

As some Netflix shareholders grumble about the company’s massive investment in developing original content, some of Netflix’s smaller rivals claim the streaming service cannot forever depend on subscription fees alone to cover the billions being spent on new series and movies.

NBCUniversal’s Linda Yaccarino and Hulu’s Peter Naylor both believe Netflix will eventually have to begin inserting advertising into shows if it wishes to continue its spending spree on content while avoiding steep rate increases.

At a Cannes Lions panel held last week, content companies discussed the evolution of streaming services and their embrace of traditional advertising.

“When you have to make more programming that’s not guaranteed to be a hit, you have to spend more money, you have to build your brand, you have to help the consumer discover your stuff — the price will go up for the subscription, and it would be logical to mitigate those increases to take ads,” Yaccarino said.

Hulu remains the biggest and best-known example of a streaming service built on a traditional advertising model. Customers pay $5.99 a month for advertiser-sponsored content, similar to traditional linear television. Customers can buy their way out of advertising interruptions by paying $11.99 a month for a commercial-free plan that is roughly double the usual price. Just under 30% of Hulu subscribers currently select the commercial-free option.

Hulu’s bathroom break ad, displayed when a video is paused.

Naylor claims traditional advertising need not continue to resemble commercial broadcast television, despite the fact Hulu is still mimicking that experience.

“The future of ad-supported media does not resemble what we’re doing today in terms of ad load or even ad shape,” Naylor said. “It can be interactive advertising or nonintrusive advertising. I think you’re going to see a lot of innovation from all of these new OTT providers because we’re allowed to. We’re not married to the clock. Fifteen and 30-second ads were a product of linear TV. When everything’s on demand and served through an IP address, the ad experience is going to dramatically improve.”

Hulu has been experimenting with different ad formats to gauge subscriber acceptance. Interactive advertising, viewer-selected ads, and banner ads that appear when programming is paused are all being tested. A 2 feet by 6 feet banner is perfect for making a big impression.

Although Hulu is dabbling in original content, NBCUniversal spent more than $28 billion on content acquisition and development last year. In contrast, Netflix spent $12 billion. Yaccarino said that as more streaming services launch, particularly those from Disney and WarnerMedia, Netflix will have to further increase its spending to keep up.

A Netflix spokesperson told CNBC all this talk was “wishful thinking from an advertising conference.” Netflix is not currently focused on incorporating ads into any of its shows, the spokesperson confirmed.