How is Netflix’s password-sharing campaign likely to work

Netflix surprised the world this week, saying it finally plans to tackle the rampant practice of password-sharing.

Netflix said Tuesday that more than 100 million households use a shared password, including 30 million in the United States and Canada.

But the video player does not plan to simply freeze those shared accounts. Instead, the company will likely prefer to place additional fees on those accounts that are used by multiple people outside the home.

Netflix’s plan to capture that lost revenue will start with an alert sent to account holders whose passwords are used by other households.

The company has already begun testing this feature in Peru, Costa Rica, and Chile. For accounts that share a password across titles, Netflix charges an additional fee to add “sub-accounts” for up to two people outside the home. The price varies by country – around $2.13 per month in Peru, $2.99 ​​in Costa Rica, and $2.92 in Chile, based on current exchange rates.

The company also allows people who use a shared password to transfer their personal profile information to a new account or sub-account, allowing them to keep their viewing history and recommendations.

“If you have a sister, let’s say, who lives in a different city, and you want to share Netflix with her, that’s great,” Greg Peters, chief operating officer, said during the company’s earnings conference call. “We are not trying to stop this sharing, but we will ask you to pay more so that you can share with it and so you get the benefit and value of the service, but we also get the revenue associated with that viewing.”

Netflix hasn’t said how much revenue it expects to generate from implementing its worldwide sharing strategy, though Peters said he believes it will take about a year to put its sub-account pricing into use globally.

A survey by the research organization Time2Play suggested that about 80% of Americans who use someone else’s password won’t get their new account if they can’t share the password. He did not investigate how many current account payers would be willing to pay more to share with others.

Peters also suggested that the company may continue to adjust pricing or revise its testing strategy.

“It will take some time to resolve this and strike the right balance,” he said. “And just to set your expectations, I think we’ll spend a year or so iterating and then deploying all of that until we launch this solution globally, including in markets like the US.”

Unprecedented Netflix plan. No major broadcaster has ever cracked down on password sharing before. Other owners of streaming services, such as Disney and Warner Bros., likely won’t put it down. Discovery, Comcast’s NBCUniversal and Paramount Global have their own plans until after reviewing Netflix’s password-sharing fixes.

Some account holders will undoubtedly be surprised when they receive news from Netflix that their passwords have been shared. It’s also unclear how long Netflix will allow viewers on a subscribed account to maintain access if the primary account holder chooses not to pay the additional fee.

In addition, Netflix will have to tread lightly with the definition of password-sharing software to avoid mislabeling people as violators, such as family members who live away from home temporarily.

An unwillingness to take action against this group of users will likely save millions of people from Netflix’s crackdown – at least initially.

“They will start with serial abusers,” said Rich Greenfield, media analyst for LightShed Partners. “If you have 15 people using your account, that’s pretty easy.”

It’s also less likely that a company would want its employees to be mired in disputes over what qualifies as a home account and what qualifies as a sub-account. Challenge those definitions could be ugly for both employees and customers, who have so far seen Netflix as the best-in-class brand.

But “Netflix knows who you are,” Greenfield said, whether or not you use your own profile.

Five years ago, Netflix actually encouraged password sharing. The company’s philosophy at the time was that it simply wanted more eyeballs on its content, which in turn would create buzz and lead to actual subscriptions. This strategy appears to be paying off. Netflix subscriptions have grown every quarter for over 10 years – until the last quarter.

In 2017, the Netflix account tweeted, “Love shares a password.”

Now, the company will love it if you stop doing it.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

WATCH: Netflix to test password-sharing surcharges