Netflix Crossed a Line

The intangibles you didn’t even realize you had come to expect are disappearing.

What do you get when you buy something? The thing, of course—a Big Mac, airline transit to Miami, the right to stream Bridgerton. This is the hard product. But you receive secondary goods and services as well: the box in which you can transport your burger, complimentary Wi-Fi with your SkyMiles membership, the kinship of watching a show with your family. Call this the “soft product.” If you don’t get the hard product, you’ve been swindled. But that soft product has a value too: Without it, you’d feel shortchanged.

The distinction between hard and soft products helps explain the controversy about changes Netflix is making to its streaming service—along with many other changes in the internet-enabled service economy. In recent months, Netflix has started preventing subscribers from sharing an account across multiple physical locations without paying extra. Last year, the company tested the idea in Latin America, and this month it modified the policy and expanded it into Canada, New Zealand, Portugal, and Spain. U.S. subscribers aren’t yet affected by the change, but Netflix has implied that it’s coming everywhere, as the company looks for ways to boost revenue amid a downturn affecting the whole streaming sector. (A Netflix spokesperson didn’t respond to a request for more details.)

With this change, Netflix has also attempted a rebrand: People used to talk of “password sharing,” but last year the company started to refer to “paid sharing.” If you’ve felt confused or even angry about this change, it’s probably because a Netflix account had previously offered a soft product that the company is now retracting. Worse, the way Netflix is reframing “sharing” seems to imply that you might have been a cheat for ever getting that soft product in the first place; the new definition both highlights a feature you probably didn’t think about and scolds you for having taken advantage of it.

A password is meant to be secret. That makes sharing it intimate but also clandestine. For years, Netflix exploited that sense of intimacy as a marketing strategy, most famously in a tweet its official account posted: “Love is sharing a password.” This pitch came after the phrase Netflix and chill had solidified as a euphemism for casual sex, and Netflix capitalized on the idea that its service might, well, bring people together. Even though the terms of service have long said that an account is supposed to be for people who live in one household, Netflix never seemed to mean it.

Sharing an account became characteristic of the Netflix brand, and one with real value to the company. Beyond the marketing benefit, user profiles meant that Netflix could perform data segmentation on its viewership, which in turn allowed the company to target recommendations to help retain subscribers. This segmentation likely also helps sell ads for the cheaper tier of its service. When Netflix (and all the other streaming services) started encouraging users to set up separate profiles, they created a new kind of group affinity. You’d launch the software on your television or phone and see your crew—Mom and Dad and Caitlin and Buzz, maybe. These profiles could be customized with icons, allowing users the ability to signal something about their current sense of self—or to make jokes or statements about others by changing up their avatars.

In this context, sharing an account became a first-order social act, and one facilitated by Netflix’s soft product. When your kid moves out, they’re still there, in a way, on the Netflix page. Or maybe you set up profiles for Grandma and Grandpa, who can’t afford to subscribe or wouldn’t know how, when you go visit. Then they appear on your page and you on theirs every time one of you watches TV.

When Netflix decided that this practice amounted to freeloading, it should have known that its customers would object viscerally. Not just because they didn’t want to pay for multiple accounts—although that’s probably also true. Netflix had made sharing a part of its soft product: a tiny, subtle, intimate connection with the people you care about, all hate-watching Emily in Paris together. Before, sharing an account wasn’t just allowed; it was encouraged, both by the operation of the software and the company’s marketing of the service. To suddenly reframe that affordance as theft feels offensive because the company had previously positioned it as a kind of love.

The press played on that offense by presenting the situation as one in which the streaming service was cracking down on password sharing, making Netflix seem like a greedy scrooge accusing its customers of larceny. Netflix tried to take control of the narrative with a recent post by its director of product innovation titled “An Update on Sharing.” Of course, it had seen this backlash coming: In a statement to its investors last month, the company said it was anticipating “some cancel reaction” in response to the shift.

But even so, Netflix may have misconstrued just how central shared accounts, as a soft product, have become to the overall offering. People simply expect the ability to share accounts after 15 years of Netflix streaming. Other platforms that followed Netflix’s lead allow it, after all. The idea of “paid sharing” feels a bit like charging extra for the hamburger box. It is akin to going back to metered text messaging or charging a long-distance toll for video calls.

Companies have a hard time acknowledging how the service economy works, even as they take direct advantage of it. A service is intangible, and that can make its offerings feel secondary or even valueless. Soft products tend to feel especially intangible. Today, with big-tech stock values falling and user growth stalling, companies such as Netflix have undertaken desperate measures to increase revenue. That makes the soft product feel suddenly concrete the moment before it is taken away.

Back when digitization first took hold, nobody was sure whether the consumer public would tolerate paying cash money for so many intangibles. But in a way, everything became a soft product. The feeling of delight (or hatred!) you find on Facebook or YouTube is why you use social media, not the information the platforms deliver. The convenience of reliable, fast delivery is why you pay for Amazon Prime, not to access the products in the boxes. The sense of community and affinity you get from “sharing” a Netflix account is a big part of why people use it instead of (or in addition to) Prime Video or HBO Max. Being able to share an entertainment experience—especially an exclusive, platform-locked one—whether from the same couch or across the country, was and remains a fundamental part of Netflix’s offering. You pay the monthly subscription fee not just to stare at a screen, but to be able to watch and then talk about Stranger Things or Glass Onion with your friends.

And yet, companies regularly erode their soft product anyway. If you’ve ever struggled with glitchy Wi-Fi on a flight, you know that airlines consider carriage—transport from one place to another—to be all that they’ve sold you. Amazon Prime subscribers thought they were buying reliable, two-day access to almost any consumer good, but nowadays “Prime shipping” might mean anything—ships in two days, or four, or a week, or who knows when. It’s “Prime” because Amazon is shipping it. An Uber is no longer necessarily easy to find, quick to arrive, or cheap to ride, but merely available, if even that.

As more of the intangible service economy becomes pressurized by economic forces such as consolidation and plateaued growth, expect more of these soft products to vanish. The hardest part of that loss of soft goods is that you probably didn’t even realize you were relying on them in the first place. That leaves behind an emotional hurt (a sense of betrayal) rather than a rational one (a loss of value). It’s a feeling you’d better get used to.