Netflix raised its prices because you were sharing your password too much

Goldman Sachs thinks it knows why Netflix just raised the price on its most popular streaming plan by $1 per month.

It’s because you were sharing your password too much.

On Thursday, Netflix upped the rate of its “two-screen” plan from $8.99 to $9.99. This plan lets you watch two HD (or regular) streams simultaneously on different devices.

The rate hike affects the US, Canada, and parts of Latin America, and follows a similar increase in Europe in August.

Netflix’s “one-screen” and “four-screen” plans remained unaffected, and Goldman Sachs says there is a reason for that.

Casual sharing

In an analyst note this morning, Goldman said it believed Netflix's targeted price change was designed to “reduce excessive password sharing by incentivizing users to switch to the one-screen plan,” as well as “encouraging households with multiple users to upgrade to the four-screen plan.”

Basically, Goldman’s hypothesis is that Netflix saw too many people casually sharing passwords with friends while choosing the two-screen option by default. As long as there were never more than two people watching at once, this wouldn’t be an issue. And these moochers, the so-called friends, weren’t paying a dime for Netflix.

But if they had to pay, they probably would.

Here's the thinking:

If Netflix subscribers start dropping from the two-screen plans to one-screen plans, this will make them a lot less likely to share their password. No one wants a little offhand altruism to actually affect their viewing habits. That would be bad.

And if the resulting lack of password sharers pushes more people to subscribe, then its worth the dollar per subscriber Netflix loses when a user downgrades because of the price increase.

Netflix, for its part, has never seemed to think sharing passwords was that much of a problem.

Goldman also thinks Netflix wants to push families with a lot of users to upgrade to a four-screen plan, which is now relatively cheaper compared to the two-screen option. You can think of this as the “Why not?” effect.

Goldman maintained its “Buy” rating in the wake of the price increase, and also noted that existing customers will be grandfathered in at current prices until one year from now.