Here's why Netflix' plan to block VPNs is a bad idea

Online movie streaming site Netflix has recently found itself between a rock and a hard place.

On the one hand it needs to continue growing its subscriber base to pay for the billions of dollars required to cover the cost of the content it provides.

On the other hand, it needs to appease intellectual property rights to holders who say they are losing out on licensing fees through unauthorised use of the service.

At first glance the solution looks simple: Netflix simply needs to block VPN users who watch the service in countries where it hasn’t officially launched. The problem, however, is that the streaming service simply has too many such users.

Recent research from GlobalWebIndex has cast some light on the scale of VPN use to watch Netflix, estimating that north of 30 million subscribers to the service are located in countries that do not officially have access. The majority of those users are thought to reside in China where as many as 20 million people are believed to be streaming their favourite films and tv shows with the aid of a VPN.

And in a survey of 200,000 recent viewers across 32 different countries, the market research firm discovered that a significant proportion of them had watched the service using a VPN. Interestingly, many of those were still not paying to use Netflix though – it appears that sharing streaming content is rife, either through group watching of movies or by the sharing of login details to the same account.

In China the problem is even more pronounced where, beyond simply sharing accounts, the practice of creating multiple email addresses to make use of sequential free trials of Netflix are commonplace.

Should Netflix block the use of VPNs with its service it would instantly curtail access from users outside of the countries it officially operates in, but that would include those who do actually pay a monthly subscription. Even if only a small percentage of ‘rogue’ subscribers were lost, revenue to Netflix could still run into the tens of millions of dollars each month.

Netflix cannot appear to be too welcoming of VPN subscribers to its service though. Many movies and tv shows are subject to international restrictions and their own peculiar licensing rules and studios are increasingly bothered about how, and where, their content is being consumed.

The recently well-publicised Sony Pictures hack culminated in the leaking of emails sent by executives, including one in which Australian and South African usage of the streaming service was decried: "Netflix do not closely monitor where some of their subscribers are registering from and don’t take steps to counter circumvention websites that allow people… to subscribe illegally."

At the recent Consumer Electronics Show (CES) in Las Vegas, Netflix product manager Neil Hunt suggested that media speculation of a change in stance toward VPNs was misguided though, saying: "The claims that we have changed our policy on VPN are false. People who are using a VPN to access our service from outside of the area will find that it still works exactly as it has always done."

In the US itself, a legitimate market for Netflix where it has around 37 million subscribers, fellow streaming site Hulu recently began blocking VPN users via a blanket ban on the known IP-ranges of all major VPN services.

Such a carte blanche approach also affects genuine US-based users who are now met with a message saying: "Based on your IP-address, we noticed that you are trying to access Hulu through an anonymous proxy tool. Hulu is not currently available outside the U.S. If you’re in the U.S. you’ll need to disable your anonymizer to access videos on Hulu."

As we’re sure you’ll agree, such an approach is, at the very least, an inconvenience for genuine users who employ the services of a VPN to maintain their privacy on an internet that increasingly desires to strip that basic right from them.

Whether such a move will ultimately hurt Hulu, or any other service that attempts to go down the same path, remains to be seen.

Kelly Lippert is a freelance journalist and security expert who helps assist Internet privacy for both individual consumers and companies.