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Why Netflix will no longer publicly report subscribers

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by Tim Mulligan

Netflix’s Q1 2024 numbers are impressive: revenues are up 15% Year on Year (YoY), operating income is up 54%, and operating margin increased by seven percentage points to 28%. The numbers were so impressive, in fact, that Netflix stated in its shareholder letter that it was now re-positioning itself to “better reflect our investment grade status.”

Netflix, effectively the world’s leading subscription video on demand (SVOD) service, is taking a leaf out of Meta’s financial playbook and remarketing itself to investors as a maturing and fiscally sound company.  A strong balance sheet (outstanding debt paid down and largely replaced with a revolving credit facility of $3 billion), investment in profitable growth, selective M&A activity, and a commitment to paying dividends. Crucial to the success of this financial rebranding will be presenting Netflix as a stable growing business, which is why the company has announced that it will cease reporting on subscriber numbers from Q1 2025.

We are in an era of retention where SVOD is particularly vulnerable

Netflix plans to be at 300 million global subscribers when it ceases publicly reporting on these numbers (up from 269.6 million in Q1 2024). Of the 16% YoY growth in subscriber numbers, 40% now come from the ad supported plan (in the markets where it is currently available). Further complicating the revenue growth outlook is the increasing divergence in membership plans (some emerging markets, such as India and Malaysia, now offer discounted monthly mobile only plans) and pricing. Taking the above into account, Netflix argued in its Q1 2024 shareholder letter that it no longer accurately reflects the increasingly diverse revenue mix of the business (meaning “we’re now an ad business as well”)  to investors. However, MIDiA forecasts that global SVOD advertising revenue will still account for less than 10% of total revenues in 2025. This means that Netflix will remain dependent upon subscription revenues going forward, even if they decide to introduce pay-per-view for their growing celebrity boxing and WWE sports coverage.

While subscription reporting is crucial to understand the underlying health of an SVOD business, it is also increasingly problematic as we go deeper into a retentionary consumer environment. Nearly one in ten video subscribers are now savvy switchers, meaning they strategically subscribe and unsubscribe to services based on content availability. While inflation has come down dramatically from its double-digit highs in 2022, it has elevated consumer costs and exacerbated the cost-of-living crisis, which is still being felt by consumers. With multiple alternatives now available, it does not take much for consumers to decide to churn out, – and  potentially never churn back in. When Netflix stopped commenting on churn the company stated it was doing so because its subscribers would always come back to the service, therefore negating the need to track the metric. This is an assumption that no-longer applies in the hyper competitive app-based video landscape of 2024. A churn rate that knocks 3 to 8 percent off subscriber growth every year becomes a significant optics problem for investors if those consumers do not return and new subscribers need to be acquired.

Retention also becomes a much bigger challenge as the wider streaming landscape matures. Here, innovation and originality in both design and user experience slows, and becomes increasingly homogenised. Netflix is no longer new or original, and the pivot to becoming an investor-grade business reflects this new reality.

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