Industry insights: Netflix subscriber numbers continue to rise, the secrets of customer retention, and the importance of QoE and connected ecosystems to Connected TV consumers.
Netflix adds another 5.1 million subs
[Netflix]
Netflix has had another good quarter, with its Q3 2024 results beating Wall Street expectations and sending its share price soaring in the aftermath. Its stock has now risen 90% over the course of the last year, from $400 to $764 a share, and it now has 282.72 million subscribers. This number is up substantially too from 247.15 million in Q3 2023.
Subscriber numbers, revenue of $9.83 billion, and earnings per share of $5.40 were all marginally ahead of predictions. These are exactly the sort of things that make stock markets happy and there is no doubt it was a strong set of results. It will be interesting to see if other streamers can match them as their own earnings figures are reported over the next few week.
There are a few things worth talking about regarding the Netflix numbers though before those other results come.
Subscriber growth is slowing. The 5.1 million added in the quarter is the lowest subscriber growth for over a year, but is still impressive given the circumstances. The third quarter is normally a difficult one for the industry in general as Northern hemisphere customers spend less time with their TVs in the summer months. This year there was also a big sporting distraction in the shape of the hugely successful Paris 2024 Olympics. Plus, it seems that the ‘easy wins’ that were the result of the company’s password sharing crackdown are now coming to a halt. Most of the people that can be converted to the company’s paid sharing model have now been reached.
Still early days for ads. Netflix says that 50% of new customers are signing up to its ad tiers. However, its letter to shareholders admitted that it is still early days for its advertising initiative. “We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” it wrote. It is overhauling its ad tech stack and has a new in-house first party ad tech platform rolling out in Canada next month. This should be extended to its other ads countries next year. While Netflix is expanding its targeted advertising capabilities too, it still says, that advertising will not be its main source of revenue growth in 2025.
Price rises are coming. This is where the company’s revenue growth will have to come from, at least in the medium-term. Netflix has raised prices in some EMEA countries and Japan this month, and has phased out its Basic tier plan in the US and France over the past quarter. It now plans to do the same in Brazil later in Q4. Few people doubt that such moves will accelerate next year as it looks to transition people to higher priced tiers. Customers are likely either going to have to get used to yearly incremental price rises, or vote with their feet and go elsewhere. The problem is that now Netflix regularly raises its prices, everyone else has followed suit, and there are fewer lower cost options left.
All that said, Netflix still offers a lot for the money (see below) and is promising a strong line up of programmes to come as it finally shakes off the lingering effects of last year’s Hollywood strikes. Squid Game Season 2 debuts at the end of the year, and new series of Wednesday and Stranger Things will both arrive in 2025.
It is worth remembering though that following the next set of results for Q4 2024, Netflix says it will no longer routinely report subscriber numbers. It will still report on milestones, such as (hopefully) breaking the 300 million barrier, but the regular updates on how many customers it has worldwide will disappear. As this has been such an easy metric for people to grasp how well the business has been doing, it will be interesting to see how the markets react. It will also be fascinating to see if Netflix’s rival companies carry on reporting their own numbers or follow its lead and start to keep all that information to themselves too.
User retention: why Netflix leads over Apple TV+ and Paramount+
A related story highlights how good the company is at keeping its subscribers once they sign up. An analysis of the retention cycle shows that most Apple TV+ and Paramount+ users cancel their subscriptions within six months. In contrast, Netflix subscribers—except in APAC—remain subscribed for over two years.
As per Broadband TV News, there are several reasons for this:
- Early Market Entry. Netflix's 2007 US launch and 2016 global expansion gave it an edge over later entrants such as Apple TV+ (2019) and Paramount+ (2021-2022). Netflix’s comparatively last entry into APAC as part of the 2016 global expansion is cited as one of the contributing reasons for its weaker performance there.
- Large Content Library. Netflix has a vast catalog, 302% larger than Paramount+ and a massive 8,087% larger than Apple TV+, with significantly more original titles.
- Genre Preferences. While Netflix's genre alignment varies by region, its extensive library ensures diverse content appealing to global audiences, unlike competitors with more limited offerings.
- Competitive pricing. Netflix is not always the cheapest service in every territory, but in many it offers an ad-supported plan that undercuts the other two services. For example, in EMEA, Netflix’s ad-supported plan is $3 cheaper than the standard options from Apple TV+ and Paramount+.
The following graphic illustrates the situation in UCAN (the USA and Canada).
The majority of Connected TV owners recognize ecosystem benefits
According to data from Parks Associates, 53% of US households that own or are planning to purchase a Connected TV (CTV) device recognize the benefits of staying within an overall product ecosystem. The reason is that it is easier to manage apps and preferences when using devices within the same ecosystem, typically from the same manufacturer.
That translates as a lot of people. There are roughly 131 million households in the USA and a third of them are planning to buy a smart TV at some point in the next six months, meaning that around 23 million of them will look to stay in the same ecosystem
“Customers are looking for an interface that is fast and easy to navigate but can also provide an expansive experience compatible across multiple devices and apps, especially AVOD services,” said Mindi Sue Sternblitz-Rubenstein, VP, Marketing, Parks Associates. “Our data shows Roku has been particularly effective in leveraging its CTV platforms to bring in AVOD users. Roku device owners/users have high usage rates for The Roku Channel.”
The full list of features affecting purchase decisions is below. They illustrate that while offers can be important sweetness for a deal, getting the technical fundamentals right in the first place and offering a high QoE remains critical for success.
