On the contrary, it’s actually more expensive to maintain subscribers than to acquire.
For example, you described Netflix as filler. Due to the number of streaming services and no need for commitment, it’s easy to hop around services. These services are constantly looking for the next "big" thing to draw people in. For example, let's say someone loves The Witcher and only cares about HBO's Westworld. It's common for households to binge Witcher, then cancel Netflix and resub to HBO for Westworld, followed by canceling that and just waiting. People have done this already for Mandalorian on Disney Plus even though it was a measly $7. The streaming companies already know this is a common habit. The only way to keep this from happening is to just throw as many content on the board as you can and hoping they all stick.
In the industry, retention is a frequently discussed topic, and it's something that streaming services spend a lot of time to plan for. New user acquisition is much simpler because the free trial flow is designed to be low friction to get the user in. Raising prices of course is rarely a good thing for consumers, but maybe like Apple, Hastings is not afraid to test consumer patience as evident of this past year.
It might, but like you said, it's nothing but speculation. Maybe by losing those people, the company's operating costs decrease, and they can allocate the same borrowed money to other expansion strategies.
The simple answer is I get more value out of Netflix than if I were to subscribe to cable.
No. It’s never more expensive to maintain a new subscriber than acquire. What’s the cost to maintain? None.
Furthermore, you’re discounting the importance of retention. Yes, there are periodic subscribers who will come and go. Netflix is addressing this by moving away from full-season drops to the episode per week model iirc.
But similar to satellite TV, fixed costs are very large (due to original content production mostly, not so much because of infrastructure as is the case with satellite) while the marginal cost to carry a subscriber is extremely low. Losing a subscriber is a 90+% net profit hit of that subscriber’s revenue, right to the bottom line. (And Netflix has no retention incentives afaik, which is something they should probably be exploring.)
New-customer acquisition costs are not to be disregarded; it is much better not to lose a customer than to have to replace them. If you have to acquire a customer merely to replace one that cancelled, you’re only offseting the loss and you’re net zero. Much better to acquire that same new customer without having lost one, and add a +1 to the subscriber count. It’s almost 100% profit after covering the customer acquisition cost.
Re: weathering a price increase, you say “The simple answer is I get more value out of Netflix than if I were to subscribe to cable.” But that’s exactly the logic error I called out Hastings for.
The substitute for a $20 Netflix isn’t cable. It’s a $20 package of other streaming services:
- $6 ad-based Hulu + $7 Disney Plus + $5 AppleTV Plus
- $12 ad-free Hulu + $7 Disney
- $15 HBO Max + Apple (or Disney)
- $10 Peacock + ad-based Hulu + Apple (or Disney)
- etc.
Very few will return to cable after cancelling Netflix. Rather, they’ll pick up other streaming options (temporarily or permanently) or re-subscribe to Netflix for two-three months over a year’s time and be happy to spend the $150 they’ve saved on something else. Just my 2¢, but it’s one of the reasons why I don’t own Netflix.
Apple’s strategy is interesting to me in that they’ve kept the price low enough to be under the pain threshold. Along with constantly introducing new, high-quality content and episodic release schedules vs. full-season drops, they’ll likely keep most from intermittent subscribing. Discounts for the annual subscription help with that as well, and Netflix should consider doing the same imo.
PS Apple creating more expensive products by adding new, high-end features for which customers are willing to pay a premium is far different from Netflix raising prices 15% for all customers for the same—or even less attractive—product.
Apple’s strategy was designed to overcome customers’ reluctance to upgrade because the products they currently owned were already so damn good. Netflix was forced to increase prices indiscriminately across the board to cover their ever-higher costs of content production and debt service on the billions they’re borrowing.
I don’t think Hastings even believes what he’s saying when he tells investors there’s “a lot of room” to raise prices. That’s what I call an investor con job, and if Netflix stock collapses, the plausibility and viability of those types of statements will be the basis for shareholder lawsuits. He’s walking a thin line.