New Netflix Data: Implications For Subscriber and Ad-Free TV Consumption Trends
As a former cable and satellite services analyst who subsequently went on to focus on advertising, I’m almost as keen to understand subscription dynamics of video services businesses as I am to pick up on nuanced trends related to advertising. Yesterday (May 17, 2023) I received some of both when Netflix held its first Upfront presentation for US advertisers, and concurrently released new data that provides useful fodder for further analysis.
The two key data points were that the company now has “nearly five million global monthly active users” and that “more than a quarter of our signups now choose the ads plan in countries where it's available.” I was curious to know what the new data implied for Netflix’ churn, among other things, and so ran some numbers.
If a) the countries where the Ads Plan is available covers ~70% of the company’s subscriber base by my estimates, b) we assume 2 monthly active users per subscription (at the low end of the typical number of residents per household in each of the Ads Plan countries), and as “signups” means gross additions, we could estimate that Netflix has 2.5 million global subscriptions on the Ads Plan with 10 million gross subscriber additions in the relevant markets. I compared this number to actual sub additions during the calendar first quarter along with consensus estimates for the second quarter, which amount to 3.5 million, and then assumed around 2.5 million net additions in the relevant territories. With these assumptions we could calculate churn of 0.8%. On the other hand, if the MAUs who signed up for the Ads Plan typically only have one MAU per subscription, we could calculate churn of 1.8% across the subscriber base over the past six months.
Source: Madison and Wall
This latter figure is much closer to what I would expect to see. In the United States, which probably represents around 40% of the subscriber base with access to the Ads Plan, research firm Antenna estimates that Netflix experienced 1.7% churn during the November-April period. To the extent that actual churn is closer to Antenna’s figure rather than something much lower, it implies that nearly all of the Ads Plan subscribers are single-person households. Of course, there’s nothing wrong with that, but it does suggest that the primary adopters of ad-supported plans may have less consumption relative to households with more people, at least initially. From the vantage point of a marketer it may be fine – in many categories all households might be equally valuable regardless of size – but one of the metrics I’m trying to anticipate is what percentage of TV viewing is consumed ad-free or ad-supported, and what the reach potential of television advertising will be for marketers in the months and years ahead.
Coincidentally, in support of this effort, the latest data from Nielsen’s “The Gauge” came out for the month of April 2023 this week as well. While most users of this data focus on the share of viewing that goes to streaming services, I try to weight that viewing by the percentage who are ad-free vs. ad-supported. Putting aside that ad loads are almost always lighter in streaming vs. traditional TV environments, I estimate that excluding YouTube (as most large advertisers would, rightly or wrongly), viewing of ad-free TV accounts for around 22% of all viewing vs. around 20% during the year-ago period and probably around 17% during the same period of 2021. These figures would, of course, be significantly higher for younger-skewing audiences.
Interestingly, Antenna’s US-based panel data shows a slightly lower percentage of subscribers choosing Netflix’ ads plan relative to the global data Netflix provided, at 16% of gross adds over the November-April period, with 17% choosing this plan during April. Antenna’s data is an estimation and won’t include bundled sales, among other limitations, but it is by far the best third-party source of relevant data. To the extent that on an ongoing basis a significant share of Netflix subscribers choose the Ads Plan – whether 16% or 25% or somewhere in-between – I don’t doubt that Netflix can build a meaningful revenue stream that’s incremental to their existing one. The more they can attract subscribers who aren’t otherwise reachable through linear TV or other ad-supported services, the better for advertisers, too.
But when I look at the overall industry, the ongoing shift to streaming will continue to severely limit the potential for advertisers to satisfy their reach objectives, at least so long as they primarily define reach against professionally produced content delivered on a conventional TV screen. In the US, the new Nielsen data shows Netflix grew its share year over year during April from 6.6% to 6.9% of total TV viewing. However, with adjustments to exclude YouTube and “other” viewing (which includes unmeasured sources such as VOD, gaming, DVD playback and other viewing which will be almost entirely ad-free) I calculate that Netflix represented grew its share of viewing from 8.1% to 8.8%. If the Ads Plan subs accounted for 1.5% of total Netflix subscribers and an equivalent share of Netflix viewing in the quarter, ad-free Netflix viewing still rose from 8.1% of viewing to 8.7% instead. The underlying trends I’ve been pointing to at an industry level don’t appear to show any meaningful signs of change for now.