Netflix Inc (NASDAQ: NFLX) added more than 200 million subscribers last year, partly due to the COVID-19 pandemic which forced people to stay at home, but the streamer and its rivals face a customer churn, according to a report by Deloitte.
What Happened: The 15th edition of the “Digital Media Trends Survey” encompasses data from an online survey of 2,009 U.S. consumers and was conducted in February.
The report tracks five generations ranging From Gen Z to Matures, aged between 14 to over 75 years.
Among the respondents, 46% said low enough price was the most important factor in deciding to subscribe to a new paid streaming video service. This number overshadows the 35% who said content was their main consideration.
The cost sensitivity is supporting a surge in ad-supported video services. Fifty-five percent of respondents said they now carry such a service.
Subscription video-on-demand providers such as Netflix and Walt Disney Co (NYSE: DIS) are staring at a churn cycle.
The report noted that 66% of consumers were frustrated when the content they wanted to watch was removed from a service and 53% were exasperated at having to subscribe to multiple services.
These factors are leading to a steady rate of churn. “From October 2020 to February 2021, the churn rate for streaming video services held at around 37%,” as per Deloitte.
“People are finding it increasingly difficult to manage subscriptions, find the entertainment they’re looking for, and balance costs against their tolerance for advertising.”
Why It Matters: Netflix said in its guidance that it expects to add 6 million subscribers in the first quarter of 2021. In the same period last year, the company added 15.8 million subscribers.
Deloitte noted that given the spending on marketing, advertising, discounts and free trials along with new content to acquire subscribers may make sense “for providers to retain subscribers at a lower price than lose them, at least right now.”
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“Churn will erode ROI [Return on Investment] and customer value, making retention essential,” as per the multinational auditing firm.
Netflix is expected to announce its first-quarter earnings after the bell on Tuesday, while Disney is expected to do so next month.
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Analysts are mixed on whether Netflix would be able to keep up the momentum in subscriber numbers.
Morgan Stanley’s Benjamin Swinburne conceded that while membership growth could be volatile this year another run could take place in the second half of 2021.
Needham’s Laura Martin thinks millions of consumers are eager to spend time and money in the physical world after being cooped up in their homes for more than a year.
“Since hours per day are fixed, this must come at the expense of digital hours.”
Netflix is in a pitched battle for eyeballs with the likes of Amazon.com, Inc (NASDAQ: AMZN), Disney, Apple Inc (NASDAQ: AAPL), and AT&T Inc’s HBO.
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