Amid choppy seas for markets, investors were looking to Netflix’s earnings last week for good news. The company has reported a string of stellar results in the past year as it has continued to cement its dominance in the streaming arena.
This was the first quarter where the company stopped reporting on subscriber numbers as it seeks to shift market focus towards financial metrics, and the results highlighted improving financial metrics that largely exceeded analyst expectations. Markets reacted positively with the company’s share price up following the announcement and several analysts raising their price targets.
In particular, Netflix highlighted a 13% revenue growth year over year in the first quarter attributing it to both membership growth as well as price increases in key markets like the U.S., the UK, and Argentina. Price hikes in key markets have not significantly increased churn and Parrot Analytics Streaming Metrics shows the streamer already has a market-leading low-churn rate across regions. An analysis of demand for major streaming platform catalogs and their subscription costs helps explain why Netflix is in a good position to raise prices without risking a subscriber exodus.
Compared to other major standalone platforms in the U.S., Netflix has a higher demand for its total catalog. In particular, compared to Hulu, Netflix has a higher catalog demand at a lower price point ($17.99/mo. vs. $18.99) making it look like a particularly attractive value for consumers. It’s worth noting that the combined Disney+/Hulu bundle continues to provide the most demand per subscription dollar although at a higher price point.
Even though Netflix’s $2.50/month price increase in January got a lot of attention, the platform had room to make the move. Consider that if it was still at the $15.49 price point today, it would be cheaper than Disney+ despite having around twice as much demand for its catalog of shows and movies. Having this competitive cushion is important context for why our model suggests that Netflix’s recent price hikes in the United States and Canada have only impacted the U.S. by a ~10bps increase in churn.
A strong content offering is key to a platform’s ability to justify price increases for consumers and Netflix highlighted its strength here over the past quarter as well the year ahead with a strong pipeline of upcoming content. “Adolescence” was the first show the company chose to call out, as its third most popular English language series ever. Our demand data shows how this British series eventually reached the highest levels of demand in the US among new releases on Netflix last quarter, although it took longer to peak than some other domestic shows like “American Primeval” and “Zero Day.”
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