- New filings from Netflix show why the global streaming giant could soon face a difficult decision about whether to look for other revenue streams on top of selling subscriptions.
- Netflix generates the most revenue per average monthly paying subscriber — about $13 — in the US and Canada, where it is most established and growth is slowing.
- It makes significantly less per user in regions like Asia-Pacific, which is viewed as a major opportunity for future growth.
- Some Wall Street firms, including Needham, have said Netflix should introduce a cheaper tier in the US that’s supported by advertising to continue growing this lucrative subscriber base and offset the lower revenue per user in other regions.
- Needham downgraded Netflix last week because the company has repeatedly said it would not sell ads.
- Click here for more BI Prime stories.
Netflix may not want to sell advertising, but a new filing shows why the global streaming giant could soon face a difficult decision about whether to look for other revenue streams on top of selling subscriptions.
The company generates the most revenue per average paying subscriber in the US and Canada, where it is most established and growth is slowing, Netflix said in a filing on Monday. Its average monthly revenue per paying streaming membership is $13.08 in the region.
But Netflix grew the most this year in regions like Asia-Pacific and Europe, the Middle East, and Africa, where it makes $9.29 and $10.40 per average monthly paying subscriber, respectively:
- US and Canada: 67,114 paid subscribers as of September 30, up 7% from a year earlier
- Europe, the Middle East, and Africa: 47,355 paid subscribers, up 40%
- Latin America: 29,380 paid subscribers, up 22%
- Asia-Pacific: 14,485 paid subscribers, up 53%
In one region, Asia-Pacific, Netflix’s average monthly revenue per paying streaming membership was flat from last year. In 2019, the company introduced mobile-only plans in markets like India and Malaysia that cost less than its basic tier, which could be why its revenue per customer didn’t grow. It also experimented in India with three-, six-, and 12-month subscriptions that offer discounts, Reuters reported.
With most of Netflix’s future growth expected to come from outside the US and Canada, the company may need to figure out how to make more off the members in those regions — or offset the lower revenue those users bring in with more subscribers in the US and Canada — to keep spending $15 billion per year on content.
Netflix is facing more competition in the US from new platforms like Disney Plus and soon-to-launch services like HBO Max, which may make it harder to sign up subscribers in 2020 and beyond.
Some analysts have said advertising could be the answer. Needham analysts projected that Netflix would risk more churn, or cancellations, in the US in 2020 if it didn’t introduce an ad-supported tier that costs between $5 to $7 per month, in line with what competitors like Disney Plus and CBS All Access charge.
Needham downgraded Netflix last week because the company has consistently said it would not introduce advertising. The Wall Street firm’s view is that Netflix needs advertising to offset the cost of a cheaper plan, in part because it’s burning though cash and taking on debt to fund its original programming.
“Since NFLX’s balance sheet cannot withstand larger cash losses (our view), we think that a new $5 to $7/month pricing tier, subsidized with ads, is the best answer for Netflix,” Needham analysts wrote in a December 10 note.
The note said the lower price point could persuade users who are borrowing passwords to pay for Netflix directly, make the platform more affordable for lower-income customers, help convert people to Netflix’s standard $13 per month plan that allows users to stream from two devices at a time, and give Netflix the option to raise prices by increasing ad loads instead of raising subscription fees.
Analysts at Nomura’s Instinet also estimated that Netflix could bring in more than $1 billion in revenue from advertising in 2021 if it were to introduce an ad-supported tier akin to Spotify’s free offering by 2020.
There are other revenue streams Netflix could consider if it didn’t want to introduce overt advertising on its platform, which it said goes against its brand ethos of commercial-free viewing.
Netflix’s work with brands on product placement, integrations, consumer products, and other tie-ins to its flagship properties, like “Stranger Things,” could become new sources of revenue. The company said it was not trying to make money off of these deals, but some analysts think that could change over time.
“There’s a lot of money in that area that they could easily tap without going into straight, traditional types of advertising,” Jim Nail of Forrester previously told Business Insider. “With product placement, I’m expecting that to become a significant part of their business.”
SEE ALSO: 2020 will be the year that defines Netflix’s future. Analysts break down the 5 big challenges it faces.
DON’T MISS: Netflix doesn’t have ads, but it’s working with brands in many other ways. Here’s what we know about its marketing efforts and partners.
Join the conversation about this story »
NOW WATCH: Documentary filmmaker Ken Burns explains why country music is universal