Netflix: Behold, here’s cost and here’s taaffeite
Is Netflixing your way of surviving this quarantine acedia too? Well, you aren’t alone, there are 182 million others like you. And…
Is Netflixing your way of surviving this quarantine acedia too? Well, you aren’t alone, there are 182 million others like you. And obviously, how can we forget how Netflix party brings everyone under one roof :P
But in case you haven’t watched any series in the previous one year, then you need to hurry and check out the mail or in-app notification regarding canceling your subscription, otherwise, you may end up losing your quarantine partner. And watch the recent series ‘Never have I Ever’ to get a drive through college madness. Oops, I sound like a promoter.
Anyways, coming to the point, why does Netflix want to get away with inactive subscribers when they still bring in revenue for them? There’s a lot to cover before jumping to it.
Subscribers come at a cost
Netflix has always said ‘NO’ to advertisement based revenues and is till date sticking to subscriptions for revenue generation. It seems counter intuitive in the era where data is synonymous to money. And high costs attributed to streaming rights and original content creation led Netflix towards negative cash flows.
Netflix had $3.3 billion in negative free cash flow in 2019 following on the $3.0 billion burned in 2018. It had 167 million subscribers at the end of 2019 versus 110.6 million at the end of 2017. But those 57 million subscribers came at the expense of $6.3 billion in cash burn
Then Magic happened..
COVID-19 left the world home trapped and Netflix with its $12.99 per month(standard plan) was the way to keep body and soul together among rising uncertainties and unemployment rates.
Netflix saw an addition of around 16 million subscribers in the first quarter which contributed to 7.6% year-over-year revenue growth. Even the session time has increased by 73%. Also, COVID-19 forced the company to halt production in most of the world. With the company spending less to create content, Netflix investors are seeing something they rarely see: positive free cash flow of $162 million.
The Road Not Taken
Why would Netflix want to get rid of dormant accounts when they could just mean some free lunch?
Eddy Wu from Product Innovation at Netflix, in its press release, highlighted that inactive accounts represent only a few hundred thousand users, who make up for less than half of 1% of Netflix’s overall member base.
This figure is insignificant when compared to the increased traffic. So it is more of a marketing campaign aimed at earning the trust of the public.
But wait, did Netflix clearly mention that all the inactive accounts haven’t opted for canceling their subscriptions?
No they haven’t which brings us to analyze the scenario more deeply.
Inactive subscribers may belong to wealthy families not bothered by the amount being deducted from their accounts. But the proportion of people belonging to this class isn’t high.
On the other hand, if the person was inactive due to some highly personal reason and after the mail reminder wishes to renew the activity, it would mean having data of loyal customers and their watching habits. After all, it will keep all the data related to user activity intact until 10 months.
Still I wonder if it would hit the revenue or not.
Until then, binge watch!
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