OT - Dow plunges 1,175 - worst point decline in history

[MattTuck]

Originally Posted by tuscanyswe

hmm but that doesent take into account that those new customers will likely still pay the annual fee for quite a few years on average with no additional marketing cost to keep them doing so, no?

Interesting that you bring that up. Yes, this was a simplistic example to show that even some back of the envelope math can show causes for concern. First off, netflix doesn't provide information on churn. So we don't know how many actual "new" customers they got, just how many customers they added on a net basis. They could have lost 3M, and gained 10M to arrive at that 7M net subscriber add. So, without that information, it is hard to know how long those customers will stay.

However, it is safe to say that their expenses can be view broadly under two categories. Customer acquisition and customer retention. I'd say that once they acquire a customer, they still need to keep that customer happy (above some threshold level) or else they will cancel their subscription.

Let's say that 80% of their content spend in the quarter is for customer retention, and 20% for customer acquisition. So that is 1.4B spent (in addition to the marketing) to acquire customers, and those customers will take more than 1 year to pay off the marketing costs mentioned above, plus another year to pay off the customer acquisition piece of the content costs. So, it will take 2 years to pay off that piece of the costs that have been front loaded. And possibly more, because there are other costs (like technology) that they still create on top of the customer acquisition.

So, to answer your question, yes, of course the hope is that new customers eventually become recurring customers. But there is also a requirement, in the case of recurring customers, that the firm must spend to create new content and new technology and some continued marketing to keep them engaged.

Otherwise, existing subscribers would be stuck watching house of cards and old seasons of orange is the new black.