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Could Netflix's decision to stop reporting subscriber numbers hurt advertisers?

Could Netflix's decision to stop reporting subscriber numbers hurt advertisers?

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Streaming giant Netflix said it will stop reporting quarterly membership numbers and average revenue per membership (ARM) in 2025.

According to the company in its letter to shareholders, subscriber numbers are no longer a strong indicator of its future potential as its "generating very substantial profit and free cash flow (FCF)". 

Instead, Netflix wants its investors to judge the company by metrics such as revenue, operating margin, free cash flow and the amount of time spent on the platform. 

Don't miss: X, Apple, Google, Meta and more fall short at ad transparency, says report

"We’re focused on revenue and operating margin as our primary financial metrics, and engagement (i.e. time spent) as our best proxy for customer satisfaction. We are also developing new revenue streams such as advertising and our extra member feature, so memberships are just one component of our growth," said Netflix. 

"In addition, as we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact." 

In its first quarter, Netflix's revenue grew 15% year over year. This growth was driven primarily by membership growth as well as pricing.

The streaming giant also added that its ads membership grew by 65% quarter on quarter. This is in lieu of the streaming giant's global password-sharing crackdown and the introduction of a less expensive advertising tier. 

In APAC, the company's year over year growth fell by 8% in the first quarter of 2024. 

Separately, it's ARM, which Netflix defines as “streaming revenue divided by the average number of streaming paid memberships divided by the number of months in the period", rose 1% in the quarter. 

For advertisers, Netflix will continue to focus on measurement solutions, including new partnerships with Kantar and Lucid for brand awareness and recall. 

Looking forward, Netflix forecasts that subscriber growth in the second quarter will be lower than in the first quarter due to "seasonality". It also forecasts a growth of 13% to 15% for the full year of 2024. 

"Our goal is to increase our operating margin each year, though the rate of expansion may vary year to year," said Netflix in its letter. 

What are industry experts saying? 

This move by Netflix can be seen as the streaming giant pulling back on its transparency with investors. However, Don Anderson, CEO of Kaddadle, believes otherwise, noting that Netflix's move to not report subscribers may reflect industry alignment. This is especially since competitors Amazon and Apple do not report on their subscribers too, said Anderson. 

"I don’t believe they are seeking to 'hide' subscription figures, from a corporate finance strategy and investor relations perspective, I would interpret the move as a needed shift to include a broader set of metrics beyond subscribers which Netflix, Disney and others had initially held up as the key to success to build the new media or broadcast model," said Anderson. 

In addition, platforms such as Netflix have to embrace more traditional revenue models such as advertising supported content distribution, added Anderson.

Regardless of Netflix deciding not to report subscribers, they are and will likely remain in a position of dominance in the streaming space.

In fact, this reflects increased downward pressure on Netflix's own industry economics - that is, since the COVID-19 pandemic, the industry has seen the subscription video on demand (SVOD) model plateauing, and with growth beginning to taper particularly in core Western markets, said Anderson.

"Content acquisition and development costs have accelerated, and subscriber attrition is a continued threat to sustainability. Therefore, these platforms have to present a more rounded, and positive story, to the investment community," said Anderson.

Mike Proulx, vice president, research director at Forrester, agreed with Anderson by saying that by all accounts, Netflix remains in the lead of the streaming marathon, quarter by quarter.

"The company made material increases in its overall user base, its ad-tier, and, most notably, its profit margin — something none of the other streaming services can currently boast about," said Proulx.

"Advertisers care about scale and reach, and Netflix is demonstrating continued and steady growth to its ad-tier — now with four in ten new users choosing to see ads, up from 30% last quarter," he added. 

Outside of the streaming wars, tech giants Apple, Google, Meta and X are also failing to provide critical ad transparency tools to its users, leaving them more susceptible to disinformation. 

This is according to a report by Mozilla and CheckFirst, a Finland-based research and software solutions company who conducted an evaluation of ad transparency tools between December 2023 and January 2024.

The study ultimately found that approaches to ad transparency vary widely among the platforms studied. However, its main takeaway is that even the best approaches "don’t meet our baseline".

The study also pointed out that while some platforms such as Google and LinkedIn show strong reliability, ensuring consistent and up-to-date ad information, others, such as X in particular, were not always consistent, reducing their usefulness "dramatically". It added, "None of these ad repositories are fully fit for the purpose of researchers, in our view."

Join us this coming 24 - 25 April for #Content360, a two-day extravaganza centered around four core thematic pillars: Explore with AI; Insight-powered strategies; Content as an experience; and embrace the future. Immerse yourself in learning to curate content with creativity, critical thinking, and confidence with us at Content360!

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