The communications sector has been one of the best-performing sectors of the year, benefiting from both the tech boost and in certain areas, from consumer spending on services versus goods. One of the highest growth industries within communications has been the media and streaming industry, which continues to see interest as consumers turn to instant, on-demand entertainment. Netflix (NFLX), the leader in the video streaming industry, reports its earnings on Wednesday, October 18, and there will be several key items to watch out for. These are a few things we can learn from its earnings that apply to the broader streaming industry.
Revenue Growth Isn’t Infinite
Revenue growth isn’t infinite, especially for companies that are already the market leader. In Netflix’s case, revenue is the number of subscribers multiplied by the membership price. At this point, penetration in developed countries — particularly America and Canada — is already deep. From here, member retention is important. But that also means revenue can’t grow without raising prices. The company raised its prices in January 2022 and plans to increase its fees again in a few months. Several other streaming subscribers have also recently increased their fees.
But fees can’t be increased infinitely without losing some members, so companies must look for other forms of revenue. Some of these forms have died out (DVD rental) or have been lackluster (video games). More successful ways have included membership tiers to attract those who want to pay for lower-priced plans Another way has been a password-sharing crackdown, which has stopped members from sharing accounts. Netflix also plans to open some brick-and-mortar locations in 2025, which could be an interesting revenue diversifier.
These revenue issues are most applicable to Netflix since it has the greatest market share. Yet these issues also apply to the broader streaming industry. This is because other companies try to maintain and grow their subscriber base while keeping prices profitable.