Churn Rate? We Don't Care About That. - Netflix (NFLX)
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Netflix (Nasdaq: NFLX) is getting pummeled again today, as Business Insider brings light to an otherwise overlooked metric: subscriber churn.
Earlier in 2011, Netflix stated it would not be reporting items like acquisition costs and subscriber churn. On this announcement, the U.S. SEC sent a letter to Netflix last June, urging the media delivery company to reconsider.
In the letter, the SEC stated it believes "disclosure of rates of churn would be useful to investors since disclosure of the total number of subscribers who discontinued the service can high light important operating trends and therefore request reconsideration of discontinuing this metric. Please advise."
But Netflix disagrees, saying, for the most part, that churn doesn't really matter now that it's switching to more of a streaming business. Netflix based this theory, in a letter to the SEC, from the ease of cancellation and ability to rejoin for subscribers. Netflix continued that, "the churn metric is a less relevant and reliable measure of business performance, and does not accurately reflect consumer acceptance of our service."
Because Netflix doesn't require long-term commitments from subscribers, Netflix said, the "ability to freely cancel and rejoin may result in a higher level of churn than we would otherwise experience, and could be viewed as a negative business development." But, Netflix also said its beneficial in that it leads to lower cost of subscriber acquisition.
So, what does Netflix rely on? The filing states the net subscriber additions are a more important business metric. Well, investors are agreeing, as Netflix shares are now down over 36 percent since issuing reduced third quarter subs numbers last Thursday.
Tuesday, Netflix is trading 7.3 percent lower.
Earlier in 2011, Netflix stated it would not be reporting items like acquisition costs and subscriber churn. On this announcement, the U.S. SEC sent a letter to Netflix last June, urging the media delivery company to reconsider.
In the letter, the SEC stated it believes "disclosure of rates of churn would be useful to investors since disclosure of the total number of subscribers who discontinued the service can high light important operating trends and therefore request reconsideration of discontinuing this metric. Please advise."
But Netflix disagrees, saying, for the most part, that churn doesn't really matter now that it's switching to more of a streaming business. Netflix based this theory, in a letter to the SEC, from the ease of cancellation and ability to rejoin for subscribers. Netflix continued that, "the churn metric is a less relevant and reliable measure of business performance, and does not accurately reflect consumer acceptance of our service."
Because Netflix doesn't require long-term commitments from subscribers, Netflix said, the "ability to freely cancel and rejoin may result in a higher level of churn than we would otherwise experience, and could be viewed as a negative business development." But, Netflix also said its beneficial in that it leads to lower cost of subscriber acquisition.
So, what does Netflix rely on? The filing states the net subscriber additions are a more important business metric. Well, investors are agreeing, as Netflix shares are now down over 36 percent since issuing reduced third quarter subs numbers last Thursday.
Tuesday, Netflix is trading 7.3 percent lower.
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