Here is a rudimentary definition of share of wallet:
Money spent on a product divided by a total amount spent in that product category
Let's say that a person consumes media with the following channels:
- AM/FM Radio (free)
- Satellite radio $16.99/mo - $21.99/mo via SiriusXM
- Podcast subscriptions ($4-5.49/podcast/month)
- Audio books subscription $7.95-$14.95/mo via Audible
- Television (basic broadcast channels are mostly free with ads)
- Satellite TV - DIRECTV ($64.99–$154.99/mo), DISH ($79.99–$109.99/mo)
- Amazon Prime Video (14.99/mo or $139/yr)
- Print newspaper, $520/yr NY Times (full experience, daily print Mo-Su); sad, LA Times does not have this service for my zip code; local newspaper daily digital + print Sunday ($25/mo); the other local newspaper $21-26/mo daily digital + print Sunday
- Print magazine, avg $20/magazine/year (excluding luxury magazines)
The affluent consumer likely subscribes to more than one content service and probably spends more than $500/year on the media-as-entertainment category. Amazon Prime Video's wallet share of the above scenario is 27.8%. It's really hard for other streaming services to compete with Amazon's business model, since Prime Video is a feature of Amazon's Prime service not its core reason for existing. Everyone else is just a one-trick pony.
Consumers are subscribed to multiple services. The average US consumer subscribes to 12 paid subscriptions spread across videos, music, gaming, news, food delivery, and other entertainment. Netflix raising its prices shouldn't be that big of an issue. Is it?
For comparison simplicity, let's just look at ad-free viewing. Just about every streaming service that has run into difficulty shouldering the burden producing of bingeable shows while keeping a portfolio of other media assets, has also offered a monthly tier with advertising. Frankly, this is no different than cable TV service and once a streaming service starts showing ads, why don't more people just switch back to cable TV? In 2017, a GeekWire article suggested that children in Netflix-only homes saved 230 hours by using the ad-free service when compared to regular cable or broadcast TV.
But, I digress. This post is about Netflix.
Every so often, Netflix is in the news and not for the licensed content that they have available for bingeable viewing:
- 2011, DVDs by mail get spun out into its own service as Qwikster and on-demand streaming service retains the Netflix brand with different cost structures
- Qwikster DVD rental plan ditched (Netflix raised prices by nearly 60% ($10/mailed DVD to $16/DVD, and yes, customers were unhappy)
- Mid-September 2021, 1 million subscribers quit the DVD-rental service; in other words, Netflix lost annual recurring revenue of $120 million just from raising its prices
- Also, the Quikster DVD service was cancelled so that Netflix could focus on online streaming services
- 2012, Netflix stops relying (as much) on other studio content and launches Netflix Originals
- 2018, Disney, in preparation for its own Disney+ streaming service, removes all Disney and Pixar content from Netflix
- 2019, Netflix announced a crackdown on shared passwords
- 2022 (Q2), Netflix loses 970,000 subscribers; also suspends service to Russia (1 million subscribers) because of a regional law that would require Netflix to show state-owned media channels and Russia's invasion of Ukraine
- 2023, Netflix rolls out new subscription pricing for shared accounts where household members are not consuming content from the same household IP address (30 million password shareres in the US and Canada represents $721 million in additional revenue); Reed Hastings resigns
And then the monthly prices increases:
- 2013, $11.99 (premium, 4K, and up to 4 screens), $7.99 (standard, HD, 2 screens)
- 2022, $19.99 (premium), $15.49/standard (HD, 2 screens), $9.99/ basic (no HD, 1 screen)
- 2023, an extra $7.99/person outside a household internet (the limit is on TV use and not mobile devices, yet)
Today's pricing scheme (source: Netflix website):
- Standard with ads: $6.99 / month
- Basic: $9.99 / month
- Standard: $15.49 / month (extra member slots can be added for $7.99 each / month)
- Premium: $19.99 / month (extra member slots can be added for $7.99 each / month)
Contrast this to Amazon Prime membership (source: Amazon website)
- $14.99 per month
- $139 per year (compare to Netflix premium membership at $240/year)
- Prime Video membership is $8.99 per month
All this boils down to $31.6 B global revenes for Netflix, with the majority going to streaming and less than half a percent going to DVD rentals. $14 B is from the US and Canada. Global net income is $4.49 B. (source: Netflix 2022 annual report)
In the grand scheme of how money works in the US, Netflix raising its prices or pivoting its streaming-as-a-service business model, does not matter.
Also, Netflix's effective income tax rate is 15%.
