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Netflix, NFLX, jumps 9% as ad-supported tier gains 5 million customers

So, when do all the other streaming services follow suit and copy the idea?

Update : 19 May 2023, 12:32 PM

Netflix (NASDAQ: NFLX) stock was up 9% yesterday on the news that the new ad-supported level of service has gained 5 million customers. This is not bad from a standing start only 6 months ago but there are a couple of things to think about. The first is this absolutely vital - and as yet unknown - issue: “The more important question for us is how incremental the ad-supported subs are likely to be to Netflix's subscriber growth, and we continue to believe – based on our extensive survey work into NFLX user price sensitivity – that these subs are likely to be mostly incremental,” That is, how many of this 5 million are people newly arriving on Netflix, who could not have been attracted to one of the full price plans? Or, the other way around, what portion of these users are in fact formerly full price paying customers who have traded down to the ad-supported level? 

It's in that that the overall success of the plan will be measured. Is this lower price level income accretive or actually income destroying? Something we won't know for a time yet but it is of vital importance. 

Netflix share price from NASDAQ

The other issue is the standard one that Netflix faces. It's always the pioneers that end up with the arrows in their backs. Netflix has - at any scale at least - been the pioneer in rolling out streaming. That's great, it's created a lot of value. They also pioneered that idea of creating the big name, marquee (and big budget) series to gain that customer base - we know one of the writers of one of them. 

However, as is obvious, those are not exclusive tactics. Everyone and their grandmother now seems to have a streaming service - Disney. Hulu, NBC's Peacock and on and on. Further, everyone's got the idea about needing some big name content to make their streaming service as necessary buy. Disney of course has the portfolio of movies, Peacock is buying into NFL and so on. It's even possible to see a certain consumer resistance out there as people realise that paying $30 a month for this service., $40 for that and on into more than a handful of different subscriptions rapidly becomes very expensive.

So there has to be that continued development of a competitive edge. Which is just what Netflix is doing of course with this lower priced ad-supported tier. But just as everyone else has copied the earlier concepts so at least some of them will copy this - and the more successful it is the more will copy it. 

That is, as is common in market based economies, competition will erode any particular position over time. That's great for us as consumers but not so good for the stock prices of producers.

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