Following up on our U.S. survey conducted in January, we conducted surveys in Mexico, Germany and Japan to determine the changes in Netflix’s international penetration and churn. Since our last international survey in November of 2017, churn in these countries has fallen from 41% to 36.5%.
The net affects on Netflix churn is a decrease from 26.2% to 23.8%. Netflix’s increased investment in local language content appears to be paying off after not showing an improvement four months ago. With the improved Customer Lifetime Value (CLTV) / Customer Growth Costs (CGC) ratio, and ultimately leading to a higher valuation.
Our Surveys – To get a pulse on Netflix’s global performance outside the US, we surveyed 402 people in Mexico as a proxy for Spanish speaking markets, 402 people in Germany for European markets and 400 people in Japan for Asian markets. The primary purpose of the answers are to determine the penetration and churn rates for International markets. We also receive answers as to the reasons why subscribers leave the platform,
The Annual Churn Rate – The percentage of users who have left Netflix over the last 12 months. Exhibit 1 shows the change in churn rate for each of the countries vs how long Netflix has been present in those markets. The churn rate seems to have improved for all 3 of our sample markets. The greatest improvement has been for the German churn, reducing almost 19% from 48.5% to 39.5%. We expect the European churn to improve further given Netflix’s deal with Sky to bundle services. Japan’s churn decreased from 51.3% to 44.4%, as a result of increased production of Japanese Anime series. Mexican churn reduced slightly from 25.6% to 24.9%, however, it is still up from July 2017’s result of 22.8%. Netflix’s Spanish star performers like Narcos, Ingobernable, Las Chicas Del Cable and Club de Ceurvos don’t seem to be attracting and retaining subscribers as well as they used to. The company will need to produce newer local language content to retain the Spanish speaking markets.
The annual international churn of 36.5% is calculated by weighing these individual market churns on GDP, population and years since Netflix’s launch.
Exhibit 1: Netflix Churn Rate over Time
Source: Perspectec
The Penetration Rate – The percentage of users who have or have had a Netflix subscription over the last 12 months. Exhibit 2 shows improved penetration in Japanese and German markets. This is consistent with the increase in Japanese (Anime series and shows like Erased and Terrace House) and German (Dark and Babylon Berlin) language Originals. Despite well-established Spanish language Originals, the lack of newer Spanish language content over the past 3 months is slowly bringing the penetration down in the Mexican market.
Exhibit 2: Netflix Penetration Rate over Time
Source: Perspectec
Reasons why subscribers left – All users who have churned over the past year are categorized by the reason for leaving in Exhibits 3 to 5.
The reasons for churn were (in order):
Mexico:
- The service was too expensive (previously #1)
- The content got boring (previously #2)
- The free-trial ended (previously #4)
- The subscriber moved to another platform (previously #3)
Germany:
- The subscriber moved to another platform (previously #3)
- The service was too expensive (previously #1) and the content got boring (previously #2)
- The free-trial ended (previously #3)
- Password Sharing
Japan:
- The free-trial ended (previously #1)
- The content got boring (previously #2) and the subscriber moved to another platform (previously #3)
- The service was too expensive (previously #3)
Price still is the most important factor for the Mexican markets, but it seems that churning subscribers are also bering pulled away by alternate SVOD platforms. This could be a result of Amazon’s efforts to improve its offerings or local SVOD platforms being able to provide better and more targetted content. Content still ranks in at #2 in all three of our survey markets, justifying Netflix’s the $7-8 billion investment in content this year.
Exhibit 3: Mexico Survey Results
Source: Perspectec
Exhibit 4: Germany Survey Results
Source: Perspectec
Exhibit 5: Japan Survey Results
Source: Perspectec
How does this affect other SaaS metrics: An international churn rate of 36.5% has brought down expected global churn to 23.8%. This leads to an increase in the CLTV Added TTM/TTM CGC from 0.59x in Q4 2017 to 0.73x in Q1 2018. In the long-run, Netflix is looking to have the ratio above 1x.
Our target is now $300 (from $292).
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