At MBW Review, we focus our microscope on some of the biggest events in the music business of recent times. This time around, we’re going to take a look at the latest Netflix tax results and compare them to the way the music industry is doing business. The MBW check is supported by Instrumental.
What a difference a year makes.
In the first quarter of 2020, when Covid began to change the world, Netflix added nearly 16 million paid subscribers worldwide every quarter.
In the first quarter of 2021, the platform gained just 4 million – 2 million less than its own forecast.
As a result, Netflix ended the first quarter of 2021 with 207.6 million paid subs, which was below its forecast of 210 million.
Netflix has attributed the under-forecast Q1 subscriber number to the lack of new hit content.
“We believe paid membership growth has slowed because … there was less content in the first half of this year due to delays in the production of Covid-19,” the company said in its letter to shareholders in the first quarter of 2021.
“We continue to expect a strong second half with the return of the new seasons of some of our biggest hits and an exciting film franchise.”
“We’ve had 10 years growing smooth as silk and it’s just a little shaky right now.”
Reed Hastings, Netflix on the company’s first quarter slowdown in subscribers
So for Netflix, the calculation is simple: more new hit releases mean more new subscribers. The lack of successful new releases? Trouble.
Reed Hastings, Founder and Co-CEO of Netflix, summed up the first quarter of 2021 in an investor profit call: “We’ve had 10 years of growing silky smooth and it’s just a little shaky right now.”
Who needs hits?
A very different narrative plays out in the music industry.
According to Hits Daily Double, the catalog accounted for more than two-thirds (68%) of the US music recordings market (sales equivalent) for the first three months of this year.
That was an above-average percentage, says the US publication, “due to the lack of major new releases in 2021”.
By and large, this shortage continues a trend we’ve seen a lot in 2020 – a relatively quiet blockbuster release schedule that is leading to a higher market share for catalog music.
According to MRC data, the catalog’s total share of US sales-equivalent (and thus roughly equivalent value) music consumption was 63.3% in 2020, compared to 62.8% in 2019.
That 63.3% figure is lower than the 68% statistic published by Hits for the first quarter of 2021. That still means, however, that catalog releases (according to MRC records, records released 18 months or more before the time of hearing) made up around two-thirds of the US market last year.
However, unlike Netflix’s “shaky quarter,” this trend is not having a material adverse effect on the popularity of streaming music – or the growth in subscriptions to music streaming services.
In fact, the total number of paid music streaming subscriptions in the US rose 15.1 million last year, the largest margin ever, according to the RIAA.
And while annual growth in US music streaming volume slowed last year, it wasn’t material: total US streaming volume rose 126.7 billion games year over year in 2020, very close to that Growth in streaming volume of + 134.9 billion US saw in 2019.
There is a twist in this story, however. And there’s a picture of Benjamin Franklin on it.
Vanity versus sanity
In Netflix’s “shaky” first quarter of 2021, the company’s total quarterly revenue increased $ 1.395 billion year over year.
This actually represented greater year-over-year money supply growth than the company did in the year-ago quarter (Q1 2019), when quarterly revenue rose $ 1.247 billion year-over-year.
Quarterly it was the same: In the first quarter of 2021, Netflix’s quarterly revenue increased $ 519 million from the previous quarter. In the first quarter of 2020, the corresponding jump was smaller at + USD 301 million.
In other words, Netflix saw a worrying slowdown in subscriber growth in the first quarter of 2021, but it actually accelerated its sales.
It’s the other way around for the music industry.
As already mentioned, the volume of his subscriptions in the US music business skyrocketed in the past year, as the volume of the entire streams increased as massively as in 2019.
As MBW previously reported, annual subscription streaming revenue growth in the US has actually declined over the past year – from $ 1.459 billion in 2019 to $ 894 million in 2020.
In short, Netflix doesn’t do as good a job as the music industry at attracting subscribers when new hit content is poor.
But it does a much better job of making the subscribers it has pay massively more as each year rolls by.
Why is this happening?
Here’s a note: Netflix increased its prices in the US in October 2020 and in the UK in December. This was the second subscription price hike in as many years after US prices rose in January 2019.
The latest Netflix shareholder letter found that global “average revenue per membership” increased 5% year over year on a currency-neutral basis in the first quarter of 2021. In the same period of the previous year, this value increased by 8% compared to the previous year.
The company no longer divides this ‘ARM’ number (aka: Subscriber ARPU) by region, but used: We know, for example, that in the first quarter of 2020 the average paying Netflix subscriber in the US was 13.09 US -Dollars spent per month up $ 1.64 compared to the same value in the first quarter of 2019 (see below).
Given Netflix’s latest stats of rising sales and slower subscriber growth, that US-centric ARM number is likely to have risen again in the first quarter of 2021.
The corresponding number in the music industry falls in the other direction.
Based on RIAA and MRC data, MBW estimates that the monthly subscriber ARPU of music streaming subscribers in the US was last year $ 7.74 – a decrease of 8.3% Year for year.
That $ 7.74 figure is not far from half the average U.S. Netflix subscriber is currently paying for the service.
Unlike Netflix, of course, Spotify still charges the same monthly US $ 9.99 subscription fee that it launched in 2011 – a number that continues to average per subscriber through Family Bundles, Telco Bundles, and price promotions.
So this is a story of two industries. Both are currently dealing with a Covid-driven “lack of hits”.
But only one of them carefully refuses to make their average subscriber pay less than they used to.
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