Why Netflix’s Domestic Streaming Revenue Will See Single-Digit Growth In 2020

by Trefis Team
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Netflix (NASDAQ: NFLX) is mainly a streaming service which runs TV series, documentaries, and feature films across a wide variety of genres and languages. Subscribers can watch as much as they want, anytime, anywhere, on any internet-connected screen. They can play, pause and resume watching, all without commercials or commitments.

We expect Domestic Streaming revenues to grow at around 9% in 2020 – well below the growth rate in excess of 22% seen in each of the last 3 years. This is because Netflix will face competition on two main fronts — price and content — that will make it harder to grow its U.S. subscriber base at the historical pace. Netflix is likely to retain the majority of subscribers as it continues to invest in original content, but price sensitivity combined with growing competition from lower-priced OTT offerings will likely contribute to elevated domestic churn over coming years.

View our interactive dashboard analysis Netflix Revenues: How It Makes Money? 

What Are Netflix’s Key Business Segments?

1. International Streaming: It derives revenues from monthly membership fees for services related to streaming content to members outside of the U.S. in more than 190 countries.

2. Domestic Streaming: It derives revenues from monthly membership fees for services related to streaming content to members in the U.S.

3. Domestic DVD: It derives revenues from monthly membership fees for services consisting solely of DVD-by-mail.

What Are The Alternatives?

Internet-based content providers: Amazon Prime, Hulu, Youtube, Peacock (Comcast), Apple+, HBO Max and DirecTV (AT&T), Sling TV (Dish Network), Disney+ and Hotstar (Disney)

Multichannel Video Programming Distributors (MVPDs): Comcast, Dish TV, Charter Communications, Verizon communications

What Is The Basis of Competition?

Competition is based on content offered and the price of subscriptions.

Netflix’s Total Revenue has grown a stellar 78% from $8.8 billion in 2016 to almost $15.8 billion in 2018 and is expected to grow almost 50% to around $23.2 billion in 2 years

(A) Revenue from International Streaming to increase 62% (about $4.8 billion) in the next two years, with its share of Total Revenue expected to be about 54% by 2020

Netflix continues to see strong international subscriber base growth, though price sensitivity may cap growth in monthly fees. We estimate a comparatively slower rate of growth in subscribers in 2019, as competition in the streaming market could intensify with the addition of Disney’s direct-to-consumer streaming offering.

  • Overall, International Streaming revenue increased from $3.2 billion in 2016 to $7.8 billion in 2018, driven by a robust increase in memberships.
  • We expect revenue to grow by 62% in the next two years, to about $12.6 billion in 2020, driven by its investments in original content, which should help it to add subscribers, despite increasing competition.
  • These segment sales contributed 49% of total revenue in 2018. This share is expected to go up to 54% in 2020.

(B) Revenue from Domestic Streaming to increase 34% (about $2.6 billion) in the next two years, with its share of Total Revenue expected to be about 44% by 2020

  • Domestic Streaming revenues increased from $5 billion in 2016 to $7.6 billion in 2018, driven by growth in memberships.
  • We expect revenue to grow by more than 30% in the next two years, to about $10.2 billion in 2020, driven by growth in fee per subscribers. Netflix raised its prices in the U.S. and some Latin American markets in the beginning of fiscal 2019 – the Standard plan (two HD streams) increased from $10.99 to $12.99 per month; the Premium plan (up to four Ultra HD streams) increased from $13.99 to $15.99 per month; and the Basic plan (with a single non-HD stream) increased for the first time, from $7.99 to $8.99 per month. This hike should help boost the company’s average revenue per customer over the next two years.
  • However, we expect the Domestic Streaming sales contribution to total revenue – to decline from 48% in 2018 to 44% in 2020.

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