Netflix has been making plenty of changes to its streaming model over the years. With the addition of advertisements, new tiers, password-sharing crackdowns, and the removal of its DVD rental service, it’s changed a lot. Now Netflix is preparing to make another major change for 2025.
The recent announcement regarding a significant change within the company coincided with the release of its financial report for the first quarter of 2024. As revealed in a new report, amidst the unveiling of the earnings, a pivotal decision was disclosed: the elimination of a crucial metric from the streaming service’s analytics toolkit, a metric that holds substantial significance not only for this particular platform but also for numerous others within the industry.
This strategic adjustment underscores the company’s proactive stance towards refining its operational methodologies and adapting to the evolving landscape of digital entertainment consumption.
Specifically, Variety revealed that “Netflix will no longer report subscriber numbers,” something which has come as a shock to many. Here’s what else the outlet had to share on the matter:
“Netflix handily topped expectations for subscribers net adds, gaining 9.33 million in the period, to reach nearly 270 million globally. It also beat Wall Street expectations on the top and bottom lines.
“Despite the Q1 earnings beat, Netflix shares dropped more than 4.5% in after-hours trading Thursday, possibly as investors reacted negatively to the news that the streamer will stop reporting quarterly sub totals.”
The outlet adds that their service’s engagement, described by the outlet as “time spent with the service,” is the “best proxy for customer satisfaction” according to the company. Thus the change:
“As such, it will no longer report quarterly membership numbers or average revenue per member (which it dubs ‘ARM’), as of Q1 2025. Netflix said it will announce ‘major subscriber milestones as we cross them’ but will cease disclosing quarterly subscriber numbers.”
Essentially, Netflix would rather have investors interested in time-spent-viewing metrics as opposed to how many customers they’ve acquired.
“As we’ve noted in previous letters, we’re focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction. In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” Netflix said in the letter. “But now we’re generating very substantial profit and free cash flow (FCF). We are also developing new revenue streams like advertising and our extra member feature, so memberships are just one component of our growth.”
“In addition, as we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact. It’s why we stopped providing quarterly paid membership guidance in 2023 and, starting next year with our Q1’25 earnings, we will stop reporting quarterly membership numbers and ARM.”
As such, and as described by Variety, Netflix “will continue to provide a breakout of revenue by region each quarter and the foreign-exchange impact ‘to complement our financials.’ Going forward, the company will add guidance for annual revenue in addition to what it already provides: annual operating margin and free cash flow forecast and forecasts for quarterly revenue, operating income, net income and earnings per share.”
Netflix adds in their letter that this change is why they’ve been sharing more information regarding engagement. This, they say, “is more information than any of our competitors provide, and we expect to provide even more over time.”
Stay tuned to ScreenGeek for any additional updates regarding this change to Netflix and any other alterations that might happen in the future regarding the streaming service.