Netflix’s cost of adding new customers has ‘rocketed’

Netflix’s US subscriber additions are beginning to slow and the cost of adding new customers has “rocketed” in recent years, according to Ampere Analysis.

The research firm estimates that in its home market, Netflix’s marketing costs for acquiring subscribers has grown from around US$60 per person between 2013 and 2015 to roughly US$100 per new subscriber today.

This compares to a relatively flat rate of US$40-US$45 per customer in its international markets according to the report, which focuses on Netflix’s “significant investment in marketing”.

Ampere said that Netflix spent close to US$1.3bn on advertising its streaming products in 2017, split roughly equally between its domestic and international markets, with 14% of its expenditure going on marketing-related costs.

It added that domestic additions are beginning to slow as Netflix saturates its home market meaning that each marketing dollar corresponds to an ever-decreasing number of new subscribers. In the US it estimates that Netflix takes 11 months to achieve payback on net new domestic customers.

“With declining domestic growth rates and spiralling acquisition costs, Netflix faces a very real set of challenges if it is to continue to command such a strong position,” said Ampere Analysis research director, Richard Broughton.

“Our research show that while Netflix can continue to enjoy relatively low acquisition costs for international subscribers and a buoyant market keen to embrace SVOD, it cannot afford to take its eye off the ball in the domestic market, even momentarily. Its ability to grow ARPU will be critically important to manage long term growth – domestically and abroad.”