Davis Freeberg’s Digital Connection

A few months ago, Raghu Srinivasan launched a website named Feedflix that allows you to use your customized Netflix RSS feeds to track how you are using your membership. The site monitors your usage data and can tell you things like how much you spend per DVD rental or the typical number of days that you hold onto your DVDs before sending them back for new ones.

While having someone automatically calculate this data is helpful to me, when I first used the service, it didn’t really tell me anything new about how I use Netflix. Since I enjoy number crunching, I had already been tracking this info and knew that I was spending about $3 for every DVD I rented.

What Feedflix did offer me though, was a way to compare how I used the service with other Netflix customers. When it first launched, I didn’t think that Feedflix would have enough members for a legitimate sample size, but with the service growing over the past few months, I wanted to check back and see what it could tell me about how other people are using Netflix.

How Long Do Customers Keep Their Rentals?

Feedflix doesn’t answer this question directly because they break the data into separate groups, but if you do a little bit of math, it’s not too hard to get an estimate on the average rental. What I found surprising about the results was that, even with 75% of the user base returning their DVDs within 10 days, the drag from the other 25% of users brings the average rental period to 9.55 days. In the past, Netflix has said that people who don’t rent as many movies have a tendency to churn at a higher rate, but this data would suggest that they contribute to the lionshare’s of Netflix’s profits before they drop off completely.

How many users subscribe to each plan?

Netflix has never given a breakdown on the number of subscribers in each plan, but Feedflix can give us a reasonable guess as to what this might be. According to Netflix’s latest earnings report, they currently have 8.4 million subscribers. By extrapolating Feedflix’s breakdown of Netflix service plans to the larger subscriber base, we get the following estimates on where customers are spending their money.

1 at a time – 2.1 million subscribers
2 at a time – 2.4 million subscribers
3 at a time – 3.1 million subscribers
4 at a time – 500K subscribers
5 at a time – 168K subscribers
6 at a time – 84K subscribers

To test the data, I multiplied the number of subscribers from each group by the price points on their corresponding plan and came up with an expected 3 month revenue number of $352 million*. The real result from their latest quarter was $337,600,000, so these numbers may be a little bit off, but not entirely unrealistic.

*My results didn’t include any of the 7 or 8 at a time subscribers because Feedflix didn’t have enough data on them. It’s also worth noting that there are rounding errors to take into account. My analysis also assumes that there is a 3:1 ratio between the $4.99 and $8.99, 1 at a time subscribers and makes a weighting adjustment for the difference between the 8.24 million subs at the start of their quarter and the 8.4 million that they finished with.

What is the average cost per rental for Netflix customers as a group?

Getting at this number is a little bit trickier, but if I multiple the breakdown of each plan, by the number of discs that an average Netflix customer is expected to use each month, then my math suggests that Netflix is earning $1.94 in revenue, per DVD rental. At first this number seemed a little low to me, but it would verify Netfix’s claims that they earn a higher profit on 1 at a time subscribers vs. the higher revenue 3 at a time moviehounds. If my estimates are right, it would also mean that Netflix is shipping 1.97 million DVDs per day or nearly 60 million DVDs per month.

It’s worth pointing out that there are a lot of ways that this data and/or my calculations could be wrong so take it with a grain of salt, but if Feedflix’s numbers are representative of the larger Netflix customer base then it would suggest that if you aren’t getting at least $2 per DVD each month, then you are one of the skinny guys at the all can eat buffet.

If you’d like to view my Feedflix account you can find it here.

Posted on August 5th, 2008 by Davis
Filed under: DVDs, Disclosure - I own stock in co. mentioned, Netflix