Subscription-based Media Platforms

Part
01
of three
Part
01

Subscription-based Media Platforms - Top Players

The top five subscription-based media platforms in the United States are Amazon Prime, Netflix, Hulu, Spotify, and Starz.

The link to the spreadsheet is here.

1. Amazon Prime

  • Amazon Prime has 101 million paid subscribers.
  • Amazon Prime offers exclusive original movies and TV Series with a starting price of $2.99 for the first 6 months.
  • The service can be accessed anywhere and on three devices simultaneously.
  • There is a 30-day trial period and there is a minimum monthly charge of $8.99.

2. Netflix

  • Netflix has 60.2 million paid subscribers.
  • Netflix offers three subscription plans — basic, standard, and premium.
  • The monthly prices for the plans are $8.99, $12.99, and $15.99 for unlimited movies and TV series and the ability to cancel at any time.
  • Netflix allows new users to access the content free for a month. If the user isn't satisfied, they can cancel the subscription free of charge within a month.

3. Hulu

4. Spotify

  • Spotify has 26 million paid subscribers.
  • Spotify offers users the ability to stream ad-free songs from anywhere.
  • It can be accessed on devices such as a personal computer, smartphone, tablet, and television.
  • Music can also be downloaded as needed and listened offline.

5. Starz

YOUR RESEARCH TEAM APPLIED THE FOLLOWING STRATEGY:

During our preliminary search, we found several lists of top or most popular subscription-based media platforms in the US. With these lists, we proceeded with our research. We were able to identify the number of paid subscribers for all media platforms and the information is provided in the spreadsheet.

We noticed that some sources were more specific in stating the paid subscribers (Hulu and Spotify) compared to others. However, during our research we realized that all the top five platforms are paid-only services with a very brief trial period (if any) after which, to be a subscriber, one has to pay which means that the numbers reported for subscribers are actually those of paid subscribers (Amazon Prime, Netflix, Starz). As stipulated in the request, the top was defined by the number of paid subscribers in the US. We were able to rank the companies from pre-compiled lists based on that criteria.

To complete this request, we explored sources such as company websites, CNBC, The Motley Fool, Fortune, Pitchfork, and the official website of the media platforms.
Part
02
of three
Part
02

Subscription-based Media Platforms - (Rows 2 - 4)

For Amazon Prime, Netflix, and Hulu, we have provided information on their annual revenue, gross profit margin, annual marketing spend, current consumer churn rate, and other performance information. This information has been provided in rows 2-4, columns D-H of the attached spreadsheet.

AMAZON PRIME

  • According to Amazon's 2018 annual reports, Amazon Prime's annual revenue was $14.168 billion in 2018, which also includes other minor subscription services, such as audiobooks, e-books, and digital music.
  • Calculations (below) show that Amazon Prime's estimated gross profit margin in 2018 was 40.25%.
  • The annual marketing spend of Amazon Prime is $4.5 billion.
  • Research shows that Amazon Prime has a negative churn of -2.9%, which technically represents positive growth.
  • "The US membership grew by 10% year-over-year for the period ending December 2018."

NETFLIX

  • According to Netflix' 2018 annual report, it generated $15.794 billion in revenue and the cost of goods or revenue, in this case, was $9.967 billion.
  • While it does publish the operating income instead of gross profit margin, calculations based on these two figures show that its gross profit margin is 36.89%.
  • It spent $2.369 billion on marketing in 2018.
  • Netflix' consumer churn rate is 9.7%.
  • Netflix' global annual streaming membership has been on an increase since 2016. It saw a 24% year-over-year increase between 2016 and 2017, with the total memberships hitting 110,644,000 in 2017. It further increased year-over-year between 2017 and 2018 by 26%, with the total number of memberships peaking 139,259,000 in 2018.

HULU

  • Analysts at nScreenMedia estimated Hulu's revenue to be $4.2 billion.
  • According to a report published by CNBC, analysts estimated Hulu's losses to be around $1.5 billion.
  • Based on these figures, calculations show that the estimated gross loss margin is 35.71%.
  • Hulu spends $2.5 billion on marketing.
  • Research shows that Hulu's consumer churn rate is 7%.
  • Despite its losses, Hulu saw a 48% increase in subscribers year-over-year, as "it reached 25 million total subscribers," while growing its ad revenue to almost $1.5 billion.

RESEARCH STRATEGY

To address this request, we started off by looking into the latest annual reports for each of the three requested companies — Netflix and Amazon. However, Hulu isn't a public company; it is owned by Walt Disney, which is a public company. Moreover, Disney does not specifically publish Hulu's financial records in its annual report. For Amazon Prime and Netflix, we used their annual reports and other third-party sources to provide the requested data. Hence, our research/calculations were straightforward except for the gross profit margin of Amazon, which we could not find. This was because Amazon Prime is a sub-segment of Amazon's business, and as such, such specific detail was not provided in the annual report. We extended to search through industry sources and media platforms but found no useful data. Hence, we triangulated the data, as seen in the calculations section below.

For Hulu, since there are no disclosures of its financial records on Disney's annual reports, we resorted to third-party sources. While we could find credible sources to address the requested information, we note that there was no data for Hulu's gross profit margin because the company recorded a loss of about $1.5 billion. Therefore, as an alternative, we used the data to estimate Hulu's gross loss margin. Below, are the calculations that we've made for each brand.

AMAZON

Gross Profit Margin:

Amazon reported net sales of $232.887 billion and $139.156 billion in cost of goods. Therefore, the share of Amazon's cost of goods to its net sales is 59.75% (i.e., $139.156 billion / $232.887 billion = 0.5975 * 100 = 59.75%). Since we could not find the cost of goods for Amazon Prime, we used Amazon's share of the cost of goods as a proxy to determine the same for Amazon Prime. This gives us about $8.465 billion (i.e., 59.75% * $14.168 billion = ~ $8.465 billion).

Since we've obtained Amazon Prime's net sales and cost of goods, we used the formula below, as provided by Investopedia, to obtain the gross profit margin:

Gross profit margin % = [(net sales — cost of goods) / net sales] * 100
Amazon Prime's gross profit margin % = [($14.168 billion — $8.465 billion) / $14.168 billion] * 100 = 40.25%

NETFLIX

Gross Profit Margin:

According to Netflix' 2018 annual reports, it generated $15.794 billion in revenue while the cost of goods (or revenue, in this case) was $9.967 billion. Therefore, as per the gross profit margin formula given by Investopedia:

Gross profit margin % = [(net sales — cost of goods) / net sales] * 100
Netflix' gross profit margin % = [($15.794 billion$9.967 billion) / $15.794 billion] * 100 = 36.89%

HULU

Gross Profit Margin:

Analysts at nScreenMedia estimated Hulu's revenue to be $4.2 billion. Also, according to a report published by CNBC, analysts estimated Hulu's loss to be around $1.5 billion. If we assume this figure to be the net loss, then, the gross loss margin would be given as below:

Gross loss margin % = (net loss / net sales) * 100
Hulu's gross loss margin % = ($1.5 billion / $4.2 billion) * 100 = 35.71%

Part
03
of three
Part
03

Subscription-based Media Platforms - (Rows 5 - 8)

The information regarding annual revenue, gross profit margin, marketing spend, consumer churn rate, and general business performance, for Spotify and Starz is provided in the attached spreadsheet, rows 5-6 and columns D through H. However, gross profit margin and consumer churn rate for Starz are not publicly available, but have been calculated.

SPOTIFY

  • The 2018 Annual revenue was $5,995.26 million.
  • The gross profit margin was 26.70%
  • The annual spend on marketing activities was $706.8 million
  • The consumer churn rate was 19.8%

Additional information on Spotify's performance

STARZ

  • Latest Annual Revenue is $1404.1 million
  • The calculated gross profit margin is 182.1%
  • Estimated annual spend on marketing activities is $100 million
  • Calculated consumer churn rate is 2.88%

Additional information on Starz performance

  • In 2017, Starz recorded 2 million OTT subscribers.
  • Starz app OTT subscribers pay a monthly fee of $8.99.

YOUR RESEARCH TEAM APPLIED THE FOLLOWING STRATEGIES

To provide annual revenue, gross profit margin, marketing spend, consumer churn rate, and general business performance for Spotify, we first leveraged the company's annual report and market reports like Statista. We were able to locate the total annual revenue and marketing spend from Statista and growth margin from the company's 2018 4th quarter report.

We also searched through related industry sources like Media Radar, Music Ally, and Music Industry Blog that provided an analysis of Spotify's 2018 performance. For instance, from Media Radar we were able to locate Spotify's consumer churn rate and Music Ally provided us with more insights on Spotify's performance during the year 2018. Also, the annual revenue and marketing spend was provided in euros, therefore, we used the currency converter to calculate the amount into dollars.

Calculations

According to Currency-Calc, the current exchange rate for one euro to the dollar is $1.14. Therefore, according to Statista, the total 2018 annual revenue for Spotify was €5,259 million, which converted into dollars will be (5,259 million x $1.14)= $5,995.26 million.
According to Statista, the marketing spend for Spotify is €620 million, which converted into dollars is;(620 x $1.14)=$706.80 million. The converted amounts have been provided in the above findings and the attached spreadsheet.

Starz

After providing the required details for Spotify, we embarked on researching the details for Starz. We first searched for the company's latest financial report from its website. Unfortunately, we could not locate any report. We then proceeded to search for the report on Annual Report.com. The most recent report for the company available from this source for is 2015, which we could not use because it doesn't portray the current performance of the company. During the search, we noted that Lionsgate acquired the company in 2016 at the cost of $4.4 billion.

Therefore, our second step was to locate the Lionsgate 2018 annual report to get the latest annual revenue, gross profit margin, marketing spend, consumer churn rate, and general business performance for Starz. Upon locating the annual report for Lionsgate, we thoroughly examined in order to identify and provide the required details. According to this report, the 2018 revenue generated by Starz is $1,404.10 million. We also found additional information on the company's performance which we have provided in the attached spreadsheet. However, the report did not provide the churn rate, gross profit margin and marketing spend.

To provide the churn rate and other details on Starz performance, we searched through several industry resources including Statista, Media Radar, and Variety, among others that provided an overview of the performance of Starz. Unfortunately, we were unable to locate the churn rate for Starz and gross profit margin. But, Media Radar provided estimated marketing spend for the company, which is $100 million.

Lastly, we decided to triangulate Starz's gross profit margin and consumer churn rate. The annual report provided the gross profit realized at the end of 2018 financial year. Using the 2018 annual revenue, we determined the gross profit margin using the following formula.

Calculation
% Gross profit margin= (gross profit/revenue) x 100%
=($468 million/$1,404.1 million) x 100%
=33.33%

Also, in 2017, Starz ended the financial year with 24.2 million subscriptions and 23.5 million subscriptions at the end of 2018 financial year. Therefore, to determine the company's consumer churn rate, we performed the following calculations.
Churn rate = ((24.2 million — 23.5million)/24.2 million) x 100% =2.88%
Sources
Sources

From Part 02