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Analyst: Netflix Stopping Entire Season Episode Drops Could Curb Subscriber Churn

Netflix recent move to cut new seasons of “Ozark” and “Stranger Things” into half-season premieres, should help the subscription streaming video behemoth reduce churn and sustain its subscriber base, according to Wedbush Securities media analyst Michael Pachter.

In a May 16 note, Los Angeles-based Pachter said halting the pioneering practice of dropping all episodes of an original series on the show’s premiere — a longtime Netflix hallmark — would incentivize subscribers to stick around the service.

Michael Pachter

“We think that the sooner the company shows its commitment to reducing churn by releasing new content over several weeks, investors will see an uptick in subscribers and their confidence in the Netflix business model will be restored,” Pachter wrote.

The analyst contends much of Netflix subscriber growth woes revolve around the saturation of the North American market, which includes the streamer’s first foreign expansion. Specifically, Pachter lauds Netflix’s decision to clamp down on password sharing, which he believes affects 30 million North American subscribers and 100 million globally.

Pachter doesn’t believe Netflix will add more than a few million new customers by charging subscribers who share passwords an additional $2 monthly fee. He thinks the streamer’s plan to adopt an ad-supported subscription option has great potential to drive significant revenue.

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“That said, it could also cannibalize existing customers,” Pachter wrote. “On balance, we think ad-supported subscriptions is a good idea, particularly as a disincentive to churn.”

The analyst added that by raising prices in mature markets, Netflix could drive up its average-revenue-per-user and its level of profitability, allowing the streamer to reinvest profits to continue growing in Latin America and Asia-Pacific markets.

“We are taking [Netflix’s] recent share price weakness as an opportunity to raise our investment recommendation to ‘outperform’ from ‘neutral,'” he wrote. Pachter’s share price target remains at $280. Netflix shares are currently trading around $188 per share.

“We do not believe that Netflix’s share price will approach 2021 levels for many years but think that our price target is achievable within the next 12 months,” Pachter wrote.

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