To conservative...
From Netfkix last Q..
The increase in our subscription revenues for the three months and nine months ended September 30, 2005 in comparison with the same prior-year periods was primarily attributable to substantial growth in the average number of paying subscribers as summarized in the table above, offset in part by a decline in average monthly subscription revenue per paying subscriber. We believe the increase in the number of paying subscribers was driven primarily by increased consumer awareness of the benefits of online DVD rentals and continuing improvements in our service. The decline in the average monthly subscription revenue per paying subscriber was a result of the price decrease of our most popular subscription plan coupled with the increased promotion of our lower cost subscription plans. In June 2004, we increased the monthly subscription price of our most popular subscription plan from $19.95 to $21.99. However, effective November 2004, in response to the changing competitive landscape, we lowered the price to $17.99. In addition, we introduced new lower cost subscription plans in the second quarter of 2005. We expect the average revenue per paying subscriber to continue to decline as we promote our lower cost subscription plans.
Subscriber churn was 4.3 percent in the third quarter of 2005, down from 5.6 percent in the third quarter of 2004 and 4.7 percent in the second quarter of 2005. We believe the decline was primarily due to the following factors:
• The impact of pricing and the introduction of lower cost subscription plans. The reduction in the price of our most popular subscription plan from $21.99 per month to $17.99 per month effective November 1, 2004 caused a decline in churn. Additionally, the introduction of lower cost subscription plans also contributed to the decline in churn.
• Aging subscriber base. As we grow, the ratio of new subscribers to total subscribers declines, leading to an increase in the average duration, or age, of the subscriber base. New subscribers are actually more likely to cancel their subscriptions than older subscribers, and therefore, an increase in subscriber age helps overall reductions in churn.
• Service improvements. We continued to make improvements in a number of key areas, including increasing the selection of titles as we expanded our DVD library and enhancing our Web site and recommendation service. We believe these improvements to our service increased subscriber satisfaction, which resulted in lower churn.
If we are unable to compete effectively against Blockbuster and our other existing competitors as well as against potential new entrants into the online movie rental subscription business such as Amazon, in both retaining our existing subscribers and attracting new subscribers, our churn will likely increase and our business will be adversely affected.
SO, i'd say 5.6% is a good gauge for discussions.
Dave
