Buried in Spotify’s S1 is this: “As our User base matures…we believe Premium Churn will continue to trend lower over time.” Why?
For most consumer subscriptions, cohort churn declines as the cohort ages. Month 1 may have a churn rate of 15%, with the rate dropping to 3% by month 12. Intuitively this makes sense: subscribers who find less value cancel early, leaving the service with more committed members over time.
The result is that new subscriptions have higher overall churn than older subscriptions, even when retention dynamics are identical.
For Netflix, time is a powerful moat. A new entrant could have the exact same retention dynamics, but because Netlfix is older it will have lower overall churn. This means Netflix will spend proportionally less of their revenue on marketing to replace churned subscribers, which frees up cash to spend on R&D to stay even further ahead of competition.