Subscriber and content economics
Calculate lifetime value from ARPU and churn, see how content amortization separates profit from cash, and compare an ad-supported plan with an ad-free one.
Industry brief, with a one-minute summary: Media and entertainmentKey takeaways
- A subscriber is worth the monthly margin they bring times how long they stay.
- A streamer may pay for a series before it is released, but it does not put the whole cost into one year's P&L.
- Lifetime is about 1 / churn: 1 / 0.06 is about 17 months, and 1 / 0.04 is 25 months.
Key idea
A subscriber is worth the monthly margin they bring times how long they stay. Average lifetime is roughly 1 divided by monthly churn, so cutting churn is often worth more than raising price.
Worked case
What is one streaming subscriber in India worth?
The prompt
An illustrative streaming service in India has 10 million subscribers paying an average of INR 150 a month. Monthly churn is 5 percent. Payment, delivery, and partner fees take 10 percent of revenue. Winning a new subscriber costs INR 600 in marketing. What is monthly revenue, the average subscriber lifetime, the lifetime value (before content costs), and the LTV to CAC ratio? What if churn rises to 8 percent?
The structure
- LTV = monthly contribution x average lifetime; compare with CAC
- Monthly revenue = subscribers x ARPU
- Average lifetime in months = 1 / monthly churn
- Monthly contribution per subscriber = ARPU x (1 minus variable cost share)
Working it through
1. Monthly revenue
10 million x INR 150, in INR crore (1 crore = 10 million).
Monthly revenue (INR crore):10 × 150 ÷ 10 = 1502. Average lifetime
1 divided by 5 percent.
Average lifetime (months):1 ÷ 0.05 = 203. Lifetime value
INR 135 of monthly contribution for 20 months.
LTV (INR):150 × 0.9 × 20 = 2,7004. LTV to CAC
Divide by INR 600.
LTV to CAC ratio:2,700 ÷ 600 = 4.55. If churn rises to 8 percent
Lifetime falls to 12.5 months.
LTV at 8 percent churn (INR):150 × 0.9 ÷ 0.08 = 1,688
The recommendation
The streamer should keep spending INR 600 to win subscribers, because each is worth about INR 2,700 before content costs, 4.5 times the cost. First, at 5 percent monthly churn a subscriber stays about 20 months. Second, if churn rises to 8 percent, LTV falls by more than a third, to about INR 1,688, which means keeping subscribers matters as much as winning them. The risk is churn spikes when a sports season or tournament ends. As a next step, track monthly churn by the type of content subscribers watch.
Risks: This ignores content costs, which are large but mostly fixed; Sports streaming often sees churn spikes when a season or tournament ends.
Content amortization: why profit and cash differ
A streamer may pay for a series before it is released, but it does not put the whole cost into one year's P&L. It spreads (amortizes) the cost over the period when the content is expected to be watched, usually faster in the first year because most viewing happens early. So the P&L can show a profit while cash is going out fast to fund next year's shows. In a media case, always look at both operating profit and free cash flow.
Worked case
A USD 60 million series, in the P&L and in cash
The prompt
An illustrative streamer pays USD 60 million upfront for a new series. It amortizes the cost 50 percent in year 1, 30 percent in year 2, and 20 percent in year 3. What is the expense in each year, and how large is the gap between cash paid and expense in year 1?
The structure
- Expense per year = cost x amortization share; cash is paid upfront
- Year 1, 2, and 3 expense
- Year 1 gap = cash paid minus year 1 expense
Working it through
1. Year 1 expense
50 percent of 60.
Year 1 expense (USD millions):60 × 0.5 = 302. Year 2 expense
30 percent of 60.
Year 2 expense (USD millions):60 × 0.3 = 183. Year 3 expense
20 percent of 60.
Year 3 expense (USD millions):60 × 0.2 = 124. Year 1 cash gap
Cash out of 60 against expense of 30.
Year 1 cash minus expense (USD millions):60 - 60 × 0.5 = 30
The recommendation
The streamer should manage cash, not only reported profit, because in year 1 the P&L shows USD 30 million of cost while USD 60 million of cash has already gone. First, the series is expensed at USD 30 million, USD 18 million and USD 12 million over three years. Second, this means a streamer that grows its content budget fast will show weaker cash than profit for years. The risk is that lenders or investors judge the business on profit and miss the cash gap. As a next step, track content cash spend against amortization every quarter.
Ads or no ads: comparing plans
Worked case
Is an ad-supported plan worth as much as an ad-free one?
The prompt
An illustrative streamer in the US sells an ad-free plan at USD 17.99 a month and a plan with ads at USD 7.99. A viewer on the ad plan watches 30 hours a month and sees 8 ads of 30 seconds per hour. The streamer sells all ad slots at a CPM of USD 20. What is the monthly revenue per ad-plan viewer?
The structure
- Ad plan ARPU = subscription price + ad revenue per viewer
- Impressions = hours x ads per hour
- Ad revenue = impressions / 1,000 x CPM
Working it through
1. Impressions per month
30 hours x 8 ads.
Ad impressions per viewer per month:30 × 8 = 2402. Ad revenue per viewer
240 / 1,000 x USD 20.
Ad revenue per viewer (USD):240 ÷ 1,000 × 20 = 4.83. Total ARPU on the ad plan
Subscription plus ads.
Ad plan ARPU (USD):7.99 + 4.8 = 12.79
The recommendation
The streamer should keep the ad plan, because it earns about USD 12.79 a month per viewer and attracts price-sensitive viewers who might not pay USD 17.99 at all. First, each viewer sees 240 ads a month, worth USD 4.80 at a USD 20 CPM, on top of the USD 7.99 fee. Second, this means each viewer who moves down from ad-free costs about USD 5.20 a month. The risk is that not all ad slots are sold, which cuts the USD 4.80. As a next step, track how many ad-free subscribers move down and the share of slots sold.
A music streaming service in Europe has monthly churn of 4 percent. What is the average subscriber lifetime, in months?
A video app in India sells 50 million ad impressions a month at a CPM of INR 150. What is its monthly ad revenue, in INR lakh? (1 lakh = 100,000.)
A mobile game in Southeast Asia has 1 million monthly active users. 3 percent of them pay, spending an average of USD 20 a month. What is monthly revenue from in-game purchases, in USD?
Monthly churn falls from 6 to 4 percent. What happens to average subscriber lifetime?
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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