The Password Is: ARPU

The first time I heard the term referenced in today’s title was in a high-level strategic meeting involving top cable network executives where they were explaining that contrary to the steady growth rate we had seen for years with the adoption of cable or satellite television that we were about to reach a tipping point where it wouldn’t be prudent to continue to pursue newly subscribing households.  Those that were interested, they surmised, already had it, had rejected it outright, or simply didn’t have a price point other than free they would accept even if they did want it.  We were urged to shift our belief to subscribers’ ARPU.

I immediately started giggling uncontrollably, as if I had turned into a much fatter and less stoned version of Beavis.  When I had finally recovered enough to respond to the glaring eyes of my wholly unamused colleagues, I somehow composed myself enough to spit out “I’m sorry, I’ve never heard the term.  I thought you had suggested that’s what we should think of our subscribers.”

After the meeting, I got a crash course in what ARPU is, which Microsoft Bard can explain quicker and easier to those of you who may not already know than my MBA-educated colleagues did to me that day:

ARPU stands for Average Revenue Per User. It is a measure used primarily by consumer communications, digital media, and networking companies, defined as the total revenue divided by the number of subscribers1It is an indicator of the profitability of a product based on the amount of money that is generated from each of its users or subscribers

And it is essentially the backbone and the rationale for the strategic shift that Netflix announced it was unleasing on the United States earlier this week, as the esteemed Alan Wolk reported on his TVREV site:

It’s not like it was a surprise as they’ve been talking about it for months, but the email many of us got from Netflix about “sharing between households” this week definitely hit like a ton of bricks, especially given the $8 price tag they were suggesting for those “outside your household.”

Previous reports seemed to indicate that Netflix would be charging a more reasonable $3 for those extra accounts and there was a hope they’d make a distinction between adult children who had been on the family account since they were in middle school and random folks sharing accounts as a way to game the system.

No dice.

Yes, it does seem to be a bit onerous and arrogant, particularly given its timing.  So many creatives are calling the current WGA strike, and the pending similar moves by directors and actors, as the “Netflix strike”, specifically calling out a platform with no prior roots in legacy media who practically gloated about the amount of stacked up inventory and its ability to identify, curate, translate and distribute product from outside the U.S. successfully.

But if you saw the infographic that the insightful and self-described “media universe cartographer” Evan Shapiro dropped on LinkedIn nearly simultaenous to Wolk’s report, you might understand why Netflix needs to do this.

Per this graphic, which represents a substanially large survey of 10,000 users of more than one streaming service and/or FAST channel in the prime demo target of adults 18-54 ,when asked if they recalled watching a particular platform more than once in a month, nearly three in four of them could not.  Netflix was second “best” among streamers, still with a substantial advantage over its legacy media-based competitors, trailing only YouTube by a slim margin.

Still, this further underscores why despite Netflix’s embracing and trumpeting of its ad-supported offering, and as we previously wrote a net audience that mirrors the delivery of roughly the 100th most-viewed cable channel, they still need to find more ways to grow revenue from those they have in order to actually find a way somewhat closer to a business proposition which investors will respect.

As Wolk went on to explain, it’s a seminal but necessary moment for not only Netflix, but indeed the entire AVOD world.


Around 66% of US households already have Netflix.

Smartphone penetration is at around 80%.

The math on that says there aren’t that many new users for Netflix to grab, unless a lot of folks start downgrading from ad-free.

Hence the push to sign up sharers.

But as Wolk further advised, perhaps it may not be quite as unfeeling for Netflix to make this play, especially when one considers who have been the most likely recipients of such password-sharing largesse:

People tend to put adult children in a separate bucket, especially, as noted, if those adult children first started using the family account long before they became adults.

There is precedent for this: adult children get to remain on their parents cell phone accounts, their auto and health insurance and their Amazon Prime accounts. So why not their streaming accounts?

Which means the $64,000 question is whether people are going to see the crackdown as Netflix rightfully calling out scammers or Netflix being unnecessarily punitive?

The answer seems to be “it depends.”

People who split accounts with old roommates or with friends really don’t have much of a leg to stand on and I suspect they know that, which is why they are unlikely to give Netflix much pushback.

Similarly families where the middle aged children maintain accounts for their Boomer parents because it was easier than being their personal IT departments will go ahead and get accounts for mom and dad.

It’s that middle ground—parents of college students and recent graduates who may or may not return to the nest sometime soon—who are the issue and it’s unclear what percentage of password sharing they represent, whether they regard what they are doing as “password sharing”, and, given that, how likely they are to actually add on a new account or just keep at it until Netflix kicks them off.

So it may just be that a well-enough heeled family member might just be inclined to gift a loved one to the tune of roughly two dollars a week, which is exactly what Twitter Blue costs.  I think it’s fair to say this investment might be slightly more valuable, and a lot less political.

And if Netflix can find a way to get even a fraction of their current subscriber base to capitulate, that could represent hundreds of millions of dollars in incremental revenue that won’t require viewership to be realized.  It’s growing that ARPU, you see.  And it’s certainly a policy the less-viewed platforms will roll out should Netflix see even a smidge of success because, heck, they’re even more disposable.

Incidentally, while I’m not one who tends to go overboard on survey data, in this case, given the sample size it’s more projectable and, if anything, survey data often tends to be overstated.  People tend to think they’ve done something more often than they actually do it.  So that one-in-four max reach for anything more than incidental viewing could be far less than those levels, and the platforms have the actual data in their possession to know it.

If you were in their shoes, woudn’t you do the same thing?  Wouldn’t you find a way to take in the equivalent of a fee for a checkmark where the expense is little more than an expression of love?

So long as Netflix is somewhat respectful and doesn’t go overboard in enforcement and policing, as Wolk’s report concludes (and I urge you to visit his site to read his full rationale and recommendation), they have far more potential and upside with this in the short term than they do with the expectation they will be able to sell ads against those subscribers, or expect they will be seen.

About the only downer about this would be any expectation that this incremental ARPU might actually result in Netflix, or any other streamer, resolving some of their earnings issues to perhaps be more generous and respectful to the “creators” that make the content family members think their loved ones might want to contie to have the chance to watch.

I’m optimistic to a certain extent, but I can’t see that outcome, nor should you.  If you did, you’d be  a Butthead.

Heh heh, heh heh, heh heh.

Until next time….

1 thought on “The Password Is: ARPU”

  1. This reminds me an awful lot of the “gas station on every corner” syndrome in the 1960’s and early 1970’s. There comes a point where there are too many stations and not enough drivers in an area. Also when brand name gas was a “thing”, people made up their minds on the brands they wanted and wouldn’t cross the street (as opposed to now when people drive 15 miles to save 30 cents). We are over saturated with video and video providers. People know them and have made their choices. I used to have 4, now I have 2. Reason? AVVC (my term for Average Value to me vs. Cost per month). It just seems all streaming services effectively are Video Rental stores with basically the same “stuff” on the shelf …and as we saw with brick and mortar stores. how many on each street corner do you need?


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