Video is exclusive to members, sign up now to enjoy this and many other features.

Netflix ARPU Potential

Former Vice President, Head of International Originals, at Netflix

IP Interview
Published on January 4, 2020

Why is this interview interesting?

  • Outlook on potential long-run unit economics for subscription video on demand
Executive Bio

Erik Barmack

Former Vice President, Head of International Originals, at Netflix

Erik was responsible for the strategy, team management, and production of Netflix Originals outside of the US. He managed over 40 production and finance executives and led the production of various critically acclaimed shows such as Dark and Casa de las Flores. He was a key figure in scaling Netflix globally to regions such as India, Mexico, and Europe where Netflix now produces tens of local language shows. Erik joined Netflix in 2011 as Global Content Director after spending six years leading ESPN Business Development. He left Netflix in April 2019 to launch his own development and production house of shows outside the US.

Interview Transcript

What’s your personal view on where ARPUs could get to, in the US, for example?

I actually don’t think of it as a Netflix or a Disney Plus question. I think of it as an ecosystem question. You look at cable where, basically, up until six or seven years ago, people were spending $100 plus, in the US, on cable. Then several hundred dollars on entertainment, writ large. I think there’s an argument to be made that television has got better. The quality of televisions, the quality of sound systems, etc. have got better. I personally think, and I speak as someone who has young kids, the value of going to the movie theatres is going down and the value of cable is going down. You think about all this spending on movies, other than tentpole movies like Star Wars and the Marvel movies – I used to go to the movies once a week. Now I maybe go once every other month.

If you look at that, then the question really should be, as those other forms of spending decrease, I don’t believe that entertainment is going to become less valuable, writ large, as a sector. Then it’s just how much of that gets redistributed into SVOD’s versus other things.

How do you look at customer lifetime value for Netflix? There is an analogy from the AT&T acquisition, where I think value per subscriber netted out at $1000 but the world has changed now. We have HBO, Disney Plus, all competing online. How do you look at that lifetime value discussion?

Let’s take Disney Plus, for example. Let’s say that all of their movies are going to come through. I may stop going to see Marvel and Disney movies in the theatre and they have a movie a month. Then I look and I say, jeeze, for me to take my family, I’m going to spend $50 to go and see Star Wars. Now I’m just going to wait, so that month that Star Wars comes out, that’s worth at least $20 or $30 to me. Maybe it’s not quite the same experience as going to the movies. If that’s a once a month thing, as a consumer to Disney Plus, I could easily see paying $20 or $30.

To answer your question, I think the people that have valuable content propositions, the Narcos, The Crown, Stranger Things, The Witcher, The Irishman, the Disney Plus things, I think there is price inelasticity. I don’t have any data; this is just my instinct. People are going to be willing to pay a lot of money for services that are bringing tentpole content, on a monthly basis.

The market is just big enough?

Sketched out is how many services are going to be able to do that. I bet the winners can charge $30, $40, $50 over time, but I don’t know how many winners there are. There’s probably three of them; there’s probably not 10.

Sign up to test our content quality with a free sample of 50+ interviews

Copyright Notice

This document may not be reproduced, distributed, or transmitted in any form or by any means including resale of any part, unauthorised distribution to a third party or other electronic methods, without the prior written permission of IP 1 Ltd.

IP 1 Ltd, trading as In Practise (herein referred to as "IP") is a company registered in England and Wales and is not a registered investment advisor or broker-dealer, and is not licensed nor qualified to provide investment advice.

In Practise reserves all copyright, intellectual and other property rights in the Content. The information published in this transcript (“Content”) is for information purposes only and should not be used as the sole basis for making any investment decision. Information provided by IP is to be used as an educational tool and nothing in this Content shall be construed as an offer, recommendation or solicitation regarding any financial product, service or management of investments or securities.

© 2024 IP 1 Ltd. All rights reserved.