Customer Lifetime Value

WHAT IS CUSTOMER LIFETIME VALUE?

Customer Lifetime Value, or CLV, is how much money a company expects to make (total profit) from one customer over the time they stick around. This is helpful when deciding whether it’s worth spending money to keep or attract that customer. For example, if I pay $10 a month for Netflix and I stay subscribed for five years, that’s $600 in revenue. If Netflix knows that about me (or people like me), they can figure out if it's worth spending money on a new show or marketing campaign to keep me around. The higher the CLV, the more valuable I am to them in the long run.

EXAMPLES FROM CLASS (Replicas w/ Different Numbers)

Fixed Profit, No Attrition (5-Year Horizon)

This table presents a customer lifetime value scenario where profit remains fixed across a five-year horizon and there is no customer attrition. With a steady annual profit of $92 after the initial $12 promotional expense, the customer stays for the full five years. Applying a 10% discount rate to future cash flows, the net present value (NPV) of each year’s profit decreases over time. The cumulative CLV in this scenario totals $371.63, highlighting the value of a fully retained, consistently profitable customer without churn.

Table 2: 80% Yearly Retention Over 5 Years

Table 2 introduces annual customer attrition, assuming an 80% retention rate each year. This gradually reduces the expected profit over time, starting from $73.60 in Year 1 and falling to $37.68 in Year 4. Once discounted, the CLV drops significantly compared to the no-attrition case, totaling $256.70. This illustrates how even moderate customer churn erodes long-term customer value, reinforcing the importance of retention strategies.

Table 3: 80% Yearly Retention Over 19 Years

This table assumes customers stay with the company at an 80% retention rate per year, but the CLV is calculated using only the first five years of profits. Each year, fewer customers remain, and the profit from those who do is discounted to reflect its present value. Over those five years, expected profits shrink due to both attrition and time discounting. The total CLV is $195.42, which represents the customer’s value during the early, most impactful part of their relationship.

The Office

The Office is one of Peacock’s flagship shows and a major draw for subscribers. After leaving Netflix in 2021, the series became exclusive to Peacock, where it's available in both free and premium tiers. Peacock has heavily promoted The Office by offering bonus content, deleted scenes, and extended “Superfan Episodes” to add value for fans. It consistently ranks among the platform’s most-watched titles and plays a key role in customer acquisition and retention for Peacock’s streaming service.

Table 4: The Office – TV Show Investment Scenario

This final table evaluates the potential return on investment from hosting “The Office” on a streaming platform. With an assumed annual revenue of $170 per viewer and a modest annual cost of $15, the yearly profit reaches $155. Applying a 10% discount rate, the present value of future profits is calculated over a five-year period. The total customer lifetime value in this case is $646.33. This significantly exceeds typical CLV values observed in other scenarios, suggesting that a hit series like The Office has a powerful impact on viewer engagement, retention, and long-term profitability. For platforms like Netflix, Hulu, Peacock, etc., this high CLV provides strong justification for the substantial licensing or production costs associated with acquiring iconic, binge-worthy content. It shows that hit shows can easily cover their own costs by keeping viewers around longer, helping reduce cancellations, and bringing in steady long-term revenue. When the numbers back it up, investing in this kind of content just makes sense.

PRICE INCREASE EVALUATION

Disney+

Raising prices can increase CLV, but only if it doesn't lead to a drop in retention. For Disney+, this move comes with some risk. While they have strong franchises like Marvel and Star Wars, not everyone sees the value in paying more, especially casual users or families trying to cut back. The online backlash shows that people are paying attention and some are clearly frustrated. If Disney uses the extra revenue to improve content or create bundles that feel worth it, the price hikes could make sense. But if the quality doesn't match the cost, they risk losing trust and long-term subscribers, which could hurt CLV over time.

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