In evaluating the competitive set of streaming services, a metric that’s hard to get to is how much revenue they generate per subscriber unit.
Analyst Michael Nathanson of MoffettNathanson, working with measurement and analytics company Antenna, has come up with what he called effective RPU, a number that takes into account promotions and discount offers through distributors and aggregators, as well as revenue on ad supported tiers.
Bottom line, Nathanson said Netflix leads the industry in effective RPU at $14.88. He attributed Netflix’s strong RPU to its high percentage of direct-to-consumer relationships and the maturity of its business model.
Nathanson noted that HBO Max benefit from its corporate relationship with AT&T Mobile and DirecTV, as well as a high-priced legacy rate card.
Nathanson notes that the effective RPU can vary from the rate cards showing how much the services charge consumers. “Showtime and Disney Plus’s effective RPUs are nearly 20% below their retail rate cards due to a high degree of promotional partnerships and/or reliance on third party aggregators like Amazon, Apple and Roku, which take a commission rate of approximately 20% for services rendered,” Nathanson noted.
Nathanson said trying to determine effective RPUs should be important to investors.
“Over the past few years, investors have taken the simplistic route of using revenue multiples to value streaming assets. Regardless of differences in unit economics or ultimate addressable market scale, the market has embraced a one size fits all approach to valuation,” he said.
“However, as we have shown above, the effective RPUs of each platform vary on the percentage of subscribers that are sourced directly versus the number that come from bundled telco arrangements or third party aggregators," he said.
“Given that there is a cost of distribution (we assume 20%) affiliated with third party aggregators, there are material distribution costs in the P&L that will drive down the long-term profitability of platforms that are unable to build direct relationships with their customers," Nathanson said. “In this case, the direct to consumer engagement at Discovery Plus, HBO Max (if AT&T ever decides to end their promotional support), Paramount Plus and Showtime could be a longer-term issue.”
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