To handle increased bandwidth and content Netflix is contemplating a proposal to raise their prices by $1.00 per month. However, the pandemic ha also resulted in layoffs and lowered salaries for many subscribers. The increased price and overall declining job market causes the annual subscriber retention rate to decrease to 45%. Assuming the total number of subscribers stays the same, as old subscribers leave and new subscribers join, how would this proposal impact Netflix? 1. New Annual Revenue Per Subscriber: 2. New Annual Profit Margin: 3. New Customer Lifetime in Years: 4. New Customer Lifetime Value: 5. What is the overall impact to CLV for total subscribers? How much value is gained or lost?

The average Netflix customer subscribes for just over 2 years (25 months) at a monthly rate of $10.99. It costs Netflix $150 to acquire and maintain each customer. The following calculations help Netflix understand its Customer Lifetime Value. Use it to answer the questions that follow. Numerical Calculation of Customer Lifetime Value Initial assumptions are as follows: Annual revenue per average customer (per annum) - @$10.99/month Product costs associated with the average customer's purchases (per year) Customer Service Expenditure (per year per customer) Annual retention rate (loyalty rate) Average costs to acquire a new customer Total Netflix Subscribers (as of January 2020) $131.88 $40 $12 53% $20 167,000,000 Step 1: To calculate the average annual profit margin per customer Average annual profit margin per customer = Annual Revenue - (Product Cost +Service Cost) $79.88 Step 2: To calculate the customer lifetime in years from the retention rate Customer lifetime in years= 100%/(100% - Annual Retention Rate)= (1 / 1- Annual Retention Rate) 2.1 Step 3: To calculate Customer Lifetime Value, CLV CLV = (profit margin) X (years) (new customer acquisition costs) $150 Step 4: To calculate CLV for total subscribers Total CLV = CLV X (total subscribers) 25,042,893,617