YouTube Red is a premium service without ads. Assume that 1.5% of initial YouTube user base signs up for the service. What is the lifetime revenue Google generates from those users?

What is the product? Youtube Red is a subscription service by Youtube where users can watch/listen to content ad-free and have some aditional benefits like downloading content etc. This service is offered as One-month free trial and then user starts paying for it.

How is Lifetime revenue calculated?

Lifetime revenue = Paying Customers X Life time value

Lifetime value = Avg. price of plan X frequency X lifetime

Assumptions:

1. Average price of plan = $10, Taking average across regions
2. Frequency is monthly. Considering monthly plans as the major share.

Lets start calculating:

No. of paying customers:

• Monthly active users (MAU) for Youtube = 2Bn
• Users signed up for the Subscriptions = 2Bn X 1.5% = 30Mn
• Users who would convert to paid subscribers = 30Mn X 10% = 3 Mn (This is an opt-in subscription i.e. user do not provides payment at start of trial. The CR for opt-in subscriptions is lower than opt-out and we are assuming it close to 10%.)

Customer Lifetime:

• Lifetime can be calculated using churn rate, Lifetime = 1/churn rate
• Assuming retention rate of 50%, Churn rate would be 50% (based on retention rates of Netflix, Youtube TV which are close to 70%, the retention for Youtube Preemium would be close to 50%)
• Lifetime = 1/50% = 2 years

LTV for Youtube premium?

Youtube premium is a service which people can use to watch videos on Youtube without ads and also access to original content plus Youtube music premium service. This is costed for $11.99 per month for an individual plan and slightly different for student/family plan.

For the purpose of this execrise, i would take $11.99 per month as the monthly plan cost

I would identify the type of users that would be most interested in purchasing this plan, how many people will convert from free trial to paid (from 1.5% that sign up), how many months an average user would stay to compute LTV.

Youtube users: MAU: 2bn

Users of Youtube interested in purchasing premium would be :

Identify user personas:

1. high content consumers: consume youtube content heavily- night, watching on tv, travel

2. medium content consumers: watch it or listen to it less frequently like if they want to search for something, if they follow someone posted a new content

3. Rare watchers: goto youtube when someone shares a video with them or if they want to find something

To compute this i need to understand what painpoint this service is potentially solving for high content consumers:

1. download music and listen on the fly

2. download videos and see without internet even

3. youtube original: i am not sure how much of interesting content that is

4. no ad to bug you when watching something serious

5. play in background

6. play music on google home

With the current service of youtube(non premium)- what is the painpoint or benefit which is compuslive enough to make users purchase this service for $11.99 per month?

- download videos and see without internet even

- no ad to bug you when watching something serious

- play youtube music on google home

1.5% users that do sign up on Youtube premium- 1.5% of 2 bn = 30 mn - one month free trial

Of these 30 mn - people that will not cancel after 1 month of a free trial would be mostly people that are heavy content consumers- (based on engagement numbers- these people would have an engagement of more than 3 sessions per day and avg session time of 15 min)- assuming its approx 10% of 30 mn= 10 mn

10 mn - worldwide highly engaged users that would sign up for subscription and pay

specific regions more interested in buying per the buying capacity:

US and Europe: assuming 40% users would be in US and Europe- 4 mn

Of these 4 mn - % of users that will invest $11.99 a month would be mainly with a capacity to sustain and value that much cost- Of following user groups(student, retired professionals, homemakers, professionals, etc.) i believe- professionals, as well as retired professionals, will make most of it as they would want the youtube content on fly as well as through google home plus ads free.

Mainly professionals and retired prof would make a decision to buy  which I assume is approx 30% of the active user base in US and Europe(40mn)= 1.2 mn

Average life span: 3 years

Average LTV: 3*1.2* 11.99 * 12 * 10^6 = $500 mn approx