1

LTV for each quarter from 20

80.000
70.000

60.000
50.000
40.000

30.000
20.000
10.000

Jul-04

Mar-04

Nov-03

Jul-03

Mar-03

Nov-02

Jul-02

Mar-02

-20.000

Nov-01

-10.000

Jul-01

0.000
Mar-01

Quarter
LTV
Mar-01
31.196
Jun-01
22.098
Sep-01
53.386
Dec-01
41.113
Mar-02
57.028
Jun-02
51.409
Sep-02
55.067
Dec-02
50.152
Mar-03
52.265
Jun-03
51.429
Sep-03
53.570
Dec-03
70.878
Mar-04
51.216
Jun-04
37.734
Sep-04
33.900
Dec-04
19.288
Mar-05
23.878
Jun-05
22.212
Sep-05
28.511
Dec-05
18.194
Mar-06
20.440
Jun-06
12.304
Sep-06
14.087
Dec-06
0.758
Mar-07
0.348
Jun-07
-11.508
Sep-07
-18.545

-30.000

2
As we can see from the LTV versus timeline graph, when Total Access was introduced in Nov. 2006, it competed directly with Netf
We also see that the revenue per customer decreased after the introduction of Total Access and consequently the marketing and acqu
These can be atributed to the fact that Blockbuster's Total Access was a comprehensive plan which offered customers access to the
It was an immediate hit with customers because it included the option of exhanging movies as well as video game rentals. These add
3
Yes, the decline of Netflix's CLV is explained well by the financials. We notice a strong correlation between the CLV and the share
the share price also drops. Thus the customer metrics are a good indicator of the market valuation.

4
CLV continues to be a good indicator because it provides an indication of the most profitable customers to the firm. So from the ove
to focus its marketing efforts on and build loyalty among this profitable customer base by intermittant communication channels. For
new relevant data as the current analysis takes into account only customers which are renting DVDs thus we cannot use the same dat

LTV for each quarter from 2001 to 2006

Jul-07

Mar-07

Nov-06

Jul-06

Mar-06

Nov-05

Jul-05

Mar-05

Nov-04

Jul-04

LTV for each quarter from 2001 to 2006

duced in Nov. 2006, it competed directly with Netflix and impacted it as can be seen from drastic fall in CLV from Nov. 2006 onwards.
al Access and consequently the marketing and acquisition costs drastically rose.
ensive plan which offered customers access to the entire range of Blockbuster's services.
g movies as well as video game rentals. These additional services ate into Netflix's share resulting in sharp decline in CLV.

strong correlation between the CLV and the share price and therefore, we note that whenever the CLV drops

st profitable customers to the firm. So from the overall target market, the company knows which customers
base by intermittant communication channels. For customers BUYING DVDs, we would require
are renting DVDs thus we cannot use the same data for DVD buying customers.

from Nov. 2006 onwards.

Mar-01
17,057

Jun-01
18,359

Sep-01
18,878

Dec-01
21,618

Mar-02
30,527

Cost of subsrciption (Operating$ cost)

9,476

10,776

9,667

14,811

14,872

Variable costs
fulfillment expenses
$
technology and development $
marketing costs
$

$
$
$

3,589
4,896
4,090

$
$
$

3,283
4,463
3,444

$
$
$

3,785
4,802
6,167

$
$
$

4,155
3,181
7,938

Revenues

2,886
3,857
4,665

Number of Paid Subscribers

303

306

315

456

562

Gross Subscriber Additions

186

88

107

186

312

Subscriber Acquisition Cost (A)$

25.15

46.48

32.19

33.24

25.44

All Values except Subscriber Acquisition Cost are in thousands

Hints:

Gross Profits refers to the difference between Revenues and Cost of Subsciption
Acquisition and Retention rates can be computed using the 'Number of Paid Subscribers' and 'Gross Subscriber Addi
Using the above computed Gross Profits, Retention rate and a discount rate of 2.5% (quarterly)

We calculate below the gross profit per customer and the marketing and research cos
Gross Profit
Gross Profit per customer

7,581
25.021

7,583
24.781

9,211
29.241

6,807
14.928

15,655
27.856

profit discounted

22486.176

30002.554

38795.923

51144.525

57143.466

profit per customer

74.212

98.048

123.162

112.159

101.679

(D + R) discounted

12994.537

16600.622

21050.578

24045.349

26451.348

(D + R) per customer

42.886

54.250

66.827

52.731

47.066

LTV

31.196

22.098

53.386

41.113

57.028

Jun-02
36,360

Sep-02
40,731

Dec-02
45,188

Mar-03
55,669

17,779

21,147

23,246

29,928

$
$
$

4,854
3,518
8,054

$
$
$

4,908
3,966
9,299

$
$
$

5,449
3,960
10,492

598

671

857

236

277

315

34.13

33.57

33.31

6,383
4,183
13,207

Jun-03
63,187

Sep-03
72,202

Dec-03
81,185

35,148

38,326

44,334

7,221
4,123
9,957

8,322
4,738
12,183

$
$
$

9,348
4,840
14,602

1009

1055

417
$

31.67

1172

327
$

30.45

1224

383
$

444

31.81

32.89

33,876
28.904

36,851
30.107

Cost are in thousands

ribers' and 'Gross Subscriber Additions'

d the marketing and research costs to determine the overall LTV per customer
$

18,581
31.072

19,584
29.186

21,942
25.603

25,741
25.511

28,039
26.577

63894.130

71944.483

83258.328

93818.603

108914.726

124857.371

156607.064

106.846

107.220

97.151

92.982

103.237

106.534

127.947

31322.644

32052.775

33675.221

34869.510

50571.352

58667.565

66448.956

52.379

47.769

39.294

34.558

47.935

50.058

54.288

51.409

55.067

50.152

52.265

51.429

53.570

70.878

Mar-04
100,370

56,444

10,790
5,039
26,693

Jun-04
120,321

Sep-04
141,644

Dec-04
138,276

69,604

71,130

76,223

93,986

99,957

97,878

14,373
5,652
20,477

8,322
4,738
22,525

$
$
$

23,124
7,477
38,674

16,694
7,155
35,803

17,560
7,513
26,338

15,013
6,325
33,463

1631

1933

760

2080

583

Mar-05
152,446

2308

590

Jun-05
164,027

2687

783

Sep-05
172,740

2998

945

3266

707

921

35.12

35.12

38.18

49.39

37.89

37.25

35.69

43,926
26.932

50,717
26.237

70,514
33.901

62,053
26.886

58,460
21.757

64,070
21.371

74,862
22.922

174218.620

182143.007

175677.946

187533.704

218295.237

250598.071

284839.694

106.817

94.228

84.461

81.254

81.241

83.588

87.214

77329.834

92032.724

96265.994

91072.366

110783.708

136401.354

150021.347

47.413

47.611

46.282

39.459

41.230

45.497

45.934

51.216

37.734

33.900

19.288

23.878

22.212

28.511

Dec-05
193,000

101,967

126,220

128,605

$
$
$

21,495
9,949
57,331

22,045
11,206
52,968

21,974
12,043
47,031

Mar-06
224,126

3725

Jun-06
239,351

4380

1156

Sep-06
255,950

Dec-06
277,233

135,210

142,586

165,189

166,838

23,583
8,955
59,367

$
$
$

26,762
16,175
92,062

29,783
15,715
72,138

29,855
18,907
45,255

4876

1377

5253

1070

5823

1310

49.59

38.47

43.95

45.32

91,033
24.438

97,906
22.353

110,746
22.712

120,740
22.985

1493
l
61.66

134,647
23.123

Mar-07
305,320

Jun-07
$ 303,693

6415

6643

1520
$

47.46

140,131
21.844

1028
$

44.02

$ 136,855
20.601

313046.779

348000.073

376079.639

391825.102

387937.732

257505.175 127087.805

84.039

79.452

77.129

74.591

66.622

40.141

19.131

151569.042

187878.987

212532.266

200502.339

159108.416

90948.126

47966.829

40.690

42.895

43.587

38.169

27.324

14.177

7.221

18.194

20.440

12.304

14.087

0.758

0.348

-11.508

Sep-07
293,972
163,707

30,746
18,216
49,166

6727
1297
$

37.91

$ 130,265
19.365
0.000
0.000
0.000
0.000
-18.545