I loved this insight about how companies are valued when they are relatively new and growing quickly. Their maths may be over-optimistic as they underestimate the cost of adding marginal customers after their initial rapid rise:
Ben Thompson: …a mistake a lot of companies make is they over-index on their initial customer. The problem is when you’re watching a company, that customer wants your product really bad, they’ll jump through a lot of hoops, they’ll pay a high price to get it. Companies build lifetime value models and derive their customer acquisition costs numbers from those initial customers and then they say, “These are our unit costs”, and those unit costs don’t actually apply when you get to the marginal customer because you end up spending way more to acquire them than you thought you would have.
Michael Nathanson: That’s my question to Disney, which is, and I think you wrote this — your first 100 million subs, look at the efficiency of how you built Disney+, it was a hot knife through butter. But now to get the next 100 million subs, what are you going to do? You’re going to add sports, do entertainment, more localized content. My question to Disney is, is it better just to play the super-fan strategy where you know your fans are going to be paying a high ARPU [average revenue per user] and always be there, or do you want to, like Netflix, go broader? I don’t have an answer, but I keep asking management, “Have you done the math?”