Analyst: Can we start with mechanics. When you say an output deal gets priced against retention data, what's actually in the model?
Expert: The model doesn't set the price. People assume there's a machine somewhere and the machine says pay four hundred million. There isn't. The price is whatever the other side will take. The model tells you when to walk. That's its whole job.
Analyst: Fine. But what's in it.
Expert: Hours. Denominator's always hours viewed. Everybody in this business says engagement and engagement means hours, don't let anyone tell you it means something cleverer. Licence fee, spread over the term, project hours, cost per viewed hour. We called it CPH, which was annoying, because the production side uses CPH for cost per hour made. Ours was consumption.
Analyst: What did the numbers look like?
Expert: Catalogue — off-network procedural, domestic, non-exclusive, three year term, no first-run — two to four cents a viewed hour. I've seen under a cent once, on a volume package, studio needed cash before quarter close. Premium originals you're... okay, hold on, let me not do it that way, because the raw comparison is unfair and somebody always quotes it back at me.
Analyst: I'd like the raw comparison anyway.
Expert: Sixteen up to forty-odd cents. Top of the slate, the prestige thing with the movie star in it, you can get past a dollar. Don't hold me to the decimal, that's from memory and it moved around a lot between 2019 and 2023.
Analyst: So call it a factor of ten.
Expert: Closer to eighteen on the raw number. But the raw number is the number that's wrong, and that's the more interesting thing, because not every hour is worth the same. Obvious the second you say it out loud, and it took us three years to get it into the model. An hour watched by somebody who does thirty-odd hours a month and has been a member since 2017 — that person is not leaving. That hour buys you nothing and it costs you delivery. An hour watched by somebody in month two, four hours a month, already been into the cancel flow once and backed out, that hour is doing enormous work. So we started weighting hours by the member's modelled churn hazard.
Analyst: What was the spread between top and bottom?
Expert: Nine point four between top and bottom risk decile on the 2022 refresh. Sorry — nine point four was the refresh after. The 2022 one was eight point something.
Analyst: And that does what to the rankings?
Expert: Wrecks them. Because the enormous show that everybody watches gets watched disproportionately by people who were never going anywhere. That's what "everybody watches" means. So on retention-weighted CPH, the most expensive title on our slate that year came out roughly level with a package of nineties sitcoms. And I had to present that. In a room that included the person who'd bought the show.