If you work around the media industry, you certainly hear the term ARPU a lot. ARPU stands for Average Revenue Per User. Media businesses are always talking about how they are going to increase that number every year.
In the pay TV business, increasing ARPU means moving basic subscribers to premium subs. It means selling broadband in addition to TV. It means selling phone services. It means selling video-on-demand. It means selling ads in the 2 minutes per hour of spots that you get from network programmers.
As companies create more and more digital media, entertainment and communication services for mainstream Americans, from gaming to movie streaming to smart phone apps, these developers and their digital distributors have visions of even more ARPU. More stuff; more user fees; more ARPU. However, as WPP's Group M chief Irwin Gotlieb warned attendees today at the OnScreen Media Summit, "There's no more ARPU available from the 'average' American household."
According to Gotlieb, a typical U.S. household earning $32,000 per year already spends almost $300 per month on digital goods, all out of discretionary income. When you have a moment, total all of your family's spending on everything digital, from cable and online subscriptions, to pay-per-view, from apps to texting charges to software and music downloads and connection fees. Trust me, the total will shock you.
Gotlieb's warning is that there is no more room in those households for more fees for digital goods. One early warning: this past quarter we saw the first drop in decades in total cable subscriptions. If he's right, that means that there won't be room for more ARPU growth for digital media and entertainment distribution companies on new fees for new digital goods.
Gotlieb is probably more pessimistic on this issue than I am, but I do agree with him directionally. I do believe that we are already pushing the average consumer about as far as he/she can go with fees in digital goods. Gotlieb's prescription? In the absence of growing user fees, revenue growth to pay for more digital media and entertainment will have to come from growing ad revenues.
Easy to say, but how does Gotlieb expect media companies generally, and TV companies specifically, to accomplish this? Addressability. He believes that adding addressability to all digital media platforms is essential for the industry to thrive. While this is certainly not a new theme for him -- he's been saying it for years - it certainly takes on a new meaning when you consider the slow recovery we're experiencing from this recession.
Is Gotlieb right? Can all future incremental revenue growth in digital media and entertainment come from more advertising?
What do you think?