RAPHAEL DASTE: Hello, and welcome all. So media and entertainment has always been a dynamic space. 

And I’d say particularly over the past five years, we’ve seen quite a lot of changes. So today we’re going to dive into what are the avenues to really monetize and take advantage in this new paradigm and sort of take advantage of those new monetization opportunities. That’s what we’re going to be exploring here now, today. And to help us decipher this, I’m happy to welcome Julianna and Kaliel. The two of you bring incredibly rich perspectives, particularly as you have two unique platforms. 

So on the one hand, we have Philo, a US streaming service that offers an alternative to cable, providing over 70 live TV channels. And then we have Crunchyroll, a global platform for streamers, particularly interested in and specifically to anime across over how many countries is it now? 

KALIEL ROBERTS: Most of them except for China and Japan.

RAPHAEL DASTE: Incredibly impressive. So to set the stage, I’d like to take you back to 2019. I was working for Disney. We had recently launched Disney+. And we were on pace over the next few months to hit over 100 million subscribers. 

Much of that growth was due to the pandemic, the novelty of binge watching, budgets that were seemingly bottomless across both content and marketing, and a $7-per-month price point largely subsidized by the linear networks. The momentum kept going with international expansion, the support of ad-supported tiers that allowed us to offer even lower price points, bundling, free trials, and many promotions. 

But then rates went up. Wall Street balked. Pure-play AVOD platforms surged. Growth at all costs turned into profitability at all costs. ARPU came sharply into focus, which brings us then to today. We now live in a world where even the likes of Netflix have stopped reporting on their subscriber numbers. 

Operational efficiency and churn mitigation are an absolute must. Yet despite this, the subscription economy is projected to continue to grow at double digits, hitting $1.5 trillion by the end of this year. 

So with that in mind, let’s talk about how this industry is evolving, especially around the growth and sustainability of subscriptions, and then dig into profitability and how we maximize for ARPU. All right, so let’s dive in. Subscriptions are really the lifeblood of both of your businesses and your platforms. So in the past decade, we’ve seen the subscription economy have just this incredible growth, over 435% according to UBS. 

Yet at the same time since 2020, churn has more than doubled. So there’s this, you know, very sort of tricky paradigm that you’re trying to navigate, right? So you’ve got price sensitivity that’s up. There’s the proliferation of sort of binge and cancel, right? So when subscribers will cancel their subscription once they watch a hit series or a specific title that they’re interested in. 

So what are both of your strategies for navigating this paradigm? And Julianna, why don't we start with you? 

JULIANNA HAYES: Sure. Thank you. You know, this is something we think about a lot. And, you know, I think first and foremost, we want to make our product to be as great as it can be. And so we’ve done a lot of work on affordability. So we are currently under $30 for a cable alternative, which is pretty incredible. 

And we really try to aim to continuously bring in excellent content and make sure that we can be kind of a one-stop shop for our customers. So we have recently acquired our company where we can also offer rentals and purchases. We have some premium add-on services like an MGM+ or a STARZ, and we’re really trying to make sure that you can, you know, stay at Philo once you’re a customer. That being said, you know, churn, I think, is inevitable. 

And so we’ve also tried to make that onboarding and offboarding as seamless as possible. We’ve launched a new fast service, and our hope is that if you do join, you know, binge your favorite show, cancel, that you’ll stay in our ecosystem through our free offering. And then once your show comes back, you can, you know, gracefully come back in. So we’re constantly tweaking, constantly trying to add things to combat it. But I think also trying to embrace it and make it easy for people to come on and off has been successful for us too. 

RAPHAEL DASTE: Yeah, the graceful piece I think is really critical, right? Churn is a part of life in the subscription economy. 

JULIANNA HAYES: Yeah.

RAPHAEL DASTE: And learning how to balance that delicately is absolutely critical. And [then], Kaliel, how about from your perspective? 

KALIEL ROBERTS: I think it’s like most subscription models. We look at churn from voluntary to involuntary, and we really separate out our strategy based on that. So for voluntary churn, we’re expanding, we’re shifting more from an SVOD subscription model into an anime membership fandom model where Crunchyroll can become everything to the anime fan. 

And so we really think about the fan first and where we can expand. So we have expanded into gaming, ecommerce, collectibles, theatrical, and we’re launching a digital manga service in the fall. So really thinking about the fandom, and how we can reduce voluntary churn outside of seasons and binge watching and cancels. How can we add incremental value to that fandom? 

And then with involuntary churn, it’s really important to look at it region by region because there are different policies. You know, reoccurring payment isn’t available in every region without an opt-in, so looking at flexible billing or quarterly billing or annual billing benefits along with things like, you know, the technical, making sure you have account updater implemented and using Stripe and services, especially in high-fraud regions where, you know, Stripe is really great at reducing our fraud, which then reduces the churn from, you know, some of the bad actors that sometimes come onto the platform. 

RAPHAEL DASTE: Yeah, it’s not always self-evident exactly how to sort of strike that balance. 

KALIEL ROBERTS: Right. 

So let’s touch on sort of, you know, there’s been a blurring of the lines in the streaming world around sort of four SVOD services. So these are the subscription-based video-on-demand services with the advertising market, right? 

So that’s been sort of leaned on to provide ad-supported tiers at lower price points to attract more audiences and bring in more subscribers. But as part of the specifically for connected TVs, we’ve seen softness in the CPM rates. That’s due to, in part, you know, coming out of the ad recession, hasn’t fully bounced back necessarily. In addition, there’s been just sort of a flooding of that ad inventory with new providers providing these ad-supported tiers, you know, for the likes of Netflix, Prime Video, and so on. 

So, you know, as a streaming business, does that put more pressure on you to have a greater level of sophistication as you’re navigating that sort of variation in the ad market? 

JULIANNA HAYES: Yeah, I mean, I can speak to what we’ve seen. Yes is the answer. You know, we’ve definitely seen a degradation of CPMs and pricing. 

And I think it really started maybe earlier than I think people had kind of noticed. I think it really started in maybe even Q2 of last year, definitely has continued. My hunch is with the current economic uncertainty, and we have people right now making decisions for Q3 and Q4, and that’s really hard to do when you don’t know how much your own product is going to be priced at, for example. And so my hunch is that we’re going to see a further decline throughout the entire year. 

So, you know, I think, one, that’s going to put pressure on subscription pricing, but also it’s made us be really ruthless on the per-unit economics and just kind of a renewed effort to make sure that we’re being as efficient as possible from kind of the top to the bottom of the business. 

RAPHAEL DASTE: Yeah, absolutely critical. So it’s fair to say that the operating models for your businesses have had to sort of remain dynamic. How would you say that that model has evolved today as opposed to three years ago? And Kaliel, I’d love to start with you. 

KALIEL ROBERTS: Yeah. I think the biggest change has been, for us, it’s been to grow profitably. And so really thinking about our expansion and our investments around whether or not we’re still growing profitably. So Crunchyroll is profitable, and that is one of our core principles. So we have a huge addressable market for anime-interested. 

And the demographic’s a little younger. So instead of offering an AVOD tier, we’ve made a strategic decision to think of AVOD as more of a front porch for an SVOD funnel. So it’s slightly different than a lot of the competitors out there who are offering AVOD tiers. We’re trying to make really great content available to younger demographics and to anime-interested people and think about it more as a funnel. The second area is different ways of monetizing content. 

So offering hybrid tiers, offering different options, gaming at the second-level tiers, access to the games, etc. And also, finally, things like add-ons. I think you were talking about that. We’ve expanded into channels, into different ecosystems like Amazon. So really meeting the fans where they are. And then finally, just expanding internationally and globally and really thinking about localizing our offering, our service, building in localized payments, thinking about how people in different regions pay and making sure that we support our fans wherever they live and however they want to pay. 

RAPHAEL DASTE: Yeah, fair to say, Crunchyroll has really become sort of the gold standard for anime fan engagement worldwide. 

KALIEL ROBERTS: Yeah, I mean, I think, when I started at Sony, we were just over 600,000 paid subscribers and now we’re at 15 million, and part of that strategy was really expanding globally. We had more than 50% of our subscribers in the US six years ago and now that has shifted to outside of the US for a majority of our subscribers, so that was a strategic decision we made and really optimized what we were doing from a payments perspective globally, which unlocked so many subscribers.

RAPAHEL DASTE: That’s tremendous growth. And Julianna, from your perspective, how’s the Philo operating model evolved?

JULIANNA HAYES: Changed? Yeah, I mean I think in general this entire industry was kind of “grow at all costs,” and the marketing budgets were huge. And the math didn’t work all the time. And so, before Philo, I was actually at Twitter, my job was to forecast revenue, and I remember when a lot of these apps started launching, the budgets we were seeing come in were like literally nothing the company had seen before, from a budget standpoint. I really got some numbers wrong. 

RAPAHEL DASTE: I think many of us did.

JULIANNA HAYES: It was really outstanding, but I think when people kind of took a step back, more recently, and was like, okay, this isn’t sustainable, this doesn’t make sense. I think for Philo, the same, we want to grow but we want to grow profitably. We’ve just done a much better job at making sure that our marketing spend, for example, makes sense, that from a top-to-bottom standpoint the math works, and that we’re growing in a way that’s both sustainable and profitable.

RAPHAEL DASTE: Yeah. So maybe just double clicking on that for a moment. So financial rigor, right, has absolutely become top of mind. 

JULIANNA HAYES: Yeah.

RAPHAEL DASTE: It’s very much sort of what Wall Street is looking for, right? Sustainable growth. Philo is now on a path to profitability. 

JULIANNA HAYES: Yeah. 

RAPHAEL DASTE: Yeah, we’d love to hear a little bit more about that.

JULIANNA HAYES: Sure. So I came in a couple years ago, and I think one of the first things that I put in place was just a goal for the company to be profitable. And we had a fantastic year that year. 

And I think what was great is we mobilized a lot of the team to really look top to bottom on, how can we save, where are there savings? And I’m someone who hates waste. And you know, I like to look at every single piece and see where we can save and optimize. And from a just, you know, subscriber margin standpoint, we spent a lot of time looking at that. And Stripe has actually been really instrumental for us because we’ve been able to move more of our subscribers onto Stripe Billing. 

And so that reduction in third-party billing costs has been very meaningful to our bottom line. And so, you know, even though we’ve kind of talked about the challenges in the market, we just had the most profitable Q1 we’ve ever had. So a lot of these strategies have been working for us, and we’ve just put, you know, I don’t know, my team’s here, but probably at least a hundred different strategies in place to really try to maximize the profitability and make sure that, again, the math works for us. 

RAPHAEL DASTE: Well, that’s tremendous. And, you know, thank you for partnering with Stripe to be on this journey. From the Stripe perspective, we are really about building and enabling the tools for your platform to be able to focus on your core differentiators, focus on the content that brings streamers to your platform, focus on whether it’s gaming, the merchandising that you’re offering to the anime fans in addition to streaming, right? Focused on really growing and building your fan base. 

At the same time, you know, we want to enable that efficiency that’s required as part of your business. So maybe as we look at the other side of this, it’s about growth, right? And it’s about showing up with the flexibility that’s required to capture as much of the market and that fan base as possible. So, you know, question for Kaliel, Crunchyroll has done really just an amazing job at becoming this gold standard, as we said, for fan engagement. 

Talk to us a little bit about these strategic expansions that you have led for Crunchyroll. 

KALIEL ROBERTS: Yeah, so we looked at our fans and thought about really what else they wanted, and we looked at some of the data around our fandoms, and 93+% of anime fans are also gamers. I remember hearing something years ago about how after game servers on Discord, the second big, largest servers were actually anime servers. 

We also looked at the fandom and their collectors also. So it really made sense for us to add this incremental value of being able to access exclusive games, ecommerce discounts, exclusive collectibles, really big theatrical releases, and build on what that fandom was doing outside of just anime. And so they’re reading manga. Anime starts from manga, which is basically a graphic novel of the story. 

It’s an amazing story, and once it gains popularity, it goes into anime. A lot of the fans who start with anime also want to go back and then read the manga. And so it makes sense for us to move into digital manga. Anime is also very seasonal. The season is based on when the anime airs in Japan. And so, and it’s also the number-one most pirated content in the world. 

And so we really don’t have the luxury of being able to spread the content over a season. It has to be released right when it’s released in Japan. So for us, it was very important to be able to offer more value beyond the four seasons that are structured from Japan. And so we’ve really been spending a lot of time with our incredibly passionate fans, trying to figure out what else we can offer and where we should invest to really super-serve them. 

RAPHAEL DASTE: That’s remarkable. And we’re talking about entertainment, but really it sounds like Crunchyroll has become more than that. You’ve become sort of the cultural zeitgeist for all things anime and particularly providing these immersive experiences. 

KALIEL ROBERTS: That’s our aspiration. Yeah. [Laughter] 

RAPHAEL DASTE: Well, clearly, clearly it’s resonating with your fan base, and it’s clearly growing and super-serving your audiences. From the Philo perspective—

JULIANNA HAYES: Yeah.

RAPHAEL DASTE: —Julianna, how are you thinking about this? 

JULIANNA HAYES: Yeah, kind of similar to what I mentioned earlier. If we can get incremental revenue outside of our subscriptions, that’s fantastic. And so, like I said, we have some premium add-ons. We have the ability to rent and purchase film. And I think another big thing we’re also trying to understand is, how do we get the customer with the highest lifetime value? So again, being really smart in our own investments and finding the right customers who are going to stay with us longer term. 

And that’s been a really big initiative of ours as well. 

RAPHAEL DASTE: So I think—thank you, Julianna—I think we’re getting quite a good picture here about, you know, what it takes to not only survive but to thrive in today’s streaming wars and essentially the attention economy, if you will, right? So you really need to be laser-focused on that fan engagement. It’s about identifying, you know, ways to increase ARPU and think about sustainable growth with unit economics in mind. 

So before we go, I think we could talk about this all day. Before we go a little bit further, I’d love to, you know, hear from the audience and tap into some of the questions that we’re seeing from you all. 

So, oh, looks like we’ve got a very relevant one and a very timely one that’s come in. 

So how has the recent Apple ruling affected your go-to-market plans? And I think this is in relationship to the announcement that Patrick spoke to yesterday as well, in terms of Apple now legally has to enable payments outside of, for instance, the App Store, you know, without any sort of incremental fees or anything like that. So curious whether you’ve had time to think about that. 

KALIEL ROBERTS: I’ve thought about it a little bit. I mean, I think it’s good for competitive, you know, for the market from a competition perspective. But when I look at the other types of payments out there also, the integration for what we’re doing is seamless, right? So when we integrated Apple and Google Pay, it did unlock new subscribers without cannibalizing our Stripe subscribers. 

And I think it’s just because that’s how some of the fans want to pay. I think that it doesn’t change much for us from the unit market because you may get less subscribers if you force them to go outside of the way they want to pay. So I always think that having as many payment options as possible so that you can meet the fans how they want to pay and how they want to subscribe is the best policy. 

RAPHAEL DASTE: Yeah. So whether—

KALIEL ROBERTS: But if you were talking to Epic, I know it would be a very different story. [Laughter]

RAPHAEL DASTE: They may be in the room, yes. [Laughter] So, yeah, so fair to say, right? Again, curating to your subscribers’ preferences, right, offering them that flexibility to pay how they want. And again, you touched on [this] for Crunchyroll, you’re talking about, in certain cases, a global audience and fan base and younger audiences that may very well have diverse preferences for how they pay. 

KALIEL ROBERTS: Yeah. Yeah, I mean, I think that, you know, my kids pay—I don’t think my kids ever handle cash, right? If they ask for money, they want me to send it to them on Apple Pay. If they’re—you know, and I think about that’s not how I pay for things, but, you know, we have very different behaviors, and yet we live in the same house. 

RAPHAEL DASTE: Does the Tooth Fairy transact digital coins? [Laughter] Stablecoin? 

JULIANNA HAYES: Stablecoin. The stablecoin.

KALIEL ROBERTS: The tooth fairy comes between two days and seven weeks. [Laughter] The tooth fairy does not send payments through iMessage, yeah.

RAPHAEL DASTE: Well, you know, there’s always next year’s Sessions. 

KALIEL ROBERTS: Yeah [laughs]. 

RAPHAEL DASTE: So, yeah, and Julianna, from your perspective. 

JULIANNA HAYES: I could talk about this for hours. 

RAPHAEL DASTE: The Tooth Fairy? 

JULIANNA HAYES: Not the Tooth Fairy. 

KALIEL ROBERTS: The Apple ruling? 

JULIANNA HAYES: The Apple ruling. I think it’s really exciting. And we haven’t changed our strategy yet. I think a lot of company needs—one, we need to make sure that this is a final decision, that it holds. But I do think it’ll have pretty major implications. And I totally agree about meeting our customers, you know, with how they want to pay. But you also, of course, want to make sure that it’s fair for both parties and that smaller companies also can, you know, be profitable and do their best work. 

So I think it’s really exciting, and I think it’s going to be impactful. 

RAPHAEL DASTE: That’s great. Yeah. And yes, I think the democratization of, you know, the advantages of unit economics and ARPU, right, to create more sustainability for more platforms, more streamers, more subscription services—  

JULIANNA HAYES: Yeah.

RAPHAEL DASTE: —overall seems to be a good thing. Okay, so I think we’ve got time for one more question. 

So get out your crystal balls, and I’d like you to give us your thoughts. We’ve spoken about the incredible pendulum shift that we’ve had over the past five years from growth at all costs to profitability at all costs, and then the impact that that has had on the operating models for sustainable subscription services. What is then your take on, if we’re sitting here in 2030, what do you think that model’s gonna look like as of then? 

KALIEL ROBERTS: I love thinking about this one. And one of the statistics or the recent sort of numbers that I looked at was where Gen Z is spending their time, so this emerging younger generation. And for the first time, they’re spending more time on gaming than on TV and movies, which was all previous generations that we track. 

And just thinking about that and looking at how the younger generation is emerging, like they’re spending more time on Roblox. That’s their social—yeah, a lot of their social world now is by playing games with their friends after school, that’s how they interact. Discord is a big area for them. So I think about how we’re going to move from an owned and operated sort of traditional streaming app to integrating with these other ecosystems that are emerging. 

So I imagine it won’t just be, you know, you open the app or you open the service and you play it, but then how do you compete for the time with this new way that the world is interacting? So I think there’s something with streaming integrated into gaming ecosystems. And we’ve seen it a bit with, I think it was Travis Scott on Fortnite. There’ve been a bunch of video events on Roblox that have had the same number of concurrent viewers as on linear, a big, you know, live event. 

So really looking at the younger generation, how they’re spending their time and thinking about what they’ll be consuming and how in the future. And there’s tons of interesting things there, I think. 

RAPHAEL DASTE: Yeah, I think that’s exactly right. And I think that the blending we’re seeing of entertainment modalities, right? That intersection is only likely going to increase, particularly as the expectations of, you know, the younger generations is that they have immersive experiences throughout. 

So, and you know, not to mention AR, VR, and what’s to come. 

KALIEL ROBERTS: Yeah. It’s crazy, yeah.

RAPHAEL DASTE: Julianna, from your perspective? 

JULIANNA HAYES: Totally. You know, I think very similar. We’re starting to think about, you know, what the different generations are doing. And, you know, my kids don’t watch how I watch. Their eyeballs are on their phones. A lot of gaming. Actually, now that you said it, one of them really is into VR. 

And I’ve recently—you know, like three or four years ago, I’d have been like, get off your screen. And now I’m like, choose something with a script that has production value—[Laughter]—which—and I’m like, oh, man, did I just say that out loud? But, you know, I think the rise in user-generated content is just, it’s huge. And I think, in particular, it’s something we’ve started thinking about: how are we going to incorporate that into more traditional live and scripted TV offerings? 

And so, you know, at least for us, it’s pretty early days, but we are really starting to think about what that could look like in the future. 

RAPHAEL DASTE: The creator economy is here to stay. Absolutely. Well, Julianna, Kaliel, it’s been a delight having you here with me on stage. Thank you so much for joining us on our panel. I want to extend a big thanks to our audience. Thank you.