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Decide Which Show to Renew

Capital OneData Scientist · Technical Screen
MediumData ScientistTechnical ScreenAnalytics & Experimentation

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This problem tests the ability to calculate expected value and ROI for a business decision under uncertainty, requiring the candidate to incorporate subscriber churn risk and lifetime value metrics.

The Problem

You are a Data Scientist at a streaming platform. The leadership team is deciding whether to renew a niche documentary series for a second season.

Data points:

  • Production Cost for Season 2: $2,000,000.
  • Current subscriber count for this show: 500,000.
  • Historical churn rate for subscribers who watch this genre: 20%.
  • Monthly Subscription Fee: $15.
  • Probability that a subscriber renews their subscription if the show returns: 90%.
  • Probability that a subscriber renews their subscription if the show is cancelled: 70%.

Your Task:

  1. Calculate the expected financial impact (profit/loss) of renewing the show for one year, assuming the show retains its current subscriber base.
  2. Determine the 'break-even' subscriber count required to justify the $2M production cost, considering the difference in churn between the renewal and cancellation scenarios.
  3. Identify two key assumptions made in this calculation and how they might affect the validity of your recommendation.

Hints

Hint 1

Calculate the total expected revenue for the 500,000 subscribers over 12 months under both the 'Renew' and 'Cancel' scenarios.

Hint 2

The net benefit of renewing the show is the difference in total revenue generated by the subscribers in the 'Renew' scenario versus the 'Cancel' scenario, minus the production cost.

Hint 3

To find the break-even point, set the incremental revenue gained from the show equal to the production cost and solve for the initial subscriber count N.

Follow-up questions

  • How would you adjust your model if the show has the potential to attract new subscribers (acquisition) in addition to retaining current ones?
  • If the company has a limited content budget, how would you rank this show against another show that has a higher production cost but also higher engagement metrics?
  • What qualitative factors—such as brand sentiment or platform diversity—might lead you to renew a show even if the quantitative expected value is slightly negative?