telecom

OTT Services Seeing High Churn Rates

by Aaron Baar , July 30, 2015

As consumers decide what they want out of their Over-the-Top (OTT) video experience, the industry is seeing some fairly high churn rates. While typical for subscription-based industries, some companies are managing better than others.

According to Parks Associates, 4% of U.S. broadband services have canceled their Netflix service over the past 12 months, representing about 9% of its overall subscriber base. Comparatively, 7% of those households have canceled Hulu Plus, representing about half of its subscriber base.

“The surprising element for us was Hulu Plus,” says Brett Sappington, director of research at Parks Associates. “To shed a number of subscribers equal to half or more of your current subscriber base is a huge problem.”

Through its Video Market Tracker service, Parks is following the details and trends of more than 75 OTT services available in the U.S. Of those services, many are small and specialized, such as those offering Korean films and programming or catering to a specific genre (like Horror), Sappington says. Among those smaller services, the churn rates are much higher as consumers try them out for a short period of time before deciding to continue.

“I think people cancel different services for different reasons,” Sappington tells Marketing Daily. “The high churn rate for many of these services suggests that consumers are holding onto their Netflix account while experimenting with the wide variety of other video subscription options.”

As all these services move forward, they’re going to have to find ways to retain their customer bases in order to survive, however. Some, like Netflix and Amazon Instant Video, may look to creating buzz-building original programming, while others may want to look at being readily available through the OTT device interface (such as being featured on Roku), Sappington says.

“We’re [also] starting to see a new type of content aggregator” that follows what consumers watch, Sappington says. “We’re just starting to see these services spin up in terms of aggregation.”

ott, streaming, tv

5 comments about "OTT Services Seeing High Churn Rates".

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Ed Papazian from Media Dynamics Inc, July 30, 2015 at 3:35 p.m.
These "churn" rates are pretty high and suggest that as more and more broad appeal SVOD services are launched by the broadcast TV networks and their cable counterparts, that consumers will become even more selective in their subscriptions. This will result in SVOD services trying to lock up subs for longer intervals---by offering large discounts----but that may not solve what might become an increasingly severe churn problem. The obvious answer is to offer some form of ad-based service as well as the current ad-free versions, or, perhaps, to integrate the two, letting subs pay more to have the ads deleted. It should be interesting to see how all of this plays out.
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Martin Focazio from EPAM Systems, July 30, 2015 at 6:43 p.m.

I don't think churn is a real issue for NFLX. Netflix added 2.28 million subscribers in the U.S. Q1 2015, compared to 2.25 million it added in the first quarter of 2014. This brought its U.S. subscriber total to 41.4 million, up by 5.73 million year-over-year. Cable Cos had 50.4 million subscribers in Q1 2014 to 49.3 million in Q4 of the same year. The churn isn't hurting NFLX, and I think cable co's are going to be just fine as ISP's who happen to have some TV offerings.

I think that the high churn at Hulu+ is people trying - and rejecting - an astonishingly high (and repetitive) ad-load when they are now used to ad-free sVOD on Netflix and Amazon Prime. It's clear from the research I've seen that the "Cord-never" and "cord cutter" mindset is that if it's free you get ads in the stream. If it's paid, it's ad-free. Not "skippable" ads - NO ads. You're completely right about the "ad-free" option becoming more prevalent or at least tried (it is already being tested in a few ways actually) however, the implications for marketers are that only the people who can't afford to opt-out of ad-supported television will "have the opportunity" to see the ad. Ask Mercedes where they will want to spend their media $$ in that case. I don't think there's enough revenue replacement in ad-free sVOD subscription revenue to match the kind of margins and free cash-flow that many content owners (and talent!) expect. Interesting times, right?

Sean Doherty from Wurl, Inc., July 31, 2015 at 10:43 a.m.

Can you explain what your lead statement means (I think there's a typo): "4% of U.S. broadband services have canceled their Netflix service over the past 12 months, representing about 9% of its overall subscriber base. "

What's are "broadband services" ? Do you mean "broadband subscribers" (approx 90 million in U.S. https://en.m.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_subscriptions)?

If that's your numerator, then (according to your reporting):
3.6 million Netfix subscribers cancelled their service (4% of 90 million)
6.3 million Hulu subscribers canceled their service (7% of 90 million)

Is that what you're reporting?

Sean Doherty
Wurl, Inc.

Douglas Ferguson from College of Charleston, July 31, 2015 at 12:47 p.m.

The old media would just love to see advertising on the OTT channels, but I suspect the newcomers will not choose to remove a key element of differentiation. HBO survived without ads and so, too, can Netflix and Amazon.

Ed Papazian from Media Dynamics Inc, July 31, 2015 at 3:35 p.m.

Doug, I'm not so sure that the old media would be happy to see advertising on the OTT services if the old media didn't control such services. In that case, the ad dollars would be coming out of the old media's hide. In any event, the really interesting thing to watch will be what happens when the amount of available commercial TV GRPs starts to shrink as more viewing tonnage shifts to OTT or SVOD services? Or will these, too, hit a price ceiling beyond which they can't grow---like pay cable some decades ago?