Superior retention is a major reason that “hybrid” video-on-demand (HVOD) services — the new acronym for streaming apps that offer both ad-free subscription-based/SVOD and ad-supported/AVOD tiers — will be the dominant business model going forward, confirms a new analysis based on ACR data from 45 million opted-in U.S. Samsung TV owners and an accompanying Q4 survey of 1,000 owners.
As subscription options have proliferated, and competition for consumer time and dollars has become increasingly fierce and costly, entertainment companies have launched ad-supported options to add a new revenue channel, and have also begun a rapid shift from a focus on pursuing new paid subscribers regardless of cost to one that seeks to optimize profitability through retaining users/subscribers.
The good news is that time spent video streaming is up 31% year-over-year in 2022, and the average monthly number of streaming users on Samsung TVs is up 17%, according to the Samsung Ads study.
The bad news: On average across apps, the percentage of new user share among the active user base is down 12% YoY.
Existing/retained users are crucial to app growth. On average across apps of all sizes, more than half (53%) of a given app’s active user base consists of retained users. Retained users also represent more than 70% of an app’s viewing time, on average, according to the data.
Retained users are even more critical for the largest, “Tier 1” streaming services (the top 20% by average number of monthly users). For those apps, these users represent 69% of the user base and nearly 90% of viewing time, on average. (Tier 2 is the next 20% of apps by user numbers, and Tier 3 is the 60% of apps with the smallest users counts.)
But streaming services face daunting competition. Nearly half of consumers who stream say they have access to four or more services, but 62% say they use three of fewer services on a regular basis.
In any given month, nearly half of an app’s active users are at risk of churn. On average, churned users are seven times the size of an app’s active users base.
Large/Tier 1 apps have a significantly lower churn ratio (1.7) than other apps, but that is up by 27% versus last year, according to Samsung. Even the largest services have lost nearly twice as many users as their active user bases over the past four months.
Given economic pressures, a service being free or low costs is now the top reason cited by consumers for trying a new app (cited by 21%). Reason #2 is “service has original content I can’t get anywhere else” (18%) and “service has content I normally watch on cable or broadcast TV (16%).
Not surprising, then, that a service being too expensive is now the #1 reason for cancelling or ceasing use of an app (30%). That’s followed by “new content is not as frequent as other services” (18%) and “service is too difficult to use” (16%).
When it comes to why consumers use some of their existing apps more than others, content still dominates. The most-cited usage drivers are “service has a deep library of the content I view most” (15%), “service has content not available elsewhere” (15%), “service lets me catch up on shows that I missed on cable or broadcast TV” (14%) and “service has new content frequently” (12%).
However, “service is free or lower-cost than other services” was cited by 10%, tying with “service is easy to use.” “Service does not contain ads” was cited by just 7%.
The HVOD services analyzed have an average retention rate of 63% among their active audiences (chart top of page), and this has grown by 6% over the past year. Both SVOD-only and AVOD-only services (offering only one subscription tier) have lower retained user shares.
Moreover, fully three out of four SVOD subscribers surveyed said that they would switch to a lower-priced, ad-supported option offered by their current provider.
In other words, it's no mystery why all Tier 1 streamers will already be HVODs by the end of this year.