With streaming services pursuing profitability and eschewing the old model of driving subscriber growth, costs-be-damned, the importance of minimizing bottom line-breaking churn has become something of a rallying cry.
But strategy and consulting firm Magid is presenting a more nuanced view of churn based on insights from SubScape, an analytics tool that calculates proprietary metrics for subscription video-on-demand (SVOD), advertising-supported VOD (AVOD) and free, ad-supported streaming (FAST) services.
First, the context: Magid found the top 20 streaming services experiencing a subscriber loss of 8% and a subscriber gain of 8%, on average, between January and October 2023, resulting in zero net growth in the U.S. In addition, 40% of streaming subscribers, on average, said that they may cancel or are likely to cancel at least one of their current services in the next year.
But Magid argues that not all churn is bad. Streamers can use insights about psychographically defined consumer segments — including some with high churn rates — to allocate their marketing and acquisition investments for a mix that optimizes profitability.
Doing this also requires a shift in metrics. Rather than relying on the traditional average subscriber tenure and churn rates, “research indicates that the more accurate metric is the number of total subscribed months — whether or not they’re contiguous — which recognizes that some subscribers who leave quickly also come back quickly,” note the analysts. This model also recognizes that some high-churn subscribers make other contributions that support market share and profitability, if managed strategically.
Case in point: A high-churn segment dubbed “Hypers.” Demonstrating the inaccuracy of the assumption that high churn is always tied to low income, Hypers are the highest-income segment, but fully 55% say they may or are likely to cancel a paid streaming service within the next year.
Hypers also carry the largest number of streaming services of all segments, and are the best word-of-mouth drivers in any streamer’s customer base. (They are the highest-scoring on FOMO/fear of missing out and in expressed propensity to share about favorite shows/actors on social media.)
Getting these consumers to stick with a service a few months longer or return a few months sooner adds up to significant revenue gains, according to Magid.
“Streaming services that consistently deliver culturally relevant content will attract these transient FOMOs,” the analysis stresses.
But it also points out that big-budget tentpole series don’t necessarily bolster engagement among these and other subscribers.
Insights about the emotional resonance of shows and movies (from a separate EmotionalDNA tool offered by Magid, of course) can be integrated with segment insights to reveal what appeals most to each segment.
For example, content shown to appeal to Hypers through that process included FIFA World Cup games, “Ted Lasso,” “The Flash,” “The Walking Dead: Dead City,” “Euphoria,” “The First 48: Killer Confessions,” “Loki,” “Ginny and Georgia,” “The Kardashians” and “Gordon Ramsay’s Food Stars.”
Overall, knowing which segments to target and how to motivate them can improve ROI by guiding content development, marketing and promotion investments that fulfill expectations at lower costs, says Magid.
What other segments come into play and need to be wooed or given the cold shoulder?
“Loyalists” — high-spending, low-churn consumers who are the segment most open to ads (81% agree that they’re fine with watching some ads if it saves them money) — are gold for all streamers.
Another low-churn segment, “Mainstreamers,” is an important contributor to stability for mature SVODs. But these consumers rarely stray beyond the top five services. They’re also the segment least inclined to share about their favorite shows or actors on social media.
“Pragmatics” represent just 10% of the U.S. population, and 70% of them agree that they avoid watching ads and commercials as much as possible. Still, they represent a critical revenue-driver for some streaming services that align with their emotional needs.
Then we have “Digitarians” — a promotion-seeking, high-churn segment with equal interest in premium streamers and video on social platforms like YouTube and TikTok. These viewers are the most likely to be in a free promotional period at any given time (14%) and to be getting free rides on other homes’ accounts. Unsurprisingly, Digitarians “do not represent a high ROI on marketing dollars,” according to the data.
“Inerts,” the oldest of the six segments defined, have the lowest interest in video overall and represent the lowest opportunity to drive revenue.
For the record, the SubScape tool tracks streamers’ flow of consumers, usage, product attributes and overall vitality through monthly surveys of consumers ages 13 to 75, using samples weighted to U.S. census proportions by age, gender, income, race and ethnicity.