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Over-the-Top (OTT) Video Services Experience Subscriber Churn amid New Services Growth

Blog Post created by charliekraus on Apr 28, 2016

In a recent blog, I wrote about how OTT services are changing the consumer video landscape. Survey data in that blog showed that the majority of consumers (90%) subscribe to two or less pay services.  As an update, I have gathered data on how consumers are managing their OTT service subscriptions in the face of myriad choices in programming.

 

So many options…

As of March this year, there were 101 OTT services available in the US market, with 33 of them starting up in 2015 according to a recent Parks Associates blog article. If you consider that only 5% of US broadband households have a subscription to one or more of the 98 options beyond the biggest services from Netflix, Amazon, and Hulu, the competition for subscribers will be intense.

 

Let’s focus on the top three and look at what is going on in terms of subscriber churn:

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What is most illustrative to look at here is the cancellation rate as a percentage of the total subscriber base. Netflix, the OTT leader in the US, had 9% of subscribers cancel – the lowest churn rate of the top three. For Amazon Prime Video the cancellation rate was 19%, and for Hulu it was a whopping 50%! It’s even worse for the other 98 services, where over 50% of subscribers cancelled services. Given this data, the NAB presentation of Brett Sappington of Parks Associates “Adoption, Churn, and the Risky Lives of OTT Video Services” is apropos.

 

So what is going on here? It appears several factors are contributing to consumer churn. With so many new services coming online, consumers are experimenting, trying new offerings and often cancelling prior to the end of a trial period. Popular shows or events, such as HBO’s wildly successful “Game of Thrones,” are wonderful for attracting new users, but viewers often unsubscribe after watching popular programs.              

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The clear lesson here is that OTT services need to have a maniacal focus on delivering a pipeline of compelling, differentiated content to maintain value in the minds of their audience, otherwise consumers will feel the subscriptions are not worth the cost. Specific reasons for the smaller service’s high churn rate relative to Netflix or Amazon may vary by service, but there are indications services with linear components, such as SlingTV and CBS All Access, are subscribed to for watching specific content, then terminated afterwards. Users may not like the user interfaces of some services, or are not finding enough content that interests them.

 

We do know that Netflix and Amazon are spending heavily on licensing and creating original content. Netflix announced they will spend $6B on content this year. In the announcement, the company’s chief content officer, Ted Sarandos, commented that Netfix has big plans for 2016 and beyond, and that if there is too much TV content investment, someone else is going to have to slow down.

 

For its part, Amazon Prime is planning to spend around $4B in 2016 for content. With the two top OTT players investing so much, it will likely force smaller players to concentrate on carefully chosen niche content in order to remain viable. Licensing the same TV shows and movies as the big players won’t cut it.

 

So, 2016 looks to be an exciting year of OTT service’s jockeying for retaining and acquiring subscribers worthy of some “Game of Thrones” plots.

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