One of the greatest benefits for subscribers for OTT services is the freedom to sign up and cancel at any time. From the streaming provider point of view, this model attracts new prospects, but does it really pay off in the long haul? Such an attractive, flexible business model also poses a difficult challenge when it comes to long-term commitment.
According to Parks Associates and an article posted on Multichannel News, the percentage of subscribers canceling service – otherwise known as churn rate – is 9x higher for OTT services than the traditional pay-TV model, with OTT churn standing at 35% and traditional pay-TV only at 4%. The models that have thrived through the past continue to succeed due to their ability to contractually lock in subscribers to pricier business models. They send the hardware, and customers pay along with their regularly recurring internet and/or phone bill without thinking twice. Much of the churn experienced by traditional pay-TV can even be attributed to customers moving away from the service region, leaving just a small percentage of subscribers who willingly cancel their services.
While vMVPD services like Sling and Hulu + Live TV fair better than pure OTT models, they are still subject to 24% churn rates – 6x the traditional pay-TV amount. Because vMVPD and OTT subscribers have the option to cancel at any given time, many money-conscious subscribers practice what is called cycling, meaning they sign up to watch a specific live event like the Superbowl or stream a season of their favorite show and immediately cancel once it ends.
To shift the tides for these high-churning verticals, it is imperative for vMVPD and OTT providers to be able to identify consumption patterns and leverage such data to offer more tailored service offers to keep them retained.
For example, even if someone signs up for Hulu + Live TV just for the intention of watching the Olympics, it is likely that they will take advantage while they have the service to explore what it has to offer. By tracking the additional content streamed (which will be available via the service long after the Olympics), Hulu is developing targeted promotions to remind the subscribers of the value they will continue to gain for a nominal price point by simply not cancelling the service.
The example of the spike in searches for “How to cancel HBO” following the finale of Game of Thrones, underscores the size of the retention opportunity. Instead of risking losing those who subscribe just for that one show, there is an opportunity to entice subscribers to stay by offering different pricing models – such as the option to subscribe to a lower tier package with similar content at a cheaper price. Retaining a customer at a lower monthly recurring revenue point continues to drive revenue, compared to completely losing the subscriber.
This also applies to more modern pay-TV providers who want a piece of the OTT revenue share. Providers like DirecTV in the US, A1 Austria or DNA Finland in Europe, now offer pure OTT packages to their service to acquire new customers and drive additional revenue by tapping into the market share that has already cut the cord, as well as by appealing to existing customers wanting that TV Everywhere experience. By offering a “freemium” model for existing subscribers, they can track viewing habits and determine different levels of service offerings at prices their customers are willing to pay.
According to Cleeng, a specialist in subscriber retention management technology for OTT providers, reducing your monthly churn by only 2% can increase your monthly recurring revenue (MRR) by 24% in just one year. Together with Cleeng, we will be providing a follow-up blog post to take a closer look at the blurred lines between pay-TV and OTT churn. It is imperative for video service providers to understand churn from both angles, so stay tuned to gain a deeper understanding of how they differ and how to best tackle each.