To Everything, Churn, Churn, Churn
How Churn Became Streaming TV’s Biggest Surprise and Biggest Problem
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In recent months it’s become clear that the streaming business is tougher than a lot of people thought. (For a sense of how thinking about streaming profitability has evolved, see One Clear Casualty of the Streaming Wars: Profit, Is Streaming a Good Business? and Media’s Shift from Growth to Optimization.)
One of the main culprits is churn. It is much higher than many expected, it’s going up (Figure 1) and it might not be easy to tame. Although none of the streamers disclose it, churn may be the industry’s biggest problem.
For this essay, the good people at leading subscriber analytics provider Antenna gave me data to dig deeper into churn. Below, I discuss why churn is so critical to profitability; why it caught the industry by surprise; whether churn is becoming an ingrained consumer behavior; and what the streamers can do about it.
Tl;dr:
- How important is churn? Stubbornly high churn could render streaming permanently unprofitable for some streamers — even at scale.
- That’s because high churn both lowers the equilibrium subscriber base and increases maintenance marketing costs. For some streamers, maintenance marketing (or churn replacement) may chew up 1/2 of ARPU.
- The ease of churn may also undermine the industry’s collective efforts to improve profitability. Raising prices and moderating the pace of content spend will be pushing on a string if consumers respond by churning even faster.
- It challenges longstanding industry practices too. For instance, many sports rights contracts are predicated on generating affiliate fee surcharges all year, for content that is only on for weeks or months.
- The problem is urgent. A growing proportion of consumers are apparently becoming habituated to churning, depending on what content is available.
- As evidence, below I show previously unpublished data from Antenna on the 12-month “resubscribe” rate (people who resubscribe after having canceled within the prior year). For Netflix, in recent months over 40% of its gross additions are “resubscribers” who had canceled within the prior year. For Disney+, HBO Max and Hulu, about 30% of gross adds each month are resubscribers.
- What can the industry do? I discuss the importance of bundles (including the distinction between “good” and “bad” bundles); annual pricing plans; tailoring content strategy and scheduling around churn mitigation; and the potential benefits of loyalty and rewards programs.
- Churn is pressuring streaming economics in a way that many didn’t expect. The industry needs to adapt business models and practices specifically intended to combat it.
Figure 1. Streaming Churn Has Been Rising Recently
Note: Subscriber-weighted average of Apple TV+, Discovery+, Disney+, HBO Max, Hulu (SVOD), Netflix, Paramount+, Peacock, Showtime and Starz. US only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source: Antenna.
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