The direct-to-consumer entertainment market has many unpredictable factors, making it difficult to assess growth, as the pool of potential customers is not infinite. Still, there is plenty of untapped market out there, as opposed to everyone fishing the same waters.

By Andy Marken

“You cannot go around saying to people that there’s 100% chance that they’re going to die. You know? It’s just nuts.” —President Orlean, Don’t Look Up, Netflix, 2021

Since the first of the year, and increasingly throughout the summer, analysts have been wringing their hands about the problem with churn, or subscribers who cancel or don’t renew a streaming service subscription.

The Netflix subscription dip early this year was relatively minor—220,000 out of 220 million. Not good, but then they did drop an entire country’s subscribers and they guessed they would add 2.5 million. Suddenly, the viability of the entire streaming industry was in question, and the shares of every entertainment firm cratered.

Churn is nothing new. Churn with cable/pay TV was very low, but trying to get out of your cable agreement was “a challenge.” And, you seldom had a choice of another option with 500-plus choices. Mobile phone operators spend about $340 million annually to get you as a customer with a “free” phone and long-term plan (again, tough to escape). The longer you stay, the more their profits rise.

 Even with growing competition, Netflix has clearly done a better job of retaining subscribers. The key now is in transitioning to tiered pricing to win and retain more individuals and families.

Netflix started the streaming trend—sign up and cancel when you want. It worked beautifully until 2019, when everyone jumped in—Disney, WBD (Warner Bros. Discovery), ViacomCBS (Paramount), Comcast NBC (Peacock), and 200-plus other services around the globe. Those that followed the subscription route with Netflix had the same type of contract (no contract). Some—Pluto, Tubi, IMDb TV (now Amazon Freevee), Xumo, and Vudu—took the modified pay TV route with no monthly fee, but you pay by looking at ads.

We didn’t include Amazon and Apple in the SVOD list because they’re following a different approach that’s similar to mobile services. Amazon bundled its Prime Video with its e-commerce services and gave customers access to games, reading material, MGM/new content stuff. Meanwhile, Apple entered the market and Hollywood laughed. The company focused on the 1 billion-plus devoted Mac, iPad, and iPhone users, providing  good content, games, health/exercise monitoring, reading material, security/privacy, and other stuff in their beautiful, protected, profitable walled garden.

No one talked much about churn because the market was going to be huge—85% of US households had at least one SVOD service, and there will be 1.7 billion subscribers around the globe by 2027, according to Digital TV Research. Then Netflix sneezed, and suddenly industry/Wall Street analysts said the SVOD industry was sick… very, very sick.

Churn in the UK, Germany, Brazil, and Japan is close to 30%. The Americas have remained fairly constant, with 85% of households having at least one SVOD service and an annual churn of about 37%. Neither number was good, but folks sorta glossed over it until they didn’t.

Despite the hand wringing, global SVOD subscriptions are about 1.2 billion this year, and there is still plenty of growth potential. China and the US will account for 48% of the world’s total viewers by 2027. China leads the world in population (over 1.4 billion), but the market is “reserved” for Chinese streamers—iQiyi, Youku, Tencent—controlled by the country’s Internet companies (Baidu, Alibaba, and Tencent).

European and American early-adopter/majority consumers, especially Gen Zers and millennials, rapidly adopted the idea of anytime, anyplace, any screen viewing, meaning that wining the older late adopters would be slow and expensive.

However, the second- and fourth-largest population areas—India (1.38 billion) and Southeast Asia (700 million) offer excellent growth potential. The big challenge for SVOD services is that the majority of the households have pay TV entertainment, and it’s very inexpensive— about US $2 per month. India currently has 102 million SVOD subscribers and is projected to grow to 224 million by 2026.

Netflix has dropped prices three times in as many years to increase its subscription base and currently has 29%  of the market, followed by Disney+ Hotstar (25%) and Amazon Prime 22%. Local free-to-air and subscription service Vidio is slightly ahead of Disney+ Hotstar in the SEA market with 28% of the market, while WeTV, Netflix, and Viu trail Disney.

In other words, the SVOD market everywhere is getting tough. Most consumers said they “prefer” services with no ads, but a constant stream of new, unique content costs money, and consumers have clearly shown that rather than add yet another SVOD service to their entertainment budget, they’ll replace services and come back for more new stuff later… maybe.

However, Netflix is maintaining its position with the global subscription base, as people agree that the company has the depth and breadth of content they want to watch. The company and the SVOD arena are reaching a pivotal stage in growth, moving from an appreciated entertainment “benefit” to a transformational industry mainstay.

Explosive growth forever isn’t sustainable for any industry, especially one where disposable time and disposable budget are key aspects of service selection. Most steady streaming subscribers have said the cost is high, but they don’t really want to leave the service they watch regularly because they are aware of the quality titles that will be available with their regular service and are looking forward to watching them.

The rapid introduction of SVOD services by studios has made it impossible for people to simply sign up for everything. At the same time, there are just too many issues in finding the show/movie a person wants to watch with so many services at their fingertips.

While they want to retain access to their services for their compelling, conversation-worthy content, household necessities could override the retention decision. In other words, the time is right to offer the consumer options so they can choose the plan that is right for them… and the service. Some consumers will be willing to pay more for their entertainment, understanding that they are paying a slight premium to eliminate story line interruptions. Other subscribers will prefer to trade some of their time for a discount in their monthly/annual at home entertainment bill.

Despite what a few elites say, people don’t dislike ads. Instead, they dislike dumb ads that are all in an extended group of ads and ads that simply insult the viewer. Services need to help advertisers deliver the right quantity and quality of ads.

The subscription fee difference doesn’t represent a loss to the streaming service because there will be long-term advertising revenues, and if the advertising schedule and topics are carried out properly, it could lead to churn reduction. Even as WBD works to complete the overhaul of the entire “new” organization, they have already given lip service to tiered subscription options that are being considered. ComcastNBC’s Paramount+ has to move quickly to become a must-have steaming service that could include the organization’s Showtime OTT, BET+, and Noggin/Nick+ to achieve its goal of 100 million by 2024. Tiered pricing could be a major factor in achieving that goal and could put it on sound footing for long-term profitability. And, ViacomCBS’s Peacock is well on its way to becoming an established SVOD/AVOD service.

The two subscription leaders—Disney+ and Netflix—have announced plans to introduce their ad-supported options by the end of the year. The result of the shift of viewing options could stimulate a second surge in service subscriptions. One of the keys to this new growth won’t simply be a strong increase in new content development, but rather a cleanup of consumers’ constant complaints. To retain subscribers, streaming services will have to spend more time and creative effort in improving their user interface so people can quickly and painlessly locate content. Half of streaming subscribers say they have difficulty deciding what to watch. Also, a study by Morning Consult found that streaming subscribers are interested in features that ease content discovery such as one that randomly selects content to watch, one that highlights the 10 most popular movies and TV shows, one that groups content based on viewing history, and one that groups similar content together.

Acquiring subscribers is a manageable challenge. As studios and tech firms rushed to introduce their streaming services to consumers, the focus was always on the quantity of “must-see” content that they offered. Now it’s time to clean up the user interface and recommendation mess, combining all of the inputs people provide when they watch “their” shows with the creative talent to deliver the kind and genre of films/shows they prefer. That will partially reduce churn, but what will significantly reduce it is streamlining and simplifying the UI and search/recommendation tools to make it easy—and maybe even fun—for people to find the video stories they want, or maybe even discover content they didn’t even know they wanted.

Streaming services rushing to roll out their service with enticing content is a lot like producing a great film.  There’s always that stuff folks glossed over or skipped, saying to themselves, “We’ll fix it in post.” Now is the time for streaming services that want to be major content services regionally and/or globally to make it easy for the at-home viewing public to get what they’re paying for.

While there is a pent-up interest in seeing a film the way it was supposed to be seen: in a dark room, in a cushy seat, with the audio rocking you from everywhere, and being surrounded by 100-plus folks.

Good, but…

Morning Consult found that 66% of the people they surveyed had no interest in going to the movie house because:

• They had no interest in the stuff being shown.
• They had some excellent video story options at home.
• They didn’t like their popcorn or price.

There are more than 1.72 billion TV households on the planet; and with their extended time at home, a large number had increased the size/quality of their big screen and upgraded their sound system.

Presently, there are about 645 million SVOD subscribers worldwide, and the number is projected to increase to 1.1 billion by 2025. No one will have just one subscription service for all their entertainment. It will be more like three, plus a couple of ad-supported services, too. That means there’s plenty of room for growth—and profit—for the content developers, producers, and distributors that are willing to ignore Wall Streeters that make money when you buy… and sell.

Churn will never be 0%. It’s part of the cost of doing business, and the folks who can manage the ups and downs without getting too happy or too depressed will find the ride fun. All you have to do is remember what Dr. Randall Mindy said in Don’t Look Up, “Everything is theoretically impossible until it is done.”