Subscription Video Services Hitting The Churn Zone At Crucial Time

Churn rates, the percentage of customers cancelling subscription-video services, jumped in the first quarter to a record level, according to a new study by Parks Associates.

The upside is that consumers are also trying new services, signing onto Disney+, Apple TV+ and other services while hunkered down because of the Covid-19 pandemic.

“We are seeing a record number of consumers experiment with new OTT services as a result of the COVID-19 crisis and the shifts in strategy in the industry,” Parks Associates Research Director Steve Nason told Deadline. “OTT services are offering extended free trials to build up engagement, and 8 percent of U.S. broadband households report they have subscribed to at least one new OTT service since the COVID-19 crisis began.”

But as consumers sign up for new services, they're ditching others, sending churn rates up six percentage points to 41 percent in Q1 of 2020 compared to a year earlier, according to the study.

That increased cancellation rate suggests big challenges ahead for the new services coming from Warner Media and NBCUniversal, and whatever ViacomCBS does to beef up the undernourished CBS All Access with its other media assets.

As they move into a highly competitive, existentially important new sector that requires new direct-to-consumer skills, they'll have to figure out how to get customers to not only sign up, but stick around, despite the proliferation of other viewing options, the study suggests.

Nearly half the new subscribers tracked by Parks tried out Disney+, which says it has more than 54 million customers as it continues to expand around the globe.

Disney+, with its deep well of family-friendly content, was particularly well positioned to grab customers among the tens of millions of families dealing with bored children during the lockdown.

Apple TV+ pulled in about a quarter of the new subscribers, 27 percent, according to Parks. The company hasn’t detailed its subscriber base since the Nov. 1 launch, but other studies suggest it has more than 30 million subscribers. Most of those are receiving the subscription for free for a year after purchasing an iPhone, iPad or Mac from Apple, the studies suggest.

Apple launched TV+ with an originals-only slate and has been adding steadily to it. But content offerings remain sparse compared to all of TV+'s major competitors, which have rich back catalogs of older shows.

Accordingly, Apple also has reportedly moved from its original approach, buying the Tom Hanks WWII naval drama Greyhound from Sony for $70 million, and negotiating to acquire other programming from third-party providers.

Now comes the next tranche of subscription services.

HBO Max stumbled out of the gate, with few originals and widespread consumer confusion over how it differentiated from the HBO premium pay-TV channel and existing apps HBO Go and HBO Now. As well, the new app hasn’t been available on Amazon or Roku video platforms, which together reach about 80 million U.S. homes.

Peacock faces its own challenges persuading consumers to try it out. One big attraction, enhanced Olympics news and programming, went by the wayside when the games were delayed a year. Now, the service will go wide July 15 after a quiet April debut on Comcast-owned services.

For the latecomers, enticing consumers who already are subscribing to several other services won’t be easy. It could get even worse this month, as unemployment benefits run out for millions of locked-down Americans who may not have a job to come back to, and may start cutting discretionary spending.

The streaming services have been relying on free trials, bundles, and other deals to encourage sampling, though after its strong start, Disney+ has cancelled its one-week trial offer ahead of this week’s debut of the movie version of Broadway hit Hamilton.

And as challenging as getting new consumers to try out a service can be, just as important will be retaining consumers after they’ve signed up, Nason said.

Given the sparse arrays of new originals controlled by the newcomers, retaining subscribers will be a slog. But if ever there’s a time to demonstrate value, it’s now.

“Free trials will bring in new subscribers at the launch, and roughly seven in 10 have subscribed to at least one OTT service they have trialed,” Nason said. “OTT services need to be creative in building an engaging service, but during this time of heavy video consumption, OTT services have the opportunity like never before to win over new video consumers and retain them as long-term subscribers.”