3 Ways to Solve OTT Subscriber Churn
BlogDec 20, 2021
The battle to reduce OTT subscriber churn is heating up. After several years of enormous change for the TV industry, many distributors are moving quickly to deploy new tactics that stabilize, reduce, and predict the impacts of subscriber churn. Beginning in 2020, the Covid-19 pandemic launched an unprecedented spike in content consumption. With most global streaming audiences confined to their homes, many streaming video services gained immediate access to a new influx of audiences and subscribers.
But as consumers normalize their at-home routines and streaming platforms continue to proliferate, distributors will need to shift their focus to keeping viewers; reducing subscriber loss is quickly becoming as important as acquiring new audiences.
Calculating Subscriber Churn for OTT Services
Subscriber churn is the number of subscribers in a given time period that stop paying for your product or service. As a basic equation, it looks like this: number of subscriptions cancelled in a period / total number of subscribers in the period. For a more sophisticated analysis, OTT platforms need a few more variables:
- Active cancellations (A): The number of cancellations made by the customers
- Passive cancellations (P): The number of cancellations resulting from non-renewals and credit card declines
- Win-back reactivations (W): The number of subscriptions from service reactivations by previous customers
- Total subscribers (T): The total number of paid subscribers in your OTT video streaming service
With each of these variables defined, subscriber churn can now be calculated as: 100 × [(A+P)-W]/T
Why Subscriber Churn is a Big Problem for Streamers
In the United States alone, over 75% of households now hold a subscription to a streaming platform, and for most, it’s multiple subscriptions. In Q1 of 2021, 46% of U.S. households held OTT subscriptions with four or more platforms, according to research by Parks Associates. Unsurprisingly, the number of subscriptions held by each household correlates to what many have termed “the streaming wars,” a fast-paced battle for primacy in new revenue models that’s led to a proliferation of streaming options for audiences.
The Streaming Wars and a Wealth of Choices for Audiences
Direct to consumer (D2C) services, which have become increasingly prevalent over the last decade, also experienced a growth spike starting in 2020. With many new services launching, content distributors are battling to win and retain subscribers in an increasingly competitive market. Across the globe, major studios have begun to pivot their distribution businesses to “digital first” and launch their own streaming services. Disney+, Paramount Plus, and HBO Max are just a few big-name players that have launched recently and are already deploying new and savvier strategies to combat subscriber churn and monetize their digital media content.
For example, in December of 2021, Paramount Plus announced the creation of “live channels,” built specifically to combat decision fatigue – essentially a linear TV model, delivered digitally. Instead of scrolling through the vast library of titles the Paramount Plus streaming platform has available, subscribers can simply tune into live, pre-programmed selections from among the company’s same titles. It’s a savvy way to beat the overwhelm and poor UX that many subscribers report is a primary reason for cancelling an OTT service—in 2020, being unable to find programs they wanted to watch was the second most significant reason for customer churn.
3 Ways to Fight Back Against Subscriber Churn
Now that consumers have an overwhelming choice of streaming platforms and content to choose from, there will be a fundamental shift from customer acquisition to subscriber retention among content distributors. What that focus looks like will vary by business model: Subscriber churn can be seen from different angles, and the best strategies for combatting it will vary based on what is relevant for each organization. Given the need for a tailored approach, AI-powered software for OTT video is becoming an essential tool to help marketers identify subscribers at risk of leaving and generate prescriptive recommendations to retain them.
Subscriber churn is one of the biggest challenges faced by streaming providers, currently averaging around 40%. In Q4 2020, Apple TV had the highest churn rate of all the streamers (15.6%) with Peacock closely behind (9.5%). With much of the world gradually returning to pre-pandemic routines and subscription fatigue on the rise, post-pandemic subscriber loss is a major threat to OTT platforms.
Relying solely on short-sighted marketing KPIs such as quarterly subscriber growth is no longer an accurate indicator of financial health given high churn rates. More holistic marketing KPIs like customer acquisition cost (CAC) to customer lifetime value (CLV) ratio are helping OTT providers measure long-term profitable revenue.
Predictive, prescriptive, scalable insights are the only way to remain connected to the wants and needs of subscribers.
1) Predictive Audience Insights
Predictive audience insights reveal who is likely to cancel, with AI-generated predictions yielding the highest accuracy. With an enormous amount of data flowing back at the platform level, data normalization is key to being able to leverage insights in a timely manner that prevents subscriber churn; data points that can be leveraged to predict audience behavior span multiple sources, from the payment layer to the product UI. In order for an AI solution to make the most meaning of that data, its various formats and structures must be standardized for consistency.
Even the most skilled data analyst cannot track, engineer, process, and analyze that data quickly enough to identify risk factors (which change in real time) and deliver the volume of reports needed for marketing and product to create tailored messaging and content recommendations for at-risk subscribers. To make predictive insights under these conditions, companies need solutions that continuously deliver churn risk scores based on real-time customer behavior.
2) Prescriptive Audience Insights
Prescriptive recommendations reveal how to engage subscribers and stop them from churning. These recommendations point to the most common reasons for subscriber churn on your platform and enable actionable plans for improvement. Seeing subscribers drop off the platform after spending 30-minutes scrolling through your content library? That’s a trend you need to be aware of and have a strong plan to solve. Most streamers are capable of enacting strategies that reduce subscriber churn, often, they just don’t know which direction they should be heading. AI technology takes the guess work out of the equation and delivers immediate revenue impact. Prescriptive AI generates recommendations based on what it’s learned from predictive, descriptive, and diagnostic analyses – for instance, notifying the retention team when a subscriber (or entire customer segment) meets the threshold for “high risk of cancellation” and suggesting a promotional offer with the greatest probability of success for each individual or group.
3) Scalable Audience Insights
Scalable insights enable business units throughout the enterprise to extract value from data. When it comes to subscriber retention, there is no room for siloed data and out of sync departments. As our in-house OTT expert likes to say, “Subscriber retention is a team sport.”
If the finance, sales and marketing, product, and data operations branches of the company aren’t all on the same page, your chances of significantly reducing your subscriber churn rate begin to shrink dramatically. A unified, intelligence system is the key to making sure everyone is working together.
Planning Your Subscriber Churn Mitigation Strategy with AI
AI technology can identify why customers are staying or leaving and their perception of a service’s value. (Content availability is a key reason consumers cancel their subscriptions.) Media and entertainment marketing teams can use content data, in addition to other data sources, to hone their campaigns and focus their spend on acquiring and retaining the right subscribers. Content valuation also plays a role here. OTT platforms that understand the real-time value of a piece of content can invest, acquire, and promote with greater efficacy.
AI software can identify content affinity across demographics, genres, and even talent to ensure relevant content recommendations are provided to subscribers. Additionally, it can uncover content trends in key regions to help drive geographically targeted marketing campaigns. Rather than relying on reactive strategies based on limited and outdated data, AI ensures that marketers can be proactive with subscriber engagement.
AI can also help segment subscribers at a more granular level, identifying key stages of the customer lifecycle to enable highly personalized experiences. It can identify subscribers at high risk of cancellation, help win back old subscribers and convert trial users with personalized promotions and new content recommendations based on previous viewing preferences. The ability to build meaningful audience segments based on high, medium, and low risk, for example, provides real value to marketers who often rely on broad segmentation across demographic and genre affinity for their campaigns.
Audience insight is key to the success of marketing teams to increase subscriber retention rates and reduce churn. AI makes that insight readily available.