Subscription Costs Keeps Cord-Cutters Away; Free Trials, Ads May Offer Answer
The initial attraction to cord-cutting is disappearing as subscription costs rise as budget-minded consumers begin to focus more and more on monthly fees when it comes to selecting services. While content continues to be the major driving force for consumers when it comes to which streamers they sign up for, subscription promotions and free trials are increasingly influential, according to the NPD Group.
The cost of subscription services rose from the No. 4 spot to No. 2 among the reasons that U.S. consumers cancel their subscription video-on-demand (SVOD) services. The shift may correlate to inflation as well as a general increase in subscription prices across the industry as a whole, says NPD analyst and executive director John Buffone. He also acknowledges that costs are still not at the level of cable providers, but if trends continue, streamers will need to keep their customer’s budgets in mind.
Streaming service subscriptions have been trending upwards for some time. Hulu raised both its ad-based and ad-free tier fees in October 2021, while Netflix experienced a cancellation rate increase to 3.1% of its userbase after raising its basic and 4K subscription fees in January. The $1 to $2 price hike pushed cancellations up even further to 3.3% in March.
The NPD study also indicated that special offers and free trials are a great way to combat inflation woes and spur subscriber growth. Many streaming services continue to implement free trials as a way to encourage curious consumers to engage with their content. The value is proving too much to ignore for customers as special deals rose to become the No. 1 reason for selecting new services.
However, ad-supported video-on-demand (AVOD) subscriptions provide an alternative to pricey premium services even after temporary trials. The free or lower-priced ad-supported business model has been gaining traction with streamers throughout the industry.
As inflation costs rise, cord-cutters remain hungry for content. Since rising fees do nothing to alleviate a growing financial burden, consumers are increasingly turning to available AVOD options more than ever before. Following that trend, streamers such as Disney+ and Netflix are implementing their own subscription plans as AVOD is set to outpace SVOD services by the end of 2022.
Even so, NPD finds there is much more engagement with SVOD subscribers at 28% as opposed to 20% for strictly AVOD consumers. As the streaming industry continues to evolve, AVOD may become the preferred method of streaming consumption while cord-cutters shift to a limited number of SVOD tiers for their most-watched content.