Deloitte Predicts That At Least 150 Million Subscriptions Will Be Cancelled Next Year, Churn Rates of 30%
Deloitte has a dire prediction for the streaming industry: the maturation of the market may be driving churn. And they predict that at least 150 million subscriptions to SVOD services will be canceled globally next year. Churn could rise to as high as 30% in many markets. In the US, they say, churn has already reached 35%.
They do relent that more subscriptions will be added than cancelled, but the acquisition cost and friction of movement in the market is bad news for the major streaming firms. And they predict that as more services, options and content make their way to the consumer, acquisition costs will only rise further.
One of the net results of the increase of subscription choices is that consumers are turning to free alternatives. As streaming services continue to evolve, ad-supported video is gaining traction. AVOD offers consumers unique advantages. For instance, the Roku Channel, Tubi, and Pluto TV are gaining popularity mainly due to their high quantity content but also their cost ($0). Free services are a compelling value, regardless of your age or economic status.
A Vizio and Magid study found that 55% of U.S. smart TV owners (ages 18-64) watch AVOD content weekly and 53% of smart TV owners watch free ad-supported television channels (FAST).
Kantar reports AVOD services are up in Q3 2021 and are used by 21% of U.S. homes. Advertiser video-on-demand (AVOD) content is catered to users that want to stream video whenever they please, yet don’t mind if they have to watch a couple of advertisements (especially if it means fewer dollars are leaving their pockets).
Additionally, a Future Today study showed that in Q1 2021, 46% of consumers reported that they don’t mind seeing ads if they are watching TV shows and movies they enjoy.
Smart TV owners spend an average of $64/month on SVOD subscriptions compared to non-smart TV owners, who spend $46. Despite their willingness to spend more on streaming services and technology, AVOD is still an attractive value to both audiences.
The Magid report says, “These viewers have chosen streaming as their entertainment format of choice, and the smart connected TV as their medium to do so. They’re not at all resistant to ads even when they have paid options that would allow them to avoid ads completely. In fact, they’re highly receptive to ad-supported content, given the right circumstances… As AVOD services deliver more relevant ads, viewers find them less intrusive and are therefore more likely to accept them.”
Deloitte says the Latin American and Asian customers are even more willing to adopt AVOD services than European and American clientele.
“While paid subscriptions have worked well in advanced economies, audiences in developing economies favor free ad-supported options. In Latin America, global and local SVOD providers are delivering content that is highly tailored to those regions at lower prices than in developed economies. Many use advertising to offset subscriber acquisition and content costs, reducing the effect of monthly subscription costs as a cause of churn. Some large regional players are also targeting expat communities while partnering with leading streamers to get their content to more viewers,” says the report.
“In Asia/Pacific, free, ad-supported video-on-demand (AVOD) services predominate. AVOD subscriptions in China and India number in the hundreds of millions—much higher than SVOD. India’s Hotstar, for example, has 300 million active users of which 46.4 million are paid subscribers, while China’s iQiyi counts 500 million viewers with 100 million paid. These services offer multiple pricing tiers from free to premium; their focus is on upselling free ad-supported users into a paying tier, betting that this subscriber revenue will balance out potentially higher content and acquisition costs. Importantly, they also offer multiservice bundles that include innovative content and advertising, gaming and music, and mobile-first engagement.”
Offering multiple products beyond traditional video content, Deloitte believes, could be key to long-term sustainability in the marketplace. Creating different tiers of products with different price premiums as well as upgrading their data acquisition capabilities are also supplemental strategy solutions to the ever-growing issue of churn.