Feb. 14, 2023

The SVOD Mystery

Top SVOD services are consolidating content and taking the competition for subscribers into global markets. But they face greater pressure to attract and retain subscribers who have grown savvier about their subscriptions and more cost-conscious.

The shift to streaming video has been extremely successful at disrupting television, though potentially far less profitable. Like television and movies before them, SVOD companies have relied on the innate emotional and intellectual value of their stories to engage audiences and monetise their attention. But will people always value this kind of passive, lean-back-and-watch experience? That's the big question. As more major media providers launch their own streaming video services, competition among them has heated up, just as their value proposition to audiences may be losing some of its shine.

For top SVOD services, the growth in subscribers has slowed down generally. As they pursue global markets, and as those markets mature, they may be facing the same challenge. For consumers, getting their entertainment through the fragmented SVOD landscape requires more effort and, increasingly, nearly as much money. Over the past two years, consumers have become increasingly frustrated when they lose content to other services, have to manage multiple subscriptions, and receive poor recommendations.

These conditions lead to churn: when people cancel, or both add and cancel, a paid SVOD service. In general, the average churn rate has remained consistent since 2020 at about 37% across all paid SVOD services. It should be noted, however, that churn for a given service might be significantly lower than the overall average. In the United Kingdom, Germany, Brazil, and Japan, the overall churn rate is closer to 30%. (This number varies for each country, largely driven by subscription penetration and number of SVOD services.)

People are attracted to SVOD by the content, but they often leave due to cost. Generation Z consumers are especially sensitive to services being too expensive. It costs money to acquire subscribers, so losing them too quickly can hamper providers' ability to recoup their acquisition costs. However, cancelling a service doesn't mean they won't return. One-quarter of global consumers have cancelled a streaming video service in the past 12 months and resubscribed to the same service, with younger generations significantly more likely to return. In the United Kingdom, Germany, Brazil, and Japan, around 22% overall have churned and returned. Once again, the behavior is stronger among younger generations.

CountryGeneration ZMillennialsGeneration XBoomers

US 25%3538287

Brazil 33%42393121

UK 23%4433236

Germany 19%3834166

Japan 12%2420114

Source: Digital Media Trend
 

Why do respondents say they churn and return? Either a new season of their favorite show was released, they got a free or discounted rate, or content they wanted to watch moved to the service. Around a quarter of people across the countries we surveyed admit they routinely cancel and resubscribe to manage costs. In every country we surveyed, consumers—particularly Gen Z and Millennials—are getting savvier about determining how much money they will spend on what content. As we have stated before, it looks like consumers are winning the streaming wars.

To retain more subscribers, SVOD providers are exploring ways to shift the value proposition in their favour. Offering flexible pricing options could be the most direct path. Among consumers in all five countries surveyed, options that allowed people to watch ads in exchange for lower costs—or at no cost—are the most popular. Ad-supported tiers could attract more cost-conscious subscribers. And even when there are lulls in engaging content, subscribers may not cancel their subscription if the cost is low enough.

Overall, watching TV and movies at home remains the favourite entertainment activity, but this trend skews significantly toward older generations. Across all five countries - the United States, the United Kingdom, Germany, Brazil, and Japan—Gen Z respondents cited playing video games as their favourite entertainment activity. More generations may catch up. For UK Millennials, gaming is a close second to watching TV and movies at home, and Japanese Millennials rank playing video games as second to browsing the internet. Similarly, use of social media is high and skews toward younger generations. Social has become a gateway for video, music, news, gaming, and the communities and content creators that keep it all moving.

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