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Smart streaming companies have shifted their strategy throughout the pandemic

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Stay at home orders, lockdowns, public health restrictions. Call them what you like, they’ve been a necessary preventive measure that’s led to a profound lack of movement and outdoor activity over the last 18 months. And, without club sport, dinner parties, gym classes and pub catch-ups, we’ve looked for alternative leisure activities. That’s led to an opportunity like no other for subscription streaming services.

Of course, Netflix and Stan were already popular before COVID-19, and Disney+ launched just before the pandemic hit. Foxtel’s Binge, News Corp’s streaming service, launched just after restrictions began to be imposed. But no matter whether a streaming service was established or brand new, new subscribers came knocking in their hundreds of thousands.

Nobody wanted this pandemic. But it’s been a boon for this sector of the economy and its members have refused to look their (particularly unattractive) gift horse in the mouth. The windfall came in the guise of significantly changed consumer behaviour during 2020, and streaming companies acted quickly, focusing their business strategy on acquisition of new subscribers.

Typically, what follows periods of intense acquisition, leading to big spikes in subscriber numbers, is high churn. And we saw just that, to some extent at least, in the second quarter of 2020. But since the drop, there’s been a plateau period and that’s down in great part to the smartest streaming companies shifting their strategy.

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Avoiding a race to the bottom

Let’s talk about the less wise companies, first, though. Those are the ones that put all their eggs in the acquisition basket and left them there. They have exploited their user data not to improve services and experiences but to target audiences with advertisements. What has followed is endless “discounts”, “sales” and “free trials” aimed at capturing subscribers. No matter who behaves this way and no matter what sector they belong to, it ultimately leads to a decrease in the overall industry profit.

When streaming companies have less money they have fewer resources to spend on content and that’s worse for subscribers. (More on that in a moment.)

Becoming infatuated with acquisition, in other words, creates a race to the bottom, which doesn’t turn out well for everyone.

Companies like Netflix and Disney + have chosen the shrewder option: they have moved away from acquisition and onto retention. To put it another way, they’ve changed their pitch from “Look at this amazing deal!” to “Look how much better our content is than our competitors’”.

Such a strategy works because streaming, like so many sectors of the Subscription Economy, is not a zero sum game. If your service is excellent, your subscribers won’t drop you. Many of the customers deciding whether or not they can afford Netflix and Disney+ and Stan for, say, $40 a month were only five or ten years ago paying $100 a month for cable TV.

Nothing is more important than content…

It’s one of the most overused cliches in the business, but it’s undeniably true so I’ll use it anyway: content is king. Still.

Take Foxtel’s  Kayo as an example. The sport streaming service launched in November 2018 and recently hit the million paid subscribers mark. That’s a remarkable achievement. In part in comes from getting to market quickly. In part it comes from News Corp being willing to take a hit to its cable service to boost its new OTT service. But more than anything, it comes down to content. Kayo has the rights to many of Australians’ favourite sports and athletic competitions. People subscribe to and stick with the platform not just because they like sport but because they love the convenience of streaming their favourite teams and sporting stars straight to their living room all on the one service.

Kayo’s entertainment cousin is Binge. It launched during the pandemic (in May 2020) and just passed 800,000 paid subscribers. Like Kayo, its success comes in great part down to content. It began with a strong catalogue of Australian and international TV shows and movies. And it’s added to it consistently over the last year and a half.  

If content is king, however, it’s by no means an absolute monarch. 

…but service is pretty close

Losing subscribers is, of course, inevitable. No serious company expects to retain every subscriber indefinitely. The average monthly streaming customer churn rate is about six percent. The best companies, though, aim to keep it at closer to two percent. They do that with content, but also with service.

What I think of as the ‘all stars’ – the best of the best subscription companies – provide a platform where subscribers never meet annoying hurdles. They never discover their payment hasn’t gone through for some technical reason or that their service is suddenly unavailable for hours at a time.

Customers can also log in and make changes to their individual subscription themselves. That change may be to cancel the subscription, of course, but as one of the doyens of Australia’s Subscription Economy, Amaysim co-founder Peter O’Connell, once said, “freedom breeds loyalty”.

Give subscribers the opportunity to do exactly what suits them, including leave, and they’re more likely to stick around.

And while streaming has enjoyed an extraordinary windfall during this unparalleled period of human history, very little of what I’ve mentioned above is particular to this time or even to this sector.

In just about every situation, no matter the conditions, a period of subscriber churn inevitably follows a period of growth. Smart companies recognise this and adjust accordingly.

The best subscription organisations never look a gift horse in the mouth. But they never flog a dead horse either. 

Nick Cherrier is a subscription strategist at Zuora.

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