In Part 1 of “Streaming Wars,” we talked about how the pandemic has impacted the viewing and subscription habits of American viewers. This week, we take a look at the data, including tests and trends, and we consider the future of streaming. Rameez Tase, CEO and co-founder of ANTENNA, a measurement and analytics company for subscription businesses, helped us analyze the numbers and make sense of it all.
Trends – COVID-19-related sign-ups
In the early days of the pandemic, streaming services experienced significant sign-ups to streaming services with the largest spikes in March and April. Apple TV+, for example, saw the biggest spike of all the services with sign-ups at 2.1 times their normal rate in April. The services with the largest jumps were Apple TV+, Disney+ and Hulu. For all the services measured, viewer sign-ups began tapering off in May and, by June, some had even dropped below pre-COVID levels.
Though we cannot confirm this based on the data, one reason for the spikes in Apple TV+ and Disney+ could be that they are new services, less than a few months old, so they may have attracted new viewers for reasons other than the pandemic.
[Editor’s note: To clarify, viewer sign-ups are not necessarily the same as paid subscriptions. The increase in sign-ups reflects viewership, not subscriptions.]
Let’s look at this in terms of subscribers using ANTENNA’s second quarter 2020 scorecard. According to their data, premium SVOD subscriptions in the U.S. were up 34% year-over-year and up 4% compared to the end of the first quarter of 2020. Two-thirds of the industry’s growth came from Disney+ which now represents 17% of all premium SVOD subscriptions. That’s huge, especially since they are a new player!
Tase said that COVID-19 brought about a lot of experimentation in the paid streaming service category in the second quarter. Sign-ups, which include free trials, increased in the triple digits – 128% year-over-year, but the overall subscription rate was relatively flat. Average trial conversion rates dropped to 65% from 69% last year, and average churn rates increased 5.2% from 4.1%.
Tase points out that Showtime had a 182% increase in sign-ups during the second quarter, but also the highest churn rate (10%) and the second lowest trial conversion rate (55%). The end result is that net subscriptions for Showtime were up 24%. Because they have a limited catalog of shows compared to Netflix or Hulu, they may continue to see a higher churn rate in the months to come.
Making sense of the data
What does it all mean? It means that shelter-in-place orders drove people indoors, and premium streaming services were able to capitalize on that. Sign-ups increased significantly, but the real data point to note here is that sign-ups do not equate to subscriptions. To track those differences, ANTENNA looks at different KPIs than other analytics companies. They examine traditional demand (sign-ups), loyalty KPIs (churn and retention), and business model type (ad-free, ad-supported and hybrids).
While record numbers of people watched SVOD subscription services, many of them were in the same household. Viewership numbers may have spiked, but not necessarily subscriptions.
“We are looking at purchase behavior,” said Tase. “There was a big boost in sign-ups in March and April and some in May. By June, new demand for the biggest streaming services had decreased to pre-COVID levels. That’s pretty universal across the board.”
As the pandemic wears on and people go through the streaming service catalogs of content, churn rates will increase, particularly for those services who saw big spikes in sign-ups. Services with limited content libraries like Showtime are going to show higher churn rates.
“On a net basis, in June, some services were actually losing subscribers over the previous month as the delayed churn rate played out,” Tase explained. “New subscribers are less loyal.”
This is a message streaming services are not shouting from the rooftops.
How will SVOD subscription services fare once the pandemic winds down? Key success factors for premium streaming services will be lifetime value and retention. Subscribers who sign up directly with their preferred service are more likely to exhibit brand loyalty rather than brand preference. For example, if Netflix is your favorite streaming service, and you sign up directly in their app or website, you will be more likely to keep that service than if it is offered to you as part of a bundle or through a distributor like Roku or Amazon.
Lifetime value and retention are further bolstered by “must see” content. Streaming services with original and/or exclusively licensed content (e.g., Friends, The Office) are more likely to retain subscribers than services with limited catalogs. Ultimately, lifetime value is what drives profits, said Tase. A COVID bump in sign-ups does not guarantee conversion, nor does it guarantee future success.
“The bottom line is retaining subscribers over long periods of time. Our data shows that for several services, sign-ups were big, but so was the churn,” Tase said. “We need to reframe the metrics people are focused on. Short term growth you can buy; long term growth is harder to come by, but far more valuable.”
Tests and strategies
Disney is among the streaming services that is testing different strategies, post-COVID. Prior to the release of Hamilton, Disney+ dropped its free trial period. ESPN+ has now done the same. According to ANTENNA, the debut of Hamilton caused a 650% increase in subscriptions. At the cost of $6.99 a month, this was a deal for any household who signed up just to see Hamilton. The whole household could gather around the TV and watch just that show for less than the price of a movie ticket, but will those subscribers stick around to enjoy other Disney content?
We are guessing Disney recognizes the missed opportunity, because their next big release, Mulan, the live-action version of the 1998 animated film is being released September 4. To watch Mulan, viewers must be Disney+ subscribers and pay an additional $29.99. Disney says this is not a rental fee and that subscribers will get continuous access to the film for as long as they are subscribers. The film will be made available in most Disney+ markets, including the U.S., Canada, Australia, New Zealand, and some western European countries. Mulan will simultaneously make its debut in areas where movie theaters are open. Disney has since said that Mulan will be available to subscribers for free, beginning in December.
Disney CEO Bob Chapek said charging for Mulan is a one-off decision, but we think it might be a signal that Disney is considering a shift to its direct-to-consumer business model. Perhaps the company realizes that it missed a major revenue opportunity with Hamilton, and right now, it has a captive audience with families stuck at home eager for something new and exciting to watch. Also, Disney needs to somehow recoup its losses since Mulan couldn’t be released in theaters as originally planned. A pay-per-view model for major releases could become an ongoing part of Disney’s direct-to-consumer business model.
In a related shift, ESPN+ recently raised its monthly price by $1 to $5.99. This is still a very reasonable price, and diehard sports fans are eager for new content as live sports gradually return, so they won’t balk at an extra buck. Also, immediately after the announcement of the price increase, ESPN+ announced a new slate of content set to debut in August and September which softened the blow a bit.
Earlier this week, Netflix announced that it is offering free access to 10 Netflix Originals for a limited time to non-subscribers. In the case of a series like Grace & Frankie, non-subscribers can only view the first episode. They’ll have to subscribe to see the rest of the episodes and seasons. The idea behind this is to allow non-subscribers to sample Netflix’s unique content with no risk. They don’t even have to sign up for a free trial. Viewers just click “Watch Now” on Netflix’s Watch Free page to begin. Though Netflix has experimented with pricing before, and it has offered the occasional free episode or movie in international markets, this is a new strategy for the premium SVOD service.
We can see a couple of reasons for this. First, while Netflix has a healthy number of subscribers, they, too, will be subject to post-pandemic and seasonal churn. They want to retain as many subscribers as possible. They also want to attract new ones, and they are using their Netflix Originals to do so. This is a smart play.
Bundles aren’t new, but Disney is trying to make the most of theirs. They are offering a special deal – the “ultimate streaming trio” – for viewers who subscribe to Disney+, ESPN+ and Hulu. For $12.99 a month, viewers get access to all three. If they subscribed to each service individually, the total cost would be $18.97 a month, so they are saving $5.98, and there is something for every member of the family in that bundle – family entertainment (Disney+), sports for the sports lovers in the family, and a broad content library with family-friendly and not-so-family-friendly content on Hulu.
Sources are reporting that Apple is going to offer Apple One subscription bundles starting this fall. The tech giant would offer a tiered set of subscription bundles, all including Apple TV+. Pricing has not yet been announced, but this is what the bundles are likely to look like:
- Apple Music and Apple TV+
- Apple Music, Apple TV+ and Apple Arcade
- Apple Music, Apple TV+, Apple Arcade and Apple News+
- Apple Music, Apple TV+, Apple Arcade, Apple News+ and additional iCloud storage for files and photos
The bottom line here is that the COVID-19 pandemic has changed viewer and subscriber habits, and streaming services are testing new strategies to get their share of the market. At the same time, they need to focus less on initial sign-ups and more on conversions, retention and lifetime value. We expect to see more bundling of services, and more experimentation of the business model and pricing as streaming services test their mettle in a time when they have captive, eager audiences.