For SVOD, churn much less of a threat than for pay TV

OTT video viewers may be just about as fickle as traditional TV viewers, with roughly 19% churning some of their SVOD services during the past 12 months, which is down from 20% a year ago, according to a new report.

While that 1% reduction likely can be attributed to the margin of error, it’s really important to understand that the 19% churn itself just isn’t as dire – at least not for SVOD providers – as it sounds. For SVOD providers, that churn is just an indicator that consumers are trying new services, looking for the right mix, trying to decide on not only monthly spend, but on which services deliver content they really can’t live without. There are a plethora of services available and it’s just not unrealistic to imagine consumers picking up and dropping services as they as they “taste test” the massive menu of services available.

Netflix, Amazon Prime Instant Video and Hulu have reduced their churn rates over the past year, according to the report from Parks Associates. And that creates an interesting parallel: Subscribers are settling into the SVOD world’s version of the Big Four broadcast networks, CBS, NBC, ABC and FOX. It’s a natural evolution, especially if you look at the Internet as the next iteration of TV.

The SVOD “channels” that are part of that 19% churn? Liken them to small cable networks, further down the tier, that consumers are going to pick over as the season’s change, munching on them like popcorn until they switch over to Milk Duds, then Skittles, before they dive back into the popcorn tub.

Like some smaller cable networks, there will be smaller SVOD services that hit it big… and some that struggle.

I know of one company, for example, that sees subscribers churn in a three-month cycle. For four or five weeks, subscribers spend huge amounts of time consuming everything on the platform. Then they churn and wait until there’s another block of content for them splurge on. Again, and again.

Obviously, one way to reduce that churn is to create a steadier stream of content – parceled out according to a shared content calendar — to keep subscribers engaged. It also demands better marketing – something most smaller SVOD providers aren’t prepared for — like sending emails that say things like “we think you’ll enjoy this title” which is very dependent upon data to help you know that a consumer will like a particular piece of content. And, it takes patience while a content library gets deeper.

Frankly, it also might behoove smaller services to cross market to each other, but that’s for another time.

While there will be some who point to SVOD services’ 19% churn rate in 2016 as evidence the ecosystem has reached stasis or that pay TV is poised to rebound, the reality is the exact opposite.

SVOD is a huge piece of the future of television. Consumers have shown a willingness to pay for the content they want to watch, along with a desire to build their own ad-hoc bundles – very personalized and very fluid.

Services that keep that in mind – that users want to be able to add, and subtract content easily – will, in the end, be the winners.

As Parks notes, consumer monthly spend on Internet video has increased more than 114% since 2012, and that growth likely will accelerate as services better define how they interact with consumers, and how they add value. (Spend on transactional video one-demand, meanwhile, was down more than 41% in the same period.)

Churn is not the enemy of SVOD services, just one of the realities. As Sling TV CEO Roger Lynch has said, “we don’t think of it as churn,” just the cost of doing business, a much lower cost than for pay-TV operators.

I’ve said it before and I’ll say it again, trying to measure the success of an OTT service using metrics designed for traditional television creates metrics that are misleading at best.

Stay tuned.

Jim O’Neill is Editor of Videomind and Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn