Why Netflix is ending its free trial (And why other SVOD services shouldn’t)

free trials

If more than one-half of free trials to OTT streaming services convert to full paid subscriptions, why is Netflix ending its free trial program?

Parks Associates research show that 58% of consumers who trial an SVOD service convert to paying subscribers. Doesn’t it make sense, then, for Netflix to continue offering trials?

Netflix for years has offered users a free trial of between seven and 30 days. But on Tuesday it released a statement saying it was “looking at different marketing promotions in the U.S. to attract new members and give them a great Netflix experience.”

On its website, if you search for “free trial,” you are directed to this:

“Free trials are not available, but you can still sign up and take advantage of all Netflix has to offer. There are no contracts, no cancellation fees, and no commitments. You have the freedom to change your plan or cancel online at any time if you decide Netflix isn’t for you.

As a Netflix member, all our plans give you access to our full catalog of TV shows and movies. Choose a plan that works for you and sign up for Netflix!”

It’s about content, market awareness & cash

Disney in June also ended free trials for its Disney+ service that it launched last year, saying that it also planned to test other offers and promotions, maintaining that the service was “set at an attractive price-to-value proposition.”

But, more important than price is the content it’s rolling out to the service; an increasing amount of premium content, like Hamilton and Mulan, has debuted with more to come. Disney’s looking at that content on its own to provide enough of a lure for a user to at least subscribe for a month to access it.

For both Netflix and Disney+, ending free trials also puts an end to consumers binging content for a week. Both Disney+ and Netflix are floating large chunks of original content – expensive original content – that they’d rather be purchased than given away.

For both services, there’s also the reality that brand recognition is strong enough to offset the need for free trials.

Finally, it’s about maximizing incremental-revenue streams. At $7 a month for Disney+ and $9 a month for Netflix’s basic stream in the US, it’s unlikely consumers will balk at a paid trial, especially since both make cancelation simple. Thirty days of content at 23 cents or 30 cents a day isn’t going to break the bank.

But take that one-month’s fee from – potentially – millions of previously-free trials, and the contribution to the bottom line would be substantial.

Finally, it’s about perception. If Netflix and Disney+ represent the best content streaming has to offer, it doesn’t make sense to give it away… at least not for them.

The bottom line

What’s good for Netflix and Disney+ may not be as good for the rest of the industry.

The past 12 months have seen a bevy of new services launching or repositioning. Comcast rolled out Peacock, AT&T debuted a reimagined HBO Max (with plans for more changes in the coming months), Amazon Prime continues to expand and ViacomCBS is promising a rebranded and expanded CBS AllAccess, leveraging the global name recognition of its Paramount property.

That surge in competition is likely to keep plenty of free trials available for consumers. Smaller SVOD providers – especially niche content providers – really need to keep those free trials active, too.

That 58% conversion rate isn’t something you want to give up on.

But keeping one of those conversions from churning is something you’ll also want to focus on. Churn from free trials, obviously, is higher than for longer-term customers.

How to do that is something we’ll talk about in the coming weeks.

Stay tuned and stay well.Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn