OTT Video Churn Rate Holds Near 20 Percent: Parks Associates

Consumers may be cutting the cord on pay-TV services, but that does not make it automatically easier for Over-the-Top (OTT) video providers to hold on to their new subscribers.  In a new report, Parks Associates reveals that the churn rate for OTT video services is 19 percent of U.S. broadband households, indicating roughly one in five households have cancelled an OTT service in the past 12 months.

However, Parks Associates OTT Video Market Tracker service also notes the overall churn rate for OTT services has been stable for the past year, with top services Netflix, Amazon, and Hulu all reducing their churn rates.  At the end of 2015, 20 percent of U.S. broadband households had cancelled at least one OTT video service in the past 12 months.

“The churn rate has held steady, with one-in-five broadband households canceling an OTT video service in the past year,” said Brett Sappington, Senior Director of Research, Parks Associates. “These are not free trials, but instances where consumers are spending real money to try out new OTT services. One-third of households that currently subscribe to an OTT video service have cancelled one or more services in the past year, which shows that there is quite a bit of experimentation occurring right now.”

Parks’ OTT Video Market Tracker finds that households with OTT video subscriptions increased their spending from an average of $3.71 per month in 2012 to $7.95 in 2016. At the same time, spending on physical media purchases and rentals declined from an average of $15 per month to $8 per month and spending on digital transactional video declined from an average of $2.42 per month to $1.42 per month.

“On average, spending on subscription OTT video services now accounts for 85 percent of all household spending on Internet video,” said Glenn Hower, Senior Analyst, Parks Associates. “The key to success in the long term will be retention. Consumers are experimenting with different OTT services, and many providers incorporate no-contract, cancel-anytime models to remove barriers to entry and to entice consumers to try new services free of obligations.”

Parks Associates notes that churn is lowest among the top three most established services (Netflix, Amazon, and Hulu), and these providers are in a race to add new content and services or to match each other in new features to prevent any migration of their subscribers to a competitor. For example, Hulu recently announced it would offer its users the ability to download videos to watch offline, such as during a flight. Amazon began the trend for downloadable content in July 2016, and Netflix followed suit in November.

“These services have worked to establish core customer bases, and the inertia of these core groups provides an important baseline of ongoing revenues,” Sappington said. “They continue to refine or add to their offerings so that subscribers will continue to see new value in the service, providing ongoing reasons to remain a subscriber.”

(For more information on this report visit: http://www.parksassociates.com/blog/article/pr-02012017