Last editedMay 20223 min read
Churn rate is a vital metric to track for any OTT (over-the-top) service provider. Subscription streaming services like Netflix and Disney+ rely on customer retention – so what causes a high OTT churn rate, and why is this a problem? Here’s a closer look at the types, causes, and issues with churn rates for subscription OTT providers.
Why is OTT churn rate a problem?
Churn rate describes the number of OTT subscribers that cancel their subscriptions over a fixed period. Why is this a common problem? Customers subscribing to online streaming services are spoiled for choice and frequently offered free trials. This can make it all too easy to drift from one platform to another. A customer might sign up for a service to watch one specific TV show. Once it’s been binged, they can cancel the service and move on to the next.
For the business, a high OTT churn rate means:
Reduced customer lifetime value (CLV)
Increased customer acquisition costs (CAC)
Essentially, your platform must work harder to acquire new customers and retain existing ones over time.
Types of OTT subscription churn
There are two types of churn rates: voluntary and involuntary.
Voluntary churn is when the customer intentionally cancels or downgrades their subscription.
Involuntary churn occurs when the subscription is canceled by default due to failed payments.
While involuntary churn is often a result of technical issues or expired payment credentials, the causes of voluntary churn are more diverse. OTT subscriptions are usually contract-free, meaning the customer can cancel at any time. This means that cost is a major driver of churn rates, as the customer will look for cheaper services elsewhere. Competition is also a major cause. If your platform isn’t offering attractive content, subscribers will turn to other streaming services.
How to calculate OTT churn
To calculate OTT churn rate, you first must choose the period and date for analysis. Examples could be monthly, quarterly, or annual figures. Within this timeframe, follow these steps:
Add together the total number of customers who have dropped their subscriptions.
Divide the total churned customers by the total number of subscribers on the first day.
For example, imagine that on the first date of the accounting year, your business had 100,000 subscribers. Throughout the year, it lost 5,000 subscribers. Divide 5,000 by 100,000 to get 0.05, or a 5% churn rate. You might use this figure at face value or break it down by active vs. passive cancellations for a more detailed view of the percentage of customers actively canceling their subscriptions.
The ideal OTT churn rate will vary depending on the type of subscription you provide, but generally it ’s best to aim for 5% or lower.
OTT churn management strategies
There’s a multitude of reasons why subscribers might cancel a service, and while you can’t please everyone you can tackle the primary causes. Here are a few OTT churn management strategies to try if your rate is uncomfortably high.
1. Prevent involuntary churn.
Issues like payment failures can be prevented with automated billing. Subscribers are sent alerts when payments on file require updating, rather than simply defaulting to an involuntary cancellation. GoCardless offers a simple way to take automated recurring payments, reducing customer churn with features like Success+. This uses recurring payment intelligence to recover an average of 76% failed payments.
2. Offer an engaging OTT user experience.
With plenty of market competition, the most popular platforms will offer a seamless, lag-free viewing experience. Glitches, lengthy buffering, and poor visual quality will cause engagement to plummet and churn to rise.
3. Create a regular stream of fresh content.
If you offer a finite library of video content, at some point your subscribers will go through it all and cancel the service. It’s important to keep them coming back for more with a steady stream of exclusive content.
4. Offer competitive pricing.
There’s a multitude of pricing strategies to follow with an OTT business model. Some platforms will offer free content broken up with advertisements, while others will charge a flat subscription fee. Be sure to do your research to see what direct competitors are offering to formulate a pricing structure of your own. Is your channel affordable? Does it offer good value for money? Consistent value will reduce churn.
As with other subscription services, the nature of OTT platforms means that churn rates can be high. By reducing involuntary churn through automated billing and offering high-quality content at an affordable price, you can slash OTT churn rates for greater customer lifetime value.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.