Six lessons for the upcoming consumer squeeze - takeaways from the global streaming market
Winter is coming
The recent slowdown in subscriptions to streaming services was in many ways to be expected. The pandemic saw such an explosion in uptake and usage that a degree of rationalisation was inevitable as life returned to the new normal.
But a more serious threat awaits. In past downturns, pay TV has been remarkably resilient. Seen by many consumers as non-discretionary spend, as they reduced other leisure activity (such as cinema, or eating out), spending more time at home meant that TV became even more essential – and the power of the big bundle meant that it was difficult to only slightly reduce spend; faced with an on/off decision, consumers stuck with “on.”
But as we approach a new recession, television is in a very different place. Rather than one large subscription, consumers now have three or four – and the flexibility that the industry trumpeted may prove to be a double edged sword. Subscriptions that were easy to add will be easy to drop.
So how can OTT operators – either those established services which are seeing a slowdown in growth, or new services struggling to gain traction in an increasingly crowded space – position themselves for the coming turbulence?
O&O has advised OTT and streaming operators around the world – from the global giants to more niche, hyper-targeted services. We’ve conducted initial testing, product and portfolio development and detailed pricing studies. (We’ve even advised some not to proceed). Below are six things we’ve learned – common themes that have turned up regularly in the dozens of opportunities we’ve analysed.
Simplicity first – options later
When launching a service, don’t confuse consumers with a menu of choices or prices – have a simple, clear proposition and a single price point. Spotify and Netflix did this during their early years as they gained traction and built their proposition. Introducing choice brings in doubt – and with it a reason to at least delay committing. One offer; one price; one decision.
If you have a choice, pick the lower price point
Detailed consumer research is key to getting the launch right – we exhaustively test the proposition, price and user experience of client’s services and proposals. When testing price, uptake invariably reduces with increasing price. But total revenue – the product of uptake and price – is more complicated; there will be a peak at the optimum price, but often the curve is pretty flat around that point – total revenue doesn’t change very much. If this is the case, then go for the lower price. Take up will be higher, churn will be lower. And the business will be more robust as a result.
Price benchmarks are key
The streaming market may be relatively new, but a number of established players have set price points and consumer expectations. What are you offering that they don’t – and how will consumers compare your service to theirs? Again, consumer research that doesn’t just test your product in isolation, but in the real world situation that consumers will face, is key to making the right decisions. But if you want to charge more than Netflix, you’re going to need to offer something special.
For sports, how does the offer compare with what it would cost to access the sport on pay TV? For services focusing on a single sport, this can be turned into a huge positive – offering avid fans more content than they get on pay-TV, and at a lower price. (Maximising revenue will require something to capture casual fans, too – don’t assume that everyone is as passionate as you are).
Price discrimination delivers value to the consumer – and to you
Once a service is established, more complex pricing schemes can be introduced. Product bundles or tiers can be priced separately, with a discount for the combination. Fans of a single product get what they want (and don’t feel they’re paying for something they don’t want); fans of both pay more, but at the same time perceive a saving. The operator gets more revenue, and everybody is happy. But again – don’t overdo it, and keep the message simple.
Don’t ignore the cost line
When looking to maximise revenues, the costs of going via platforms and aggregators can seem too high. A 50:50 revenue split may seem unfair – and will reduce your top line. But the benefits can be huge – access to a new customer base, no tech, billing or platform costs, and massively reduced marketing and customer acquisition costs. Letting someone else take the strain can be a real benefit. For operators seeking to enter new markets such as the US, customer acquisition costs can break the business. Partnerships with established operators can allow you to gain a secure foothold quickly and at lower risk.
Keeping customers is cheaper than recruiting new ones
Lastly, as consumers begin to reassess their spending and churn begins to increase, businesses will have to run faster just to stand still. Keeping on top of churn – and avoiding the costs it brings – will be crucial.
Does your data allow you to track usage, with leading indicators that predict churn and identify at-risk users?
Have a set of retention offers ready to go – if consumers are slimming down a portfolio of VOD services, let it be someone else’s
If you have a sport with a closed season, don’t risk churn spiking – give consumers the two months free, and retain them for next year
Be proactive – no matter how good your retentions team is, the best customers are the ones who don’t contact them in the first place
O&O have advised operators of, content providers to, and investors in streaming and direct to consumer services on every continent. To find out more, or to get in touch at www.oando.co.uk – we’d love to talk.