Parks: 19% of U.S. households cancelled an OTT service in last 12 months, but churn remains stable

TV remote

Churn rates for OTT video services are 19% of U.S. broadband households, according to a new Parks Associates report, suggesting that about one in five households have cancelled an OTT service in the past 12 months.

Overall churn rate for OTT services has been stable for the past year, with major OTT video providers Netflix, Amazon, and Hulu all reducing their churn rates.

OTT subscriber trends Q2 2015 – Q3 2016

Since the end of 2015, the research firm’s OTT Video Market Tracker found that 20% of U.S. broadband households had cancelled at least one OTT video service in the past 12 months.

RELATED: About 50% of OTT video subs have multiple subscriptions, Parks says

Brent Sappington, senior director of research for Parks Associates, told Fierce Online Video in an e-mail that the main driver of any paid OTT service churn is consumer “experimentation.”

“In some cases, consumers may have subscribed to a particular service for some time, such as Netflix or Hulu and will cancel in order to try something different,” Sappington said. “In a few cases it may be particular content that they want to watch. However, many can quench their thirst for a specific title by accessing a free trial.”

Regardless of the churn trends, 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.

Parks Associates notes that churn is lowest among the top three most established services (Netflix, Amazon, and Hulu). Each of these OTT providers are working to add new content and services or to match each other in new features to prevent any migration of their subscribers to a competitor.

Retention efforts rising

In order to retain customers and reduce churn, OTT providers are adding new and original content to their programming lineups.

Amazon, Hulu and Netflix have continued to ramp up their original content offerings. In some cases, some providers like Hulu have picked up cancelled shows like The Mindy Project, for example.

“Most retention efforts are related to adding new content or promoting exclusive/original content within the service’s discovery interface,” Sappington said. “Consumers need a motivation to continue to stay with a service, and content is the primary lure.”

Unlike traditional cable or satellite providers, OTT providers don’t require contracts. As a way to entice customers to try new services without any obligations, many providers incorporate no-contract, cancel-anytime models.

“The lack of contracts certainly makes it easier for OTT video service subscribers to churn, but requiring contracts is likely a non-starter, or at least a notable barrier-to-entry for many subscribers, particularly since it is so uncommon in the industry,” Sappington said.

Additionally, OTT providers will offer discounts for annual subscribers, allowing users to not have to think about renewing their subscription more than one time a year. Meanwhile, other providers that offer smaller, genre-specific services are creating viewer communities, offering forums or chat rooms to drive interaction and inclusion.

Downloads are nice to have

Downloadable content is also becoming a new craze in the OTT video viewing space. This service option allows consumers to download their favorite shows to their tablet or mobile device and watch them without the presence of an internet connection.  

Hulu recently announced a new platform that allows users to download videos to watch offline, such as during a flight. Amazon was the first to launch a downloadable content application in July 2016 followed by Netflix in November.

Sappington said that the feature will be more of an add-on option for consumers that don’t want to be penalized by their wireless carriers for going over their monthly mobile data usage allowance.

“I suspect that downloadable content will be a nice-to-have feature rather than a must-have for U.S. consumers,” Sappington said. “The attraction for downloads is the ability to watch while offline and not using mobile data.”

Sappington added that the drawback of the download option is that users will have map out what they want to watch and find time to download the content to their device.

“Users have to pre-plan what they want to watch and take the time to download, which runs counter to the flexibility and ease of use in streamed access to video services,” Sappington said. "Unless a subscriber needs to watch offline regularly, they will not subscribe to a service for this feature alone. It will be the content that drives subscription decisions.”