People are canceling video streaming subscriptions at record rates…

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After spectacular growth during the pandemic to over 200 million subscribers, Netflix remains the horse to beat in a crowded video streaming field.

Wall Street will be looking closely at whether the company can maintain its stride when it reports first-quarter earnings on Tuesday.

But a new report raises questions about whether there’s a shakeout underway in video streaming and how Netflix may be impacted. Consumers, the report says, are dropping their subscriptions from video streaming services at a record rate.

According to the 15th annual Deloitte media trends report, which surveyed 2,009 U.S. Consumers in February on their entertainment preferences, the average subscriber has four paid video streaming services, down from five in October. Although 82% are paying for video streaming, people are being more selective now that the pandemic has eased somewhat.

Kevin Westcott, Deloitte’s vice chairman and U.S. Tech, media, and telecom leader, told Coins2Day that streaming services are seeing significant churn, meaning cancellation rates are up. The overall dropout rate was relatively low, around 20%, before the pandemic, but from October 2020 to February 2021 it jumped to 37%.

“These are the highest rates we’ve seen in the history of our survey,” Westcott said. “As fast as people are signing up to try new services, they’re deleting them once the trial period ends.”

Although churn is not typically reported by the platforms, Netflix expects to add 6 million new subscribers in the first quarter of this year, which is less than half of the 15.8 million subscribers that were added in the first quarter last year when the lockdown began.

To stem the tide, Netflix needs to find ways to hook subscribers once they land on the platform. Exclusive content, like the 500 titles in the pipeline and plans to release originals weekly, might not be enough.

The competitive landscape

Netflix faces fierce competition. Amazon Prime Video, its most formidable adversary, counts a subset of its 200 million–plus Prime members as subscribers. The e-commerce giant has granted a half billion dollar budget to an adaptation of The Lord of the Rings, which is slated to be the most expensive television series ever made.

Disney+, with its Star Wars franchise and Marvel Cinematic Universe, is a force to be reckoned with. The service gained more than 100 million subscribers during its first 16 months, a milestone it took Netflix 10 years to reach.

Other paid video platforms that produce original content include Disney-owned Hulu (40 million plus), HBO Max (38 million), NBC’s Peacock (33 million), Paramount+ (30 million), Discovery+ (11 million), and Apple TV+ (10 million). And then there are ad-supported services with sizable monthly active users including Roku at more than 50 million, Fox’s Tubi at 33 million, and ViacomCBS’s Pluto at 28 million.

Stick around

If a streaming service pays $200 to acquire a subscriber, and the cost of a subscription ranges from $5 to $15 a month, then platforms lose money unless subscribers stay for a period of time.

“Up until now, all of the attention has been on subscriber acquisition. But in the next one to two years, the focus will shift to customer retention,” Westcott told Coins2Day.

“The most important thing the streaming services can do is bring video, music, games, audiobooks, fitness, and niche content from smaller platforms under the same umbrella,” Westcott said.

Streaming services angling to become one-stop shops for all of subscribers’ entertainment needs will have a leg up during a shakeout. Toward that end, Amazon Prime Video has over 100 streaming services on its platform, and it offers subscription deals as well as à la carte access to content on services like Starz, Discovery+, and BritBox. Apple does something similar with Apple TV+ channels. And the Roku Channel Store offers access to music services like Spotify, SiriusXM, iHeartRadio, and Tidal in addition to videos and games.

With over 300 subscriber video-on-demand platforms in the U.S., Westcott believes 10 megaplayers will emerge and snap up the smaller ones.

“As the platforms aggregate everything you watch, read, play, and listen to, they know you better than anyone and can advertise to you in the most targeted way,” Westcott said.

Ads are the new black

Westcott believes the platforms will continue to move toward a windowed, ad-tiered model. In this schema, subscribers can choose to pay extra to watch exclusive content the day it drops, watch later for a discount, or watch free with ads. Disney+ did this with Mulan, which debuted as a Premier Access Title on top of the subscription fee for $29.99.

“Coming out of the pandemic, cost has risen to become the No. 1 decision factor for canceling a service, whether it be a free trial ending or the cost of services increasing. This has led to a growing tolerance for ads,” Westcott said. “Sixty percent of those surveyed said they were willing to watch up to six minutes of ads per hour in exchange for reduced cost, as long as the ads were relevant and not repetitive.”

Of those surveyed, 40% said they were willing to pay $12 a month for ad-free viewing.

Who’s watching anyway?

Demographically, the key groups paid video platforms like Netflix should focus on include millennials, Gen Xers, boomers, and older. College students and teenagers are not avid consumers of Hollywood’s output, according to Westcott.

“Gen Z is the first generation in the history of our study not to be video first. They’re not watching theatrical length film and television. Video is not even in their top five choices which include games, music, and social media,” said Westcott. “Even millennials surveyed at their age had video as their No. 1 entertainment activity. We see this as a seismic shift.”

Once everyone is allowed out in the world again, screens may lose some of their draw. “It’s not likely we’ll see a complete rejection of screens,” Westcott said. “But I do think we will see the total number of minutes being consumed decline.”