Entertainment

Netflix & churn: Streaming services struggle with subscribers jumping ship

A small upswing in churn has been really bad news for Netflix. The company is not alone with this problem.

Delete buttons on a Netflix logo.

Churn has been somewhat steady over the past few years, but there are signs it may be taking a turn for the worse.

Illustration: Christopher T. Fong/Protocol

Click banner image for more Subscription Week 2022 coverage

For subscription video services, signing up new customers is only half the battle. Keeping existing subscribers engaged, and making sure they don’t cancel, is just as important. Just ask Netflix, which saw its share price slide 35% last week after disclosing that it had lost 200,000 subscribers in the last quarter.

Turns out Netflix may not be alone struggling with churn: 37% of U.S. consumers canceled a paid streaming video service over the past six months, according to Deloitte’s 16th annual Digital Media Trends report. And as the number of services increases, so do opportunities for subscription-hopping: 33% of U.S. consumers said they had both added and canceled a subscription over the same timeframe.

“That is a relatively large number, when you think about the amount of money that streaming companies are putting into the content that they're developing in order to acquire these customers,” cautioned Deloitte Vice Chair Jana Arbanas, who leads the company’s Telecom, Media & Entertainment practice in the U.S.

Churn has been somewhat steady over the past few years, but there are signs it may be taking a turn for the worse. Netflix, for instance, has had one of the lowest churn rates of the industry, with Antenna Analytics estimating in early 2021 that the company’s monthly churn rate was just 2.4% — far below the 7% other premium subscription services were seeing at the time.

By the end of March, that rate had gone up to 3.3%, with subscribers abandoning the service at a significantly higher rate following Netflix’s price increase in January, according to Antenna’s estimates. CFO Spencer Neumann denied a connection to the price increase during last week’s earnings call, but he did acknowledge that cancellations had gone up a bit. “We’re talking 2-3 tenths of a percentage point,” he said.

Still, even small fractions can have a big impact if you’re dealing with hundreds of millions of subscribers, as the company admitted in a 2019 earnings report: “Very small movements in churn can have a meaningful impact on paid net adds."

And it doesn’t look like things are going to get better for Netflix and its competitors: Both Gen Z and millennials had churn rates of over 50% over the past six months, according to Deloitte’s survey, compared to 40% for Gen Xers and just 17% for baby boomers.

A common refrain among media pundits is that younger people are stingy, and that these customers are bound to change their ways when they grow older and settle into better-paying jobs. Arbanas isn’t buying that, at least not when it comes to churn. Instead, she believes this behavior has a lot more to do with knowing your way around a service’s interface, and the ability to customize your own content bundle.

“As this generation gets older, even though they may have more disposable income, they will still feel quite comfortable navigating those processes,” she said, pointing to the fact that millennials have just as high of a churn rate as Gen Zers. “People predicted that with millennials, and that's not necessarily the case.”

One reason churn matters so much to subscription services is that the economics of these businesses become more favorable the longer a subscriber stays with them. Mobile phone operators, for instance, have traditionally spent around $340 on the acquisition of a single new customer, which can include buying out existing contracts, or free devices with a long-term plan. After that initial investment is amortized, the profit margin per subscriber dollar increases significantly.

The economics of a streaming company are somewhat different, but keeping churn rates under control can still make all the difference, especially when your business matures beyond the early days of rapid growth.

The good news for the streaming industry is that there are some ways to minimize churn. That’s especially true for the churn-and-return crowd — people who cancel a service when they’re done with the latest season of their favorite show, and then resubscribe when the next season is available.

For years, Hulu has been offering these kinds of subscribers the option to pause their subscription for up to 12 weeks. Arbanas thinks that price cuts could also help tie people over, and hold on to their plan. “We think that there's a play around greater optionality from a pricing perspective,” she said. This also includes offering ad-supported plans, as Netflix is looking to do now.

In the end, it’s about finding the right plan for the right consumer. “You'll always have consumers that are really cost-conscious and then a set of consumers that are willing to pay more,” Arbanas said. And it’s not just about the price tag alone: Giving consumers a discount if they prepay for a year, or buy a subscription as part of a bundle, also helps to retain them for longer periods of time. “I'm going to think twice about [canceling] something that's bundled versus a standalone service,” she said.

However, streaming executives also have to be clear-eyed about the limitations of these measures. Churn rates that increase or decrease by a fraction of a percent may make a big difference to services like Netflix, but chances are that’s as far as the needle moves either way.

“I don't think that churn will ever be at zero percent,” Arbanas said. “A fair amount of it will be the cost of doing business.”

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins