After a couple of years of competing to win new subscribers, streaming services are now facing the challenge of keeping all the subscribers they managed to gain. For the biggest services, an uptick in subscriber churn can have a significant impact on net additions from quarter to quarter.
But with so many options for streaming, consumers may find themselves jumping from one service to another. Samsung recently published a survey asking why people cancel their streaming services. Here are the top answers.
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Not enough original exclusive content
Originals are a big deal in streaming. Netflix (NFLX -0.63%) releases around 10 new original titles per week these days, but most other streaming services might release just a handful each month.
Of course, originals cost a lot of money. Netflix burned billions in cash over the past decade as it ramped up its original productions to reach their current level. Walt Disney (DIS -0.04%) and Warner Bros. Discovery (WBD -2.17%) have plans for Disney+ and HBO Max, respectively, to invest billions in cash for the first few years as they work to grow their content libraries and attract subscribers.
Despite releasing dozens of new original titles every quarter, at least one analyst thinks Netflix isn't making enough. Indeed, consumers typically watch a new series or film, and then they decide to move on to the next original, which might not be on one of the streaming services they currently subscribe to. That said, Netflix's productions far outnumber those of the competition.
Less frequent content releases
Some consumers may be frustrated by the cadence of releases on some streaming services.
For one, most streaming services opt to release new episodes of their originals on a weekly basis in order to keep subscribers from canceling. But consumers may just end up waiting to subscribe until they can binge a series.
They might also watch a series as it comes out but then find out the next interesting release on a streaming service is months away. This is a challenge for the newer streaming services, which are working to establish a library of tentpole series they can hang their hat on. A half-dozen popular series spaced out throughout the year could keep many households subscribed year-round.
Too expensive
Streaming services need to balance how many subscribers they're bringing in with how much they charge each month, which also dictates how much they can afford to spend on content. Netflix has increased its price on a near-annual basis over the last few years with its most popular plan climbing from $7.99 per month to $15.49. The most recent price increase makes it the most expensive subscription video on demand (SVOD) service in the U.S. market. HBO Max, at $15 per month, isn't cheap either. Meanwhile, Disney has managed to keep its pricing very competitive at just $7.99 per month for Disney+.
Many streaming services have turned to advertising to supplement the subscription price. HBO Max started offering an ad-supported tier last year, and Disney is planning to offer a cheaper ad-supported version of Disney+ in the U.S. later this year before expanding the offer globally.
Some households may find it challenging to get enough value out of their monthly subscription fee. That said, Netflix and Disney+ still provide better value than pay TV on a cost-per-hour-viewed basis, according to an analysis by MoffetNathanson.
For streaming services to keep raising prices, they'll need to prove their value. If they don't, subscribers will flee to lower-priced competitors.
What it means for investors
Investors in companies spending heavily on streaming services should pay attention to how management is addressing the above concerns.
Disney+ has kept its prices low, and it's showing intent to maintain that pricing, albeit with an ad-supported tier. Meanwhile, it's continuing to ramp up its content production and licensed library.
HBO Max has pulled back on film releases as Warner Bros looks to build back its box-office receipts as the world works to get COVID under control. A bundled offering with Discovery+ and CNN+ may be attractive to some, or Warner Bros. Discovery may just fold in more Discovery content into HBO Max to beef up the library. Nonetheless, its pricing remains high, and many consumers may be unable to justify the price tag, even with the ad-supported tier.
Netflix disappointed investors with its net subscriber additions last quarter, but it stands head and shoulders above the competition with its cadence of original releases. And despite the recent price hike, it still provides good value for most subscribers.
