Churn and King Content

Aug. 3, 2015
As much as we like to focus on technology, there's no getting around the fact that in the video world, content is still king. And nowhere is that ...
As much as we like to focus on technology, there's no getting around the fact that in the video world, content is still king. And nowhere is that more apparent than in the churn rates for subscription over-the-top (OTT) video services.

While churn is a thorn in every service provider's side, Parks Associates recently reported that churn rates for some OTT services are up in the 50% range, with a few even higher. Parks thinks content, or lack thereof, is at the root of the problem. Most OTT services have a pretty shallow content pool - sometimes it's more like a puddle - and if subscribers can't find the content they want, they dump the service and try a different one.

Although Parks doesn't mention it, another reason for the high churn rates is probably lack of negative consequences from jumping ship. There's no contractual relationship, so a user can become a non-user at will. But a bigger reason is that OTT lives in its own little silo; it doesn't have "hooks" into the rest of your electronic life in the same way that, say, your e-mail address does. Nor does it generally come with a price break if you bundle it with Internet or phone service. It's easy to let go.

Getting back to content, Parks' take on the content-to-churn relationship more or less agrees with my own experience. Some while back, we "cut the cord," dropping our cable video service. About a year later, we quietly came crawling back, and it was mainly to get content we couldn't get over the top. For example, Netflix (NASDAQ:NFLX) doesn't have current seasons of the shows my wife likes, and the local broadcasters seldom carry Green Bay Packers football games. Honey, call up Comcast (NASDAQ:CMCSA).

Of course, the OTT providers are aware of their content depth problem and are working hard to mitigate it. Netflix, for example, is creating some of its own content. On the content owner side, the NFL has been making noise about offering its own OTT packages, even down to individual teams - kind of a hyper a la carte play. So the content problem is getting better, though it's still a long way from being fully sorted out.

In the meantime, subscription OTT services are trying to reduce churn by making their offerings stickier, lately via bundling them with complementary services from other providers. HBO is doing so with its HBO NOW streaming service, bundling it with services from Verizon (NYSE:VZ), Cablevision (NYSE:CVC) and other cable operators; Netflix is working with a number of cable ops via TiVo (NASDAQ:TIVO). It's also possible that OTT providers will experiment with contractual deals - say, sign up for two years and get the service at a discount.

Bottom line here is that lack of content depth is keeping OTT volatile and relatively small in the great scheme of video things. It can't really take off until it has all the same content that's available via a pay TV subscription. Once it does, then the game really changes.