Close up of phone screen showing a display of apps including Prime Video, Netflix, Freeview, Youtube and Sky+

Are subscription video on demand services a luxury we can live without?

Christian Brent

With our latest cost of living crisis research revealing that almost a fifth of Netflix, Prime Video and Disney+ UK subscribers are considering cancelling, we ask; are SVOD services a luxury we can live without?

The cost-of-living crisis is clearly starting to bite. We, among others, have published various analyses of the situation and its impact on consumer spending. Are we now starting to see the crisis impacting in-home entertainment in the form of subscription video on demand  (SVOD) cancellations?

We investigated the link between the increasing cost of living and SVOD churn; and explored some of the drivers behind SVOD decision making.

How hard might the UK SVOD market be hit?

Richard Broughton, Executive Director at Ampere Analysis writes:

“Classically, subscription businesses have been resistant to economic pressures. The pay TV market, for instance, remained relatively stable in the immediate aftermath of the financial crisis. But the long contract periods which supported this stability are not normally a feature of the subscription streaming market, leaving SVOD services more vulnerable in the short-term to consumer discretionary income cut-backs.”

And our research suggests just that. As an easily cancellable monthly contract, SVOD faces a significant risk of mass cancellations:

  • 39% of UK SVOD homes are worried enough about the cost-of-living crisis to be actively looking to reduce their overall spending right now. Those aged 35-54 are most concerned, as are those of – maybe counter-intuitively – higher social grades. 44% of women versus 33% of men, are ‘actively looking to reduce their costs right now’.
  • In what amounts to ominous news for the UK’s SVOD market, half this number (20%) are actively looking at SVOD subscriptions as one way of saving money. Why SVOD? The same proportion (19%) agree that ‘SVOD is a luxury I can live without right now’.
  • And that number would increase significantly in the face of any price rises. Almost a third of subscribers (29%) would be ‘much more likely to cancel’ if the price goes up. SVOD service providers will need to be careful therefore that any price rises net positive revenue growth as they will likely drive significant churn.
  • Of the big three SVOD services: Netflix, Amazon Prime and now Disney+, our research shows all to be threatened with very similar levels of cancellation risk at around 16-18% of their current subscriber base. And these are at the lower end of the spectrum for the industry. Pay TV VOD products and the other SVOD services face as many as 20% to 50% of their current subscriber bases considering cancellation.
  • Cheaper advertising-funded tiers could be both part of the solution and part of the problem. Versus the 20% of homes who are considering cancelling, some 17% of homes would be interested in cheaper ad-funded tiers. However, these are not the same homes. Appeal for cheaper tiers is seen across all groups, including currently satisfied subscribers not looking to cancel, as well as non-subscribers looking to sign up. Again therefore, SVOD providers will need to be careful to accurately model the net impact of introducing cheaper tiers.

Why is SVOD not proving more resilient in the downturn?

While more data points are always helpful, much of the above may not come as a surprise to readers who following the SVOD press. What may be more novel and insightful is our data on user-experience (UX) & brand differentiation from the same survey. When comparing those subscribers who are considering cancelling to those who are happy to keep paying; we see that potential cancellers are:

  • almost twice as likely say ‘all SVOD services look the same’
  • almost twice as likely to find SVOD services ‘difficult to use’
  • almost twice as likely to say they ‘struggle to know which programme is on which platform’
  • almost twice as likely to ‘not really understand the difference between the services’

Richard Broughton from Ampere Analysis again:

“Increasing numbers of consumers feel overwhelmed by the sheer number of streaming services in the market. In the most competitive VoD markets, consumers are looking for simpler navigation, discovery, and recommendations to ease their viewing experience. In this crowded world, effective content discovery and surfacing solutions are necessary to ensure that the high value content being created by streamers is ultimately finding its target audience, and the return on investment realised efficiently.”

So, what can SVOD providers do to clear up this confusion?

Our research reveals a significant opportunity for the SVOD platforms. Better differentiation of their propositions could make a significant difference to the short-term decisions of at-risk customers. Moving from a content-led (programming) approach to a more balanced customer-led (marketing) approach could mitigate some of this cancellation risk. In the stampede to keep up with competitor launch schedules and production spend, have shortcuts been taken on brand strategy?

Our research suggests four opportunities to explore:

  • How can services better differentiate their propositions? For a generation of viewers used to genre-descriptive Pay-TV channel names, or genre-specific Pay-TV channel number blocks, studio brands bring familiarity and premium associations, but can offer little to no description of content genre. Bundling services will only exacerbate this.
  • What does ‘+’ actually mean in many of the SVOD service names? More content? Better content? And if so; better than what? Better than the branded Pay-TV channel from the same companies? If the ‘+’ is implying this is (nice to have) extra content, does that play into the implicit suggestion these are services that can be lived without?
  • With content attribution a particular problem, what verbal and visual identity strategies could be employed to better connect your content with your service? Content attribution has been a challenge in Pay TV for years, maybe decades, but is this challenge amplified by the larger volume of content on one service versus being peppered across multiple channels?
  • And once on your service, how can UX be optimised to support both your differentiated positioning and a painless content discovery journey? What job can be done for audiences scrolling through rows and rows of endless carousels of programme key art?

From content-led to customer-led?

As the cost-of-living crisis bites, is this actually the perfect time for SVOD providers to take a step back from the content production arms race and look again at their consumer propositions and competitor differentiation? Our view is yes. There could be some simple wins for companies in this space if they broaden their horizon to look at how other categories have positioned themselves in fast growing competitive categories. The SVOD market can and must do the same if it is to emerge stronger on the other side.

The data referenced in this article was gathered using our nationally representative omnibus panel. Click here to find out more.

Christian Brent is a Partner at Yonder Consulting, prior to which he held Audience Strategy positions at FOX Networks, BBC Worldwide and The Walt Disney Company.