Subscription video-on-demand services have come to dominate the broadcasting space for the past decade, driven by changing viewing habits (and pushed forward with a huge increase in traffic during the lockdowns of the Coronavirus pandemic). Revenue in video-on-demand services is projected to reach US$94.88bn in 2022, growing to an estimated US$157.90bn by 2027.
Early movers included BBC iPlayer, Netflix, Hulu and Amazon Prime Video. In recent years, these pioneering services have faced increased competition with the launches of services like ESPN+, Disney+ and NBC Peacock. As the lockdowns have ended, these services face increased competition for people’s time. And with many markets experiencing recessionary pressures, they will also have to fight harder for consumer’s wallets.
In this blog post, we explore some of the strategies being used to build successful streaming subscription services.
1) Netflix is building on its culture of learning and experimentation
As one of the first movers in the streaming space, Netflix has built a reputation for successfully innovating its customer experience. Co-CEO Reed Hastings credits the company’s success to its culture of learning and experimentation. On the company’s impressive resource research.netflix.com, Hasting explains: “At Netflix we have a rich research and data community, which is really pushing all of us to be rigorous in our thinking, to be curious and to always think about what's the best solution… we've got so much data that it makes sense for us to really invest in research.”
Rather than relying on leadership or internal experts to make decisions about new product features, marketing or programming, Netflix prioritises A/B tests that directly measure customer response. As the Netflix team explain in a series of blogs about this culture, the result of this testing is that “there is not one Netflix product: at any given time, we are testing out a large number of product variants, always seeking to learn more about how we can deliver more joy to our current members and attract new members”.
For example, the recently introduced “Top 10” list feature started life as a small-scale experiment shown to a subset of users. As a result of early experiments proving user engagement with this feature, it was then rolled out across many more users. Of course, not all ideas are winners – and while hundreds of product variants are built and tested each year, only a small percentage are deployed for all Netflix members. The Netflix team believe that this approach leads to “a better product for our members and an internal culture that is humble and values ideas and evidence”.
So how does Netflix embed this mindset across the organisation? Culture change starts with leadership buy-in. At Netflix, the importance of customer-centricity is role-modelled by senior voices within the organisation. For example, Hastings appears in internal training materials around experimentation, speaking directly about technical concepts such as A/B testing (see below). Within the organisation there is a dedicated Data and Insights department, with a mission of using research and experimentation to improve all aspects of Netflix’s business. Netflix invests heavily in the technical capabilities required for vast continuous testing, such as its centralised experimentation platform.
FTS insight: building a genuinely consumer-centric digital business requires experimentation at scale. Broadcasters should invest in their culture and technical capabilities to keep pace with their audiences' needs.
2) Many broadcasters are experimenting with their subscription pricing strategy to capture more value from the market
Pricing strategy is a critical consideration for building a sustainable subscription service. As we’ve previously written, monetisation has been found to have nearly 8X the impact of acquisition (see ‘Five steps to optimising your pricing’). So it makes sense that platforms are starting to experiment with more nuanced approaches to pricing their services.
For example, NBC’s Peacock streaming service offers a more expensive Premium Plus tier. This has benefits such as an ad-free experience, and the ability to download and watch select titles offline. Similarly, NowTV offers Boost, a £5 a month upgrade that allows subscribers to access higher quality video and audio, allows streaming on multiple devices at the same time, and provides an ad-free streaming experience. Channel 4 has opted for free ad-supported viewing, with a paid upgrade that offers an ad-free experience.
As evidence that this trend is here to stay, Netflix has belatedly followed in the footsteps of its newer rivals in November 2022 with the launch of an ad-supported discounted subscription, run in partnership with Microsoft.
Offering multiple price points has long been a popular strategy in SaaS and publishing, because it allows businesses to optimise for people with different price sensitivities. As well as offering distinct entry points, it also gives broadcasters more flexibility around lifetime value. For example, people with high likelihood to churn can be offered a cheaper package, while highly engaged customers can be offered incentives to upgrade the service.
NBC and Channel 4 also offer discounted annual plans, which have been consistently proven to improve LTV by boosting retention.
FTS insight: broadcasters should continue to experiment with their pricing strategies as the market and their customer base evolves.
NBC Peacock’s Premium and Premium+ plans
Channel 4’s paid tiers
Now’s ‘Boost’ upgrade
3) How Disney is winning a retention advantage with evergreen content
Disney is a relative newcomer to the streaming space, having launched in 2019 (some 12 years after Netflix and BBC iPlayer). Nonetheless, the platform has been a remarkable success story in the streaming market. In Summer 2022, the Disney+ bundle (which includes Disney+, Hulu, and ESPN+) overtook Netflix in terms of customer base – with 221.1 million streaming subscribers at the end of the June quarter, compared with Netflix’s 220.7 million streaming subscribers.
Netflix’s decline shows the importance of focusing on retention. In April 2022, the company announced that it had lost subscribers for the first time in 10 years.
Ultimately, people sign up for subscription services to view content. So it’s not surprising to hear that customer decisions to join or leave the platform are strongly correlated with content. Commissioning new content is high cost and high risk, with record-breaking production budgets seen this year: Amazon’s Rings of Power reportedly could end up costing over a billion dollars to make. When shows are successful, they can win huge audiences to a platform – but success isn’t guaranteed. For example, while Netflix had great success with Squid Game, it made a loss with Dave Chappelle’s comedy special “The Closer”.
Disney has found that the winning formula is to balance new releases, with “evergreen” archive content. As Disney CEO Bob Chapek has explained: “We always say that library titles tend to increase engagement and minimise churn. But new titles, new content, whether they are movies or series, actually add new [subscribers]," And this is one of the reasons that has led to Disney’s retention advantage, with the business having a deep archive of high quality content to balance its new releases.
FTS insight: In an increasingly competitive environment, broadcasters must balance both new releases and library content in order to maintain overall growth.
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We would be delighted to hear about the opportunities to work with broadcasters to tackle today’s landscape. So please do get in touch with us if you’d like to continue the conversation.