Send me real-time posts from this site at my email
Motley Fool

Winners and Losers in the Streaming Wars 2021

After a bevy of new services launched over the past couple of years, the streaming wars have shifted focus from grabbing new customers to retaining the ones they have. As a result, churn is the metric to watch in the streaming industry. The figure measures how many subscribers cancel their plans during a particular period.

To that end, the industry overall saw an improvement in quarterly subscriber churn last quarter, according to a new study from Kantar. Subscription-video-on-demand (SVOD) churn rates fell from 8% in the first quarter to just 6% in the second quarter.

But as we dig into the individual streaming services, some winners and losers emerge.

Image source: Getty Images.

Winners

While nearly all SVOD services saw improved churn rates in the second quarter versus the first, a few recorded notable improvements instead.

1. Disney+

Disney+'s churn rate declined from 11% in the first quarter to 6% in the second quarter.

Disney's (NYSE: DIS) first quarter presented a couple of challenges. First, it fully lapped any launch promotions from its initial launch at the end of 2019. It partnered with Verizon for a free year, for example. It also raised its subscription price by $1 per month at the end of March. Second, it faced content timing challenges as the popular series The Mandalorian ended in late December and WandaVision ended in early March.

Disney's content release schedule is still going to be a little bumpy, but as it works through the production backlog, the service should see churn rates normalize at levels closer to the second quarter.

Disney also saw a quarter-over-quarter improvement in Hulu's churn rate from 7% to 5%.

2. Apple TV+

The churn rate for Apple (NASDAQ: AAPL) TV+ improved from 15% in the first quarter to 9% in the second quarter. Apple notably ended many of its subscribers' free trials at the end of July, so the trend toward increased engagement among those trial members in the second quarter bodes well for it to hang on to a lot of those trial members. The late July premiere of Season 2 of Ted Lasso is likely to prevent Apple's churn from climbing too high for the third quarter.

Apple's still looking for another hit to keep subscribers engaged, but it seems to have bought some time, for now, to keep its fledgling streaming service alive in the streaming wars.

3. The big guys

Both Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN) saw no change in their industry-leading churn rates of approximately 4% each. Their ability to keep subscriber retention high is an indication that new streaming services aren't eating into their subscriber base, and they aren't the root cause of any struggles to grow subscribers.

Netflix reported a subscriber decline in the U.S. and Canada region for the second quarter, but that appears to be the result of the pull-forward effect that the massive growth in early 2020 had on gross additions. As consumers new to streaming start to sign up, Netflix's and Amazon's subscriber growth ought to normalize, especially as their content slates improve in the back half of 2021.

Image source: Getty Images.

Losers

Overall industry churn is improving, but one service saw churn improve less than others, and a whole class of services saw their churn figures get worse.

1. Peacock

Peacock's churn rate remained elevated at 13% in the second quarter, a slight improvement from the 15% churn rate that the Comcast (NASDAQ: CMCSA) streaming service saw in the first quarter. This streaming service has struggled with engagement, and it doesn't have any clear-cut hit content to draw in subscribers.

Comcast had tons of content from the Olympic Games in the third quarter, but few recurring titles have gained traction since that will allow it to retain subscribers. During the second-quarter earnings call, CEO Brian Roberts said it saw strong momentum from the sporting events and added that "we will work hard to manage retention and grow from here, recognizing we are unlikely to replicate such tremendous performance."

2. Ad-supported video on demand

One of the most surprising findings in Kantar's report is the weakness among ad-supported video on demand (AVOD). Peacock's free tier, for example, saw engagement decline as churn increased from 4% to 9%, quarter over quarter. Likewise, other leading AVODs saw their churn rates increase.

AVOD is usually seen as a supplement to subscription streaming, but if consumers are spending more time watching premium content on SVODs, there may be less time to watch older shows on the ad-supported competitors.

In addition, many AVODs face lower switching costs than SVODs do since subscribers don't really have to cancel anything, and hopping from one service to another is simple. So it may just be that Kantar isn't looking at where AVOD eyeballs are moving.

Image source: Getty Images.

Top reasons subscribers cancel

There are a couple of big reasons subscribers cancel their streaming subscriptions, according to Kantar.

The top reason is to save money. This shouldn't be confused with being angry about price increases. Rather, it's related to having more streaming services than necessary and being unable to watch all the content available. Just 10% of respondents said they won't keep paying after a price increase, but 17% said they have too many subscriptions.

The other big reason is to watch a specific show. For a streaming service to prevent subscription-hopping, they either need a constant stream of hit shows like Netflix, or to get more people on board with annual subscriptions like Amazon. That explains how the leaders have kept churn so low, compared to their less prosperous challengers.

10 stocks we like even better than Walt Disney
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walt Disney wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of September 17, 2021

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon, Apple, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue