Enthusiasm for OTT services is high in the lead-up to Christmas, but even among those planning to sign up for an OTT subscription, many already plan to drop it after a few months.
This was the finding of a new study by billing company Paywizard. The company surveyed 6,000 consumers in six markets -- Australia, Brazil, Germany, Singapore, the US and the UK -- and predicted that OTT providers will see a powerful year-end spike in new subscribers.
According to the research, 30% of respondents planned to sign up to a new OTT service ahead of Christmas, including 18% subscribing to an OTT service for the first time. Demand fell slightly in the US as the sector there nears market saturation, from 31% planning to sign up for a new OTT service last year, to 26% planning to do so in 2016. It was unchanged in Germany, at 24%. But in other surveyed countries, it was consistently higher: at 23% in Australia, 25% in the UK, 32% in Singapore and 50% in Brazil.
Consumers under 35 years of age were most likely to want to subscribe to an OTT service -- almost three times as likely compared with those 55 and older. But even within the older group, only 59% said they had no plans to subscribe to OTT this year, down from 70% in 2015.
The survey found that Netflix and Amazon were driving growth globally, but important local players, such as Sky's Now TV service in the UK, Foxtel Play in Australia and maxdome in Germany were succeeding in attracting subscribers within their markets.
However, the survey also found that a whopping 50% of consumers planned to cancel their subscription within six months. This suggests that many consumers see OTT as a short-term investment, with the idea of signing up, watching the shows they really want to and then churning out. According to Paywizard, this would result in a churn rate nearly four times that of most pay-TV providers.
When asked why they expected to churn, 70% questioned the value of the service, 44% pointed to limited content and 32% cited poor user experience.
This is worrying data for OTT providers. It suggests that new subscribers are essentially making up for subscribers churning out. As long as their gross additions outnumber their losses, they can show top-line growth. But there are only so many subscribers who are interested in their service and haven't tried it yet. Sooner or later, those gross adds will slow -- and with 50% churn, their numbers will plummet.
Doubts about the value of the service and questions about content selections reflect consumer complaints about OTT services, especially outside the US where regional licensing restrictions limit libraries, and local content is scarce. This is important, suggesting that OTT providers are good at attracting new subscribers, but disappoint them once they do sign up.
We've also talked previously about fragmentation in the OTT sector, with consumers frustrated at having to sign up for multiple services to get the shows they want. This would directly affect the perceived value of the services they do sign up to, which 70% of respondents cited as a churn driver in this study. (See Growth of Netflix Competitors Could be Positive for Pay-TV Providers.)
It's worth noting, though, that consumers don't always follow through on their threats. In fact, they can display extraordinary lethargy in some instances. So actual churn will likely be far lower. Also, OTT providers are investing heavily in both licensing and developing original content. That hopefully means consumers will start to find more to watch on these services.
From an operator's standpoint, however, this is great news. It implies that the current base of cord-cutters may spend a year or two wandering the OTT desert in search of video nirvana, and that many could then churn out of their OTT services and return to full-fat TV.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation