According to the latest report from Deloitte[i], customer churn or service cancellations have been on the rise as the subscription video on demand (SVOD) market matures. While customer churn may be the highest in the US at 35%, it may soon rise as other markets in Europe and elsewhere mature. European broadcasters initially launched on-demand services with relatively small libraries, often at zero cost. But US-based providers followed with paid subscription services, much broader content portfolios, and simpler user experiences with data-driven content recommendations. The competition prompted many European providers to follow suit, yielding more robust growth. Across Europe, churn ranged from 7% to 23% as of mid-2021 but is slated to rise as some of these markets mature.
While paid subscriptions have worked well in advanced economies, audiences in emerging markets across Latin America and Asia prefer free or cheaper ad-supported services. Free, ad-supported video-on-demand (AVOD) services predominate in the Asia Pacific. India’s Hotstar, for example, has 300 million active users of which 46.4 million are paid subscribers[ii], while China’s iQiyi counts 500 million viewers with 100 million paid[iii]. As the SVOD market matures, Deloitte predicts that its growth will be increasingly based on ad-supported models or adjacent revenue streams. Let us take a closer look at Netflix’s foray into gaming.
The leader looks to diversify into gaming
Netflix has announced three more mobile games that you’ll soon be able to play on iOS or Android with a subscription to the streaming service, including the first FPS available as part of its line-up. Netflix has slowly been building out its line-up of mobile games since the program’s official launch in November, including the racing title Asphalt Xtreme and a League of Legends spinoff. And mobile games are only one part of Netflix’s growing interest in games — the company has acquired Next Games and Oxenfree developer Night School released a trivia show, and is launching a daily trivia series based on the famous Trivia Crack brand.
This concerted effort to build a sustainable gaming business has become increasingly crucial for Netflix in recent months. The company is spending billions to bring more original films and TV shows in a post-pandemic world where it is grappling with slowing user growth and increasing competition from HBO Max, Amazon.com Inc, and Walt Disney. The stock has lost 43.4 percent of its value this year, adding to the pressure to create new revenue streams. Only recently, for the first time, a senior Netflix executive admitted to being receptive to the idea of a cheaper ad-supported service.
Disney+, which launched in late 2019 and expects to have about 230 million to 260 million subscribers over the next two years. Platforms like HBO Max, Apple TV+, and Amazon Prime have also seen significant growth in subscribers. And while Netflix has had several Academy Award nominations in the past, Apple TV+ became the first streaming service to win a Best Picture Oscar for “CODA.”
The rise of partnerships and new business models
According to Deloitte, partnering with telecom operators can provide access to a large proportion of the population, especially in mobile-first underbanked markets. This can help SVOD providers trim distribution and customer management costs or create more incentives for people to stay with a bundled option. Adding the convenience of direct carrier billing can provide SVOD services with a certain “locked-in” engagement with consumers when the services are bundled with mobile tariff plans. As many SVOD services expand in emerging markets, some of these partnerships will become crucial to their success.