Netflix recently reported having more than 100 million subscribers for its SVOD service. And that figure is the tip of the iceberg with the world’s largest video streaming service being available in almost every country with very few exceptions namely China, North-Korea and Syria.
Despite dominating the global video streaming markets, says Jacob Barlebo, director sales and marketing at Denmark-based Xstream A/S, Netflix has not killed off competitors in the VOD market. Instead, it made the pie bigger. Thanks to the exclusive nature of the content of each service provider, programs are seen as complementary, not competitive.
Despite being the fastest growing media business segment today, over-the-top (OTT) video profits don’t come easily and the #1 challenge for them has moved from content provision to monetisation. Although new operators coming into the OTT TV and video market face several business challenges to succeed, just three key performance indicators stand out from various business metrics.
The aggressively competed video-on-demand market is characterised by spontaneous purchase decisions, low customer loyalty and a short retention time. The OTT numbers speak for themselves. The annual new customer churn rate of a typical OTT provider can be as high as 20%. Average monthly spending (ARPU) ranges from EUR 6-7 in developed markets and with the acquisition cost of a new subscriber (SAC) being around EUR 20, the payback time of an average subscriber is just three months.
Key to a profitable OTT business
Unlike traditional Pay-TV providers, the churn and short customer retention rate for OTT providers are not cost related issues. The SAC in the OTT business is just a fraction of that of Pay-TV, which makes churn the key revenue issue for OTT businesses.
The likelihood of subscriber churn is at its highest during the first three months of a contract, which means that few customers become “profit centres” when acquisition and other costs are taken into consideration.
The good thing is that customer management dynamics of the OTT industry is based on a simple formula. According to Reuben Verghese, CEO of Diagnal, a business partner of Xstream that provides a solution for OTT data insights and OTT marketing engagement, it is all about having tailored and targeted campaigns for acquisition, conversion and retention.
Efficient customer acquisition
Service providers must be able to acquire new customers faster and more efficiently than competing services. Not all who register will turn into a paying subscriber hence the fatter the early subscriber funnel the better.
Efficient customer acquisition campaigns require tools to promote services directly to viewers and to their peers through social networks. The social promotional posts should be based on actual behavioral data for maximised relevancy within the target segments. In today’s world, OTTs need user data and engagement tools that enable them to turn their customers into their brand ambassadors!
Modern OTT enablement solutions provide off-the-shelf functionalities for marketing video and TV services as bundled components of third party products from a cafe latte to quadruple play telco products. They have to provide easy payment options and be able to create special offers, coupons and vouchers in order to accelerate subscription up-take.
Driving conversion into paying subscribers
The conversion yield from registration and app download to a paying subscriber should be as high as possible. But increasing the conversion rate requires having frequent, automated promotional processes. Customers having recently registered or downloaded an OTT app should be receiving promotions almost daily about the most relevant video content to them.
To ensure relevancy the promotional customer engagement should always be based on actual behavioral data. This increases the perceived value of the OTT service and hence drives registered users to subscription sign-up.
Additionally, special attention should be paid to providing new customers a frictionless onboarding process including a fair selection of effortless payment methods and well covered support for different viewing devices and platforms.
Maximising retention time
Perhaps the most important OTT business metric is customer retention time, which needs to be as long as possible with a particular focus on getting subscribers past the first three months of service. The likelihood they will cancel the service after that drops dramatically.
For maximised customer retention time, OTTs must ensure subscribers always have relevant and exclusive content available and make the best content easy to discover. From a practical standpoint, this requires continuous behavioral monitoring and frequent, targeted and personalised promotions through channels such as email, SMS, in-app advertisements and social media networks. By simply keeping the service relevant for every customer increases the chance of them renewing their subscription month after month.
Conclusion – it’s a monetisation battle
The OTT space is becoming increasingly crowded and fragmented and has moved from the creation of good content propositions and user-experiences to how well an OTT provider is able to manage the relationship with its viewers. The provider needs to better understand their viewing behavior and to use that information to continuously drive customer acquisition, conversion and retention. Today, OTT monetisation is key and only those service providers equipped with the best tools and skills will win in the three month customer churn challenge.
The author of this blog is Jacob Barlebo , sales and marketing director at Xstream A/S
About the author:
Jacob Barlebo is the Sales and Marketing director of OTT and TV Everywhere enabler Xstream A/S. A highly-experienced business executive with extensive experience in leading international sales and marketing teams. the majority of his career has been developing and running international B2B sales within telco & technology companies such as Oracle, Genesys, NetIQ, CDRator, I-New and others.
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