Understanding Video Subscription Churn

There are many key indicators in running a successful video subscription business, but at the core, every successful service has a predictable and stable amount of recurring revenue. In any business, attracting and converting new customers is essential to growing and expanding reach, but equally important is ensuring your existing customer base is happy and engaged. This will dictate how profitable your business can be.  In fact, according to research done by Cleeng, “churn is unequivocally the number one problem for most SVOD publishers”.

“churn is unequivocally the number one problem for most SVOD publishers”.

The rate at which subscribers leave your video subscription service is called the churn rate.  This is the number of subscribers that have canceled in the last 30 days divided by the number of total paid subscribers. The churn rate is a primary indicator of the health of your business and how successful you are at retaining your existing customer base.  Most businesses spend a lot of money and effort recruiting new customers, so retaining them with a low churn rate is essential to running a successful subscription service.

CHURN  =  Number of subscribers that have canceled in the last 30 days  ÷  Number of total paid subscribers

 

What are the types of churn?

To better manage your churn rate it is important to understand how customers leave a service. Typically there are two types of churn:  voluntary and involuntary. Voluntary churn are customers that cancel the service of their own volition.  Involuntary churn are customers that leave through programmatic cancellations such as failed payment methods or natural expirations that are not renewed.   Understanding the reason cancellations happen will help you focus retention efforts in the most productive areas, and in parallel may help you avoid payment vehicles or gateways that are less effective at processing payments or retaining customers. Below is a graph from the Wicket Scorecard that allows you to view the impact of voluntary and involuntary churn and identify trends or anomalies that lead to spikes in churn:

chart of lost customers per day
Fig. 1 – The Lost Customers Per Day Wicket shows voluntary and involuntary churn modeled over a period of time.

Once you have broken down how customers leave your service you can be more targeted in your retention efforts.  High voluntary churn usually reflects a higher dissatisfaction with the service.  It is important to gather feedback from customers as they are active in the service and as they request to leave.

  • Is it the price of the service?
  • The quality or quantity of the content being offered?
  • Other factors?

Understanding the reasons will allow you to be more predictive and targeted in how you message and promote content to your subscribers, ensuring they are receiving maximum value for their subscription fees. It also enables you to be more effective with your save and win-back campaigns.

It is important to not only look at churn numbers but couple that data with engagement metrics that will allow you to be more predictive and take action to save customers.  The Wicket Scorecard allows you to look at data through many dimensions. You can look at heartbeat metrics over time and get a view into the engagement of your subscriber base which will help find indicators of churn. One such metric to keep an eye on is the percentage of users coming back on a weekly or monthly basis. If those percentages go down you could be headed for a problem and will need to take action to re-engage your base.

chart of weekly average users and monthly average users ratio
Fig. 2 – Keeping track of weekly and monthly engagement of your subscribers over time is helpful to find indicators of churn.

How to combat involuntary churn

While it may seem that involuntary churn is more difficult to combat (and in some ways that is true) there are tactics at your disposal to reduce the number of people leaving the service in this manner. In being able to separate the number of voluntary and involuntary and handle them differently, you are already on the path to lowering your churn rate. Continuing to break down involuntary churn will also allow your focus to be even more targeted in saving and retaining these customers. For example, there are different reasons a payment method fails and parsing out the reasons is very important to how you respond. Essentially there are two categories of payment decline: hard and soft declines and the type of response should inform your method for retrying a card or re-engaging the customer.

One way to combat involuntary churn is to develop retry mechanisms that will wait for a given period of time then attempt to reprocess the credit card without engaging the customers. This is most effective with a soft declined card where the card could be expired, over the limit, late in paying the bill, etc. Essentially, the account is in a temporary situation which will be resolved in a short period of time. Waiting a day or so to retry the payment vehicle will yield approvals and allow you to retain those customers with minimal financial risk and without interrupting the customer’s experience. On the other hand, hard declines, when the card is lost or canceled, have very little to no chance of being successfully retried. In that event, you are better off immediately and directly communicating with the customer to let them know of the problem and have them take action to rectify the situation to maintain their service.

There are, of course, other tactics you can take to combat churn, but it is essential to understand the rate at which people leave your service and how that compares to industry benchmarks.  Once you have your baseline churn rate, having a deeper understanding of the cause and effect relationship, you are able to take appropriate action to reduce defections in a more effective and targeted fashion. This allows you to retain and engage your audience more effectively and increase satisfaction with your service.

Taking a multi-faceted approach to churn will allow you to reduce rates and therefore grow your business more effectively.  While we have touched on data points as indicators of churn, next time we will go more in-depth on additional aspects of churn and discuss specific ways to lower your churn rate.

You know that churn is a potential hurdle for your service. Click the button below to download our Understand & Combat Subscription Churn Whitepaper to see how the Wicket Scorecard can help you recognize and reduce churn in your video business and begin to maximize audience lifetime value.

 

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  Photo by Luis Tosta on Unsplash

 

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