OTT customer churn is the loss of subscribers from a streaming video service. Although customer churn is an essential metric for OTT service providers, it’s a lagging indicator, meaning that the loss has already occurred.
The best solution to minimize churn rate is developing and implementing effective churn management strategies into your OTT business model.
How to calculate OTT customer churn rate
OTT customer churn rate is a measure of the percentage number of subscribers leaving your OTT service in a particular billing period compared to the total number of subscribers in your service. Before calculating your OTT churn rate, you need to quantify the following variables for your reference billing period:
- Active cancellations (A): This is the number of cancellations made by the customers
- Passive cancellations (P): The number of cancellations resulting from non-renewals and credit card declines
- Win-back reactivations (W): The number of subscriptions from service reactivations by previous customers
- Total subscribers (T): The total number of paid subscribers in your OTT video streaming service
Having quantified all the above variables, you can now calculate the net churn rate using the standard formula below:
OTT churn rate = 100 × [(A+P)-W]/T
Based on experience, you should aim for an OTT churn rate in the single figures. While Netflix and Disney+ saw some of the lowest churn rates as of the fourth quarter in 2020, at 2.5% and 4.3%, respectively, the average OTT churn rate is quite high, currently hovering around 38%.
What is churn management?
Churn management is the process of identifying valuable customers with a high risk of leaving your service and implementing proactive strategies to retain them.
Implementation of effective churn management strategies lowers the customer churn rate and provides a solid foundation for guaranteed customer satisfaction, retention, and revenue sustainability.
The importance of churn management
With the increasing number of OTT service providers coming to market, customer churn has become a serious concern. Under these market conditions, customer retention has become a more critical key performance indicator (KPI) than customer acquisition.
Also, owing to the high OTT subscriber acquisition costs, customer retention remains the best solution to revenue sustainability and long-term profitability.
Churn management an essential ingredient for an OTT business’ survival in today’s competitive market.
Reasons why OTT subscribers churn
Usually, OTT subscribers churn due to various operational or engagement factors. Understanding the actual causes of OTT customer churn is the first step toward strategizing and developing working solutions.
Engagement reasons for churn include:
- Perceived value of the content library: Content is king. You need content that people want to watch is crucial. However, sometimes having too much content without the ability for viewers to quickly find what they’re looking for can not only be frustrating, but it can cause a false perception of there not being anything to watch.
- Poor UI / UX: A user interface characterized by poor display, navigation, and typography can affect user experience and increase churn rate. Subscribers expect enhanced functionality with updated features, free from repeated app crashes and other malfunctions. Providing a seamless user experience can improve customer retention, thus reducing churn.
Some of the operational reasons for subscriber churn include:
- Failed payments: Subscription payment failure is the biggest cause of involuntary churn. Billing errors mostly occur due to credit card changes and insufficient funds in the subscribers’ accounts. This can be addressed proactively using third-party payment solutions that monitor and provide actionable insights into billing intervals and credit.
- Quality of Experience (QoE) and Price: User satisfaction can be affected by technical issues such as delayed starts and buffering. Also, an overpriced service may reduce customers’ desire to renew their subscriptions, thus increasing the churn rate.
How to create a rock-solid churn management process
Below are seven proven churn management strategies that you can implement into your OTT video streaming service:
1. Find out the Why
Develop a methodology to determine why your customers are canceling, pausing, or even downgrading their subscriptions. This will help you to know the measures you can take to solve the problem.
While keeping in mind the engagement and operational factors that contribute to customer churn, develop a set of survey questions to generate insights into the cause of your active cancellations.
Prompt each subscriber to take the survey before canceling or pausing their subscription. This may also be applied to downgrading subscribers.
2. Create Specific and Measurable Retention Goals
Follow the SMART Criteria to define a set of measurable and achievable customer retention goals. The following are examples of Specific, Measurable, Achievable, Relevant, and Time-bound goals for an OTT service provider:
- Achieve an 80% reduction in active cancellations in the next six months by providing new features and privileges to all active subscribers.
- Run win-back campaigns to increase win-back reactivations by 30% in the next six months.
- Achieve an OTT churn rate of below 9% in the next six months.
The above should be accompanied by a detailed plan on how each of the goals would be achieved within the specified target period.
3. Create an Impeccable Onboarding Process
Creating a well-coordinated onboarding process with various optimized support tools to help subscribers is a strong move toward customer retention. When designing your onboarding process, take the following into account:
- Showcase the key functionalities and benefits of the service to the user and help them get started quickly.
- Provide the user with actionable, clear instructions for each step to enhance quick completion of the registration process.
- Divide the subscriber registration process into several simple steps.
- Develop an intuitive user interface to maximize user experience during registration.
Employ testing tools such as analytics to detect problematic areas quickly and adjust accordingly.
4. Look for Red Flags
It’s advisable to closely monitor metrics such as OTT customer acquisition and churn rate. Take the necessary remediation actions immediately when you notice negative behavior. Some of the red flags to look for include:
- High churn rate: This means you are losing more customers than you are gaining. A sharp increase in the OTT churn rate, or even a churn rate of above 10%, can be treated as a red flag.
- More profile downgrades than upgrades: This may result in revenue churn, whereby you retain the customers but reduce the revenue.
5. Be Honest and Transparent
Being honest and transparent can build your OTT brand, ensure customer satisfaction, and increase customer retention.
In May 2020, Netflix initiated a goodwill exercise to terminate all unused accounts for more than 12 months. Although the owners of these accounts were still paying membership fees, Netflix chose to close their accounts to prevent them from paying for services they weren’t using.
In contrast, some OTT video services don’t even notify customers when they are about to be billed. This can result in increased customer complaints and a negative perception of the brand.
At 43Twenty, we previously worked with a client who increased conversion by more than 20% by solving a simple billing problem.
The client provided a free 7-day trial for their premium subscription service. However, after the expiration of the trial period, the subscribers were charged for the premium plan without notice. This made some customers avoid registering for the free trial in fear of being charged in case they forgot to cancel.
The client conducted detailed research by reviewing customer service reports, subscription data, and survey findings to solve the problem. The design team adopted a timeline format for the trial period with clear information on what customers should expect to happen from day 1 to day 7.
They also designed an opt-in screen at the end of the trial registration to prompt users to customize their notification settings. This allowed users to select whether or not to be notified at the end of the trial period before being charged.
This solution allowed more customers to sign up for the free trial, resulting in a 20% conversion.
6. Listen to Your Customers
Listening to your customers can increase satisfaction and significantly minimize the churn rate. This can be accomplished by providing a reliable communication platform and ensuring that your customer service agents are available to attend to all customer concerns as they emerge. The communication platform may include a help center, live chats, social media, emails, and phone calls.
7. Be Proactive
Identifying potential issues and developing solutions to address them before they happen can make a difference in customer retention. A smart way to support a proactive approach is to employ analytics and other tools to generate data insights, identify potential risks, and develop mitigation measures.
Also, keeping an eye on the changes in your OTT churn rate can help you to detect and avert impeding revenue losses.
Churn management is a continuous process
Churn management should be an integral part of your OTT video business to maximize revenue and profitability. Due to the dynamic nature of churn metrics such as active and passive cancellations, win-back reactivations, and paid subscribers, churn management should be treated as a continuous process.
43Twenty is an OTT growth consultancy and digital marketing agency. We partner with companies in the online video industry to unlock customer growth and revenue. As it relates to OTT churn, we help streaming video services uncover and remedy blind spots within their customer experience that prohibit growth across product experience, product marketing, and search.
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