Churn Top Hurdle in OTT Video Space as Hybrid Models Emerge, Panel Told

Survivors in the crowded market of over-the-top video service providers won’t necessarily be the strongest, but they will be the ones “that adapt the best,” said Jose Kruyff, MPP Global senior vice president-Americas, on a panel on the shift to hybrid business models at Parks Associates’ virtual Future of Video event Tuesday.

Panelists encouraged service providers to experiment, use data and iterate as they look to gain and keep subscribers. As more players compete for customer revenue, subscriber rates are slowing, Kruyff said. Most providers are focused more on bringing in more monthly active users than churn, but as the market matures, the more important battle will be to retain the ones they have, he said.

Providers will have to balance rising content costs with prices customers are willing to pay, after many have left traditional pay TV for lower-cost OTT subscription viewing solutions, Kruyff said. “As the cost of those subscription-based services increases, those cost savings are disappearing.” One group of customers available to tap are the “laggards” that haven’t joined the “OTT party,” he said.

Redbox is leveraging its existing relationship with customers to build its nascent advertising-supported VOD and free ad-supported (FAST) digital businesses, said Jason Kwong, chief strategy and digital officer. Kwong cited Redbox’s 40 million existing late-adopter customers -- 39 million in its loyalty program -- who are still renting DVDs from Redbox kiosks.

When the company launched its digital transactional service, following the same model of new-release titles within the home entertainment window, “we were able to keep more customers engaged,” Kwong said. Customers who had lapsed as physical customers but still identified with the Redbox brand became digital customers, he said. The company was able to re-engage those customers, and many started renting “at the box” again, he said.

Redbox, which still rents DVDs for $2 a day, surveyed customers to find out what they were looking for from the company, and they said “free content,” Kwong said. Moving into FAST and AVOD allowed Redbox to meet their customers “where they are” and give them the service they’re looking for “as they’re transitioning to the digital world.” It also helped create an ecosystem to address the different ways customers experience content. They might typically watch a new-release movie on a weekend in a transactional model and watch a TV series on a FAST channel during the week, he said. “We’re building complementary behaviors into a single service.”

Redbox customers, many still in the cable TV world, are “trained to accept ads,” Kwong said. The challenge is to make sure ads in the digital space don’t detract from the content, he said. Redbox hopes to get viewers where they want to be quickly, whether it’s searching for content or having a more linear, lean-back TV experience, he said.

Customers viewing the Redbox Free Live TV FAST service have longer engagement, with more channel flipping, said Kwong. Its Redbox Free On Demand AVOD service is more “self-directed.” The company wants to drive retention with both, he said: “I don’t want to push consumers into one behavior or the other.”

Redbox uses house ads on both offerings to remind customers about new content coming to kiosks and to TVOD. If a family’s weekend behavior is to watch a new release movie, Redbox wants to be sure “we’re staying front and center” and is a top consideration for how that customer spends her time.

Consumers are accepting the “value exchange” of AVOD, said Devra Prywes, chief product officer, Applicaster, which helps content providers develop platforms to manage streaming applications. Though the basic principles of advertising haven’t changed for AVOD, they’re not necessarily being adopted in the best way, Prywes said, saying diversity of ads isn’t on par with linear TV. “You’ll very often see the same ad played in the same commercial break, or multiple times throughout the same program,” which is going to hurt adoption, she said. “The viewer’s in the driver’s seat,” with more choices than ever, “and they can easily bounce.”

Overall, viewers accept commercials “because the price is right,” Prywes said, saying “subscription fatigue” has started setting in for consumers, and “it’s hard to find content you want to watch.” Discoverability and marketing are key for content providers in a crowded space, said Prywes: “It’s getting really, really cluttered.”

Netflix created a standard for usability and seamless experience that other service providers need to match or risk subscriber churn, said Prywes. Customers’ expectations are that an application is going to work like ones they’re used to from major services like Netflix and Amazon Prime Video. Prywes said usability isn’t a high bar for entry but basics should be met. Apps should load quickly, without buffering, for instance: “Good [user interface] is invisible; bad UI is unfortunately what people notice, so start with the basics.” Service providers should choose a few features “and do them well, and then add to that feature set. You don’t need to jump straight to, say, sports betting.”