# 4/23/25, 7:38 PM To Everything, Churn, Churn, Churn - by Doug Shapiro

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# To Everything, Churn, Churn, Churn
How Churn Became Streaming TV's Biggest Surprise and Biggest Problem

DOUG SHAPIRO
NOV 18, 2022

[Note that this essay was originally published on Medium]

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The image shows a clock face with the words "TIME TO STOP CHURN" written across it. The clock hands are positioned to suggest a sense of urgency. The source is attributed to Adobe.

In recent months it's become clear that the streaming business is tougher than a lot of
people thought. (For a sense of how thinking about streaming profitability has evolved,
see One Clear Casualty of the Streaming Wars: Profit, Is Streaming a Good Business?
and Media's Shift from Growth to Optimization.)

One of the main culprits is churn. It is much higher than many expected, it's going up
(Figure 1) and it might not be easy to tame. Although none of the streamers disclose it,
churn may be the industry's biggest problem.

For this essay, the good people at leading subscriber analytics provider Antenna gave
me data to dig deeper into churn. Below, I discuss why churn is so critical to
profitability; why it caught the industry by surprise; whether churn is becoming an
ingrained consumer behavior; and what the streamers can do about it.

Tl;dr:

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# 4/23/25, 7:38 PM To Everything, Churn, Churn, Churn - by Doug Shapiro

*   How important is churn? Stubbornly high churn could render streaming
    permanently unprofitable for some streamers-even at scale.
*   That's because high churn both lowers the equilibrium subscriber base and
    increases maintenance marketing costs. For some streamers, maintenance
    marketing (or churn replacement) may chew up 1/2 of ARPU.
*   The ease of churn may also undermine the industry's collective efforts to improve
    profitability. Raising prices and moderating the pace of content spend will be
    pushing on a string if consumers respond by churning even faster.
*   It challenges longstanding industry practices too. For instance, many sports rights
    contracts are predicated on generating affiliate fee surcharges all year, for content
    that is only on for weeks or months.
*   The problem is urgent. A growing proportion of consumers are apparently
    becoming habituated to churning, depending on what content is available.
*   As evidence, below I show previously unpublished data from Antenna on the 12-
    month "resubscribe" rate (people who resubscribe after having canceled within
    the prior year). For Netflix, in recent months over 40% of its gross additions are
    "resubscribers” who had canceled within the prior year. For Disney+, HBO Max
    and Hulu, about 30% of gross adds each month are resubscribers.
*   What can the industry do? I discuss the importance of bundles (including the
    distinction between “good” and “bad” bundles); annual pricing plans; tailoring
    content strategy and scheduling around churn mitigation; and the potential
    benefits of loyalty and rewards programs.
*   Churn is pressuring streaming economics in a way that many didn't expect. The
    industry needs to adapt business models and practices specifically intended to
    combat it.

Thanks for reading The Mediator! Subscribe for
free to receive new posts and support my work.

Figure 1. Streaming Churn Has Been Rising Recently

The image is a line graph showing the active monthly churn rate for streaming services over time. The x-axis represents time, starting from January 2020 and ending in January 2023. The y-axis represents the active monthly churn rate, ranging from 0% to 8%. The graph shows an upward trend in churn rate over the period.

Note: Subscriber-weighted average of Apple TV+, Discovery+, Disney+, HBO Max, Hulu
(SVOD), Netflix, Paramount+, Peacock, Showtime and Starz. US only; excludes Free Tiers,

## 2/19

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MVPD & Telco Distribution, and select Bundles. Source: Antenna.

# Why Churn is Such a Big Deal

What follows is a bunch of words and charts. But I don't want to bury the lede:
stubbornly high churn may render streaming permanently unprofitable for some
streamers, even at scale. Although streaming is currently unprofitable for the big
media companies, most expect it will become profitable as the business matures. If
churn stays high this may prove wrong.

Stubbornly high churn may render streaming permanently unprofitable for some streamers.

What is churn? There is no standard definition, but “churn rate” is usually defined as
the proportion of subscribers that disconnect per month. Antenna defines it as
"cancels in a given month divided by subscribers at the end of the previous month.”

Figure 2 shows reported churn rates for a handful of companies that disclose churn
publicly. Notably, none of the major streamers do, even though it is critically
important.

Figure 2. Selected Publicly-Disclosed Churn Rates

The image is a bar graph showing selected recent monthly churn rates for various companies. The x-axis lists the companies: Spotify, SiriusXM, Verizon Wireless, DISH, and Peloton. The y-axis represents the churn rate, ranging from 0% to 4.5%. Spotify has the highest churn rate at 3.9%, while Peloton has the lowest at 1.1%.

Note: Spotify from June 2022 Investor Day, others from recent quarterly report. Source:
Company reports.

# Churn May Undermine Industry Efforts to Improve Profitability

Lately, the industry has taken collective (albeit uncoordinated) steps to improve
streaming profitability. This includes price increases, introducing advertising and
some signs of a moderation in the growth of content spend.

In the traditional pay TV business, consumers had little choice or recourse when
distributors jammed more networks into the bundle and raised prices or ad loads went
up. The ease of churning, however, gives consumers the power to undermine these

## 3/19

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efforts. If price increases and fewer new big budget shows just result in even higher
churn, the industry may end up pushing on a string.

The industry may collectively agree it wants to be more profitable, but consumers may
not oblige.

# All Else Equal, Higher Churn Means a Lower Sub Base

All things equal, higher churn means fewer subs. This point might seem obvious, but I
think it's helpful to discuss the math.

Figure 3. Netflix U.S. Subscriber Base

The image is a line graph showing Netflix's U.S. subscriber base over time. The x-axis represents the years from 2012 to 2021. The y-axis represents the number of subscribers in millions. The graph shows a steady increase in subscribers over the years.

Note: Netflix reported U.S. subscriber data until 3Q19 and now reports U.S. and Canada
together (UCAN). Figures from 2019 on assume U.S. represents about 90% of UCAN totals.
Source: Company reports, Author estimates.

I'll use Netflix to illustrate. As shown in Figure 3, assuming that around 90% of
Netflix's reported U.S. and Canada (UCAN) subs are in the U.S., Netflix has grown its
U.S. sub base at a healthy clip over the past decade or so, from around 25 million
subscribers in 2012 to around 67 million by the end of 2021.

So, we have a decent estimate of net additions each year. To state the obvious,
however, annual net additions are a function of gross additions less disconnects (or
cancels, or churn, whatever you want to call it). The industry's practice of only
reporting total subscribers masks the enormous amount of gross connect and
disconnect activity that is constantly occurring.

The industry's practice of only reporting total subscribers makes it easy to forget that there is
tremendous connect and disconnect activity going on under the surface.

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But we can estimate the gross additions and disconnects too. Let's start with churn.
Netflix has not reported a monthly churn rate since 2011, when it was 4.9%. Antenna
estimates that Netflix's domestic churn rate was 1.9% and 2.0% in 2020 and 2021,
respectively, and has popped up to 3.3% so far in 2022. Assuming a relatively steady
rate of decline between 2011 and 2020, the time series of Netflix's domestic churn rate
would look something like Figure 4.

Figure 4. Netflix's U.S. Churn Rate Has Been Trending Down for Years, But Has Picked Up
Lately

The image is a line graph showing Netflix's average monthly churn rate in the U.S. over time. The x-axis represents the years from 2011 to 2022YTD (Year-to-Date). The y-axis represents the churn rate as a percentage, ranging from 0.0% to 6.0%. The graph shows a decreasing trend in churn rate from 2011 to 2020, followed by an increase in 2021 and 2022.

Note: Netflix last reported churn in 2011. Figures for 2020 on are Antenna estimates. Source:
Company reports, Antenna, Author estimates.

With estimates of net additions and churn rate in hand, we can now estimate Netflix's
gross additions and disconnects each year (Figure 5).

Figure 5. Netflix Gross Additions Have Been Bouncing Around 18 million for Years

The image is a bar graph showing Netflix's gross additions, churn, and net additions in the U.S. over time. The x-axis represents the years from 2012 to 2021. The y-axis represents the number of subscribers in millions, ranging from -20 to 25. The graph shows that gross additions have been relatively stable over the years, while churn has fluctuated. Net additions are the difference between gross additions and churn.

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Source: Company reports, Author estimates.

An important observation from Figure 5 is that Netflix's domestic gross additions were relatively steady between 2013–2021, at about 17-18 million per year. Why is this important? Because once both gross adds and churn rate stabilize, that will dictate where the sub base stops growing-i.e., the size of the equilibrium subscriber base-even years in advance.

Once both gross adds and churn for a service stabilize, it is possible to predict the equilibrium size of its subscriber base, years in advance.

The reason for this is that if the churn rate is steady, the aggregate number of disconnects will grow proportionately as the subscriber base grows. If the number of gross adds is also steady, then at some point the subscriber base will be big enough that the churn on this base completely offsets the gross additions. That's when the sub base will stop growing.

This is shown in Figure 6. For example, if you had known in 2013 that Netflix gross additions would stabilize at around 18 million per year and the churn rate would settle out around, say, 2.2% monthly (or roughly 26% annually), then you could've predicted almost a decade ago that Netflix's domestic sub base would hit equilibrium at about 68 million subscribers.

So, this chart illustrates one reason churn is so important: all else equal, a higher churn rate means a lower equilibrium subscriber base.

Figure 6. The Higher the Churn, the Lower the Equilibrium Sub Base

The image is a table titled "Figure 6. The Higher the Churn, the Lower the Equilibrium Sub Base". The table shows the relationship between churn rate and equilibrium subscriber base, given a constant gross adds of 18 million. As the churn rate increases from 2.0% to 2.5% monthly, the equilibrium subscriber base decreases from 75.0 million to 60.0 million.

(figures in millions, except churn)
Gross Adds 18
Churn (monthly) 2.0% 2.2% 2.5%
Churn (annual) 24.0% 26.4% 30.0%
Equilibrium Subscriber Base (Gross Adds / Annual Churn Rate) 75.0 68.2 60.0
Source: Math

Here's another way to think about it. For years, Netflix has talked about a 60-90 million subscriber total addressable market (TAM) in the U.S. As shown in Figure 5 above, I estimate that while Netflix added about 1 million subscribers in the U.S. last year, it had about 17 million gross adds and 16 million disconnects. Assuming that all of these 16 million households were unique (i.e., no Netflix household disconnected and signed up more than once in the year, which is probably somewhat unrealistic), that would mean 83 million unique households were Netflix subscribers at some point in 2021-pretty close to the top end of the TAM range.

Including annual disconnects, Netflix is already at the top end of its projected TAM.

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To Everything, Churn, Churn, Churn - by Doug Shapiro
Churn Is Very Expensive

All that connect and disconnect activity also lower returns and margins.

Mathematically, the inverse of the churn rate is the average amount of time that a customer sticks around, or “customer life” (average customer life = 1/churn rate). For instance, for a service with 2% monthly churn, the average customer life is 1/.02 = 50 months. To see why this is true, you can take a spreadsheet, start with 100 customers and reduce them by 2% each month. Although you would never fully deplete the sub base (something, something Zeno's paradox), you would see that the weighted average customer lifetime converges on 50 months in the limit (Figure 7). Or see here for a mathematical proof.

Figure 7. Churn Determines Customer Life

Churn Rate (Monthly) 2.0%
1/(Churn Rate) 50.0
OR....

The image is a table titled "Figure 7. Churn Determines Customer Life". The table shows how churn rate determines customer life. The table starts with 100 subscribers and reduces them by 2% each month. The weighted average customer lifetime converges on 50 months.

| A     | B      | C                 | D                               | A*D                  |
| :---- | :----- | :---------------- | :------------------------------ | :------------------- |
| Month | Subs   | Churn/Disconnects | % of Beginning Subs Disconnected | Sub-Weighted Life (Months) |
| 0     | 100.0  |                   |                                 |                      |
| 1     | 98.0   | 2.0               | 2.0%                            | 0.020                |
| 2     | 96.0   | 2.0               | 2.0%                            | 0.039                |
| 3     | 94.1   | 1.9               | 1.9%                            | 0.058                |
| 4     | 92.2   | 1.9               | 1.9%                            | 0.075                |
| 5     | 90.4   | 1.8               | 1.8%                            | 0.092                |
| 6     | 88.6   | 1.8               | 1.8%                            | 0.108                |
| 7     | 86.8   | 1.8               | 1.8%                            | 0.124                |
| 8     | 85.1   | 1.7               | 1.7%                            | 0.139                |
| 9     | 83.4   | 1.7               | 1.7%                            | 0.153                |
| 495   | 0.0045 | 0.0001            | 0.00009%                        | 0.0005               |
| 496   | 0.0044 | 0.0001            | 0.00009%                        | 0.0005               |
| 497   | 0.0044 | 0.0001            | 0.00009%                        | 0.0004               |
| 498   | 0.0043 | 0.0001            | 0.00009%                        | 0.0004               |
| 499   | 0.0042 | 0.0001            | 0.00009%                        | 0.0004               |
| 500   | 0.0041 | 0.0001            | 0.00008%                        | 0.0004               |
| Total |        | 100.0             |                                 | 50.0                 |

Source: Math.

Figure 8. On Average, Streaming TV Subs Don't Stick Around Long

The image is a line graph titled "Figure 8. On Average, Streaming TV Subs Don't Stick Around Long". The graph shows the active monthly churn rate for various streaming TV services from January 2022 to September 2022. The graph also shows the average churn and average customer lifetime for each service. The services with the highest churn rates are Showtime and Paramount+, while the services with the lowest churn rates are Netflix and Disney+.

Note: US only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source: Antenna, Author estimates.

Figure 8 shows Antenna's churn estimates for each of the primary premium SVOD services so far in 2022 and the implied average customer life for each. On average,

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most streaming subs don't stick around long-for most services it is somewhere between one and two years.

For anyone who has ever done a CAC/LTV (customer acquisition cost/customer lifetime value) calculation, it is self evident that, again all things equal, a shorter life reduces the ROI of acquiring a customer.

Another way of assessing the cost of churn is to evaluate its impact on steady-state subscriber unit economics. One can think of the monthly amortization of the SAC over the life of the subscriber as maintenance marketing costs.

Again, Netflix is a good example. Netflix no longer breaks out its expenses by region, but assuming that its marketing expenses are distributed among its regions roughly pro rata with revenue contribution and using Antenna's churn data, I estimate that Netflix's SAC in UCAN was about $40 per gross addition through the first nine months of 2022 (Figure 9).

Figure 9. Netflix's SAC in UCAN was About $40 Through the First Nine Months of 2022, or A Little Over $1 Per Sub in Monthly Amortization

The image is a table titled "Figure 9. Netflix's SAC in UCAN was About $40 Through the First Nine Months of 2022, or A Little Over $1 Per Sub in Monthly Amortization". The table shows the calculation of Netflix's subscriber acquisition cost (SAC) in UCAN (United States and Canada) for the first nine months of 2022. The SAC is estimated to be $37 per gross addition, or $1.22 per sub in monthly amortization.

|                                        | Nine Months Ended September 30, |
| :------------------------------------- | :------------------------------ |
| UCAN Subscribers BOP (12/31/2021)      | 75,215                          |
| UCAN Subscribers EOP (09/30/2022)      | 73,387                          |
| Net Adds                               | (1,828)                         |
| Churn %                                | 3.3%                            |
| Disconnects                            | 22,067                          |
| Gross Adds                             | 20,239                          |
| Marketing Expense                      | $1,698,892                      |
| Total Revenue                          | $23,763,497                     |
| UCAN Revenue                           | $10,489,852                     |
| Estimated UCAN Marketing Expense       | $749,937                       |
| SAC                                    | $37                             |
| Average Customer Life                  | 30.3                            |
| Monthly SAC Amortization               | $1.22                           |

Note: Marketing costs allocated to UCAN based on UCAN percentage of total revenue.
Source: Company reports, Antenna, Author estimates.

As noted above, the apparent stasis of Netflix's subscriber base in UCAN belies a lot of gross add and disconnect activity. At 3.3% churn so far this year, the average customer life was only 30 months, meaning that to stay flat in perpetuity, Netflix has to re-acquire each customer every 2.5 years. So, we can treat the monthly amortization of the SAC, or roughly $1.25 per sub, as an ongoing cost.

It's worth dwelling on what this implies for all the other streamers, something I discussed in detail in Is Streaming a Good Business?. It is impossible to know the SAC that HBO Max, Paramount or Disney+ incur. But it's reasonable to assume that it is a lot more than what Netflix spends. Most streaming subscribers in the U.S. have subscribed to Netflix before, often multiple times. It has unparalleled brand recognition. It has a well-oiled marketing machine and reams of data, so it should have the most efficient performance marketing spend in the business. It follows that Netflix spends less, perhaps a lot less, to acquire each gross addition.

Also, as shown in Figure 10, Antenna estimates that the churn rates for the other streamers are much higher than for Netflix, in most cases 2X or more. Even

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(generously) assuming they have comparable levels of SAC, that means the monthly amortization of SAC is also 2X+, or ~$3 per subscriber monthly. For streamers that have average revenue per user (ARPU) in the high single digits (Figure 11), this means maintenance marketing costs may chew up 1/3 to 1/2 of revenue-before any content costs or any other operating expenses.

Churn is a huge cost for most streamers-maybe as much as 1/2 of ARPU.

Figure 10. Churn of 2X+ Netflix's Means a Monthly SAC Amortization of 2X+ Netflix's...

The image is a table titled "Figure 10. Churn of 2X+ Netflix's Means a Monthly SAC Amortization of 2X+ Netflix's...". The table shows the U.S. churn rates for various streaming services, as well as the monthly amortization of SAC (subscriber acquisition cost) at different SAC levels ($40, $50, $60). The churn rates are for the nine months ended September 30, 2022.

U.S. Churn Rates, Nine Months Ended 09/30/2022

|              | Avg. Customer Lifetime (Years) | Avg. Churn | Monthly Amortization of SAC @ |   |   |
| :----------- | :----------------------------- | :--------- | :---------------------------- | :-: | :-: | :-: |
|              |                                |            | $40                           | $50 | $60 |
| Showtime     | 1.1                            | 7.4%       | $4                            | $5  | $6  |
| Peacock      | 1.2                            | 7.1%       | $3                            | $4  | $5  |
| Apple TV+   | 1.3                            | 6.6%       | $2                            | $3  | $4  |
| Paramount+   | 1.3                            | 6.4%       | $2                            | $3  | $4  |
| HBO Max      | 1.4                            | 5.9%       | $2                            | $3  | $3  |
| Discovery+   | 1.5                            | 5.7%       | $2                            | $3  | $3  |
| Hulu         | 1.8                            | 4.7%       | $2                            | $3  | $3  |
| Disney+      | 2.0                            | 4.2%       | $2                            | $2  | $3  |
| Netflix      | 2.5                            | 3.3%       | $1                            | $1  | $1  |

Note: US only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source: Antenna, Author estimates.

Figure 11. ...Which Chews Up a Large Proportion of ARPU

The image is a bar chart titled "Most Recent ARPU". The chart shows the most recent average revenue per user (ARPU) for various streaming services. The ARPU is highest for Netflix (UCAN) and lowest for ESPN+.

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3Q22, it had 30MM MAA and 15MM paying subs; Discovery+ based on guidance last provided December 2020, assuming mix of 50/50 ad-free and ad-lite plans.

High Churn Upends Established Practices and Assumptions

Media executives have long known that pay TV was (and is) a great business model because of cross-subsidization across networks. As shown in Figure 12, as the pay TV bundle got progressively bigger, the average household still watched the same number of networks every month. People were increasingly paying for networks they didn't consume.

Figure 12. In the Pay TV Bundle, People Paid for Networks they Didn't Watch

The image is a line graph titled "Figure 12. In the Pay TV Bundle, People Paid for Networks they Didn't Watch". The graph shows the number of channels received, channels viewed, and the percentage of channels viewed in the pay TV bundle from 2009 to 2019. The number of channels received increased over time, while the number of channels viewed remained relatively constant. As a result, the percentage of channels viewed decreased over time.

Source: Nielsen.

The pay TV business benefits from cross-subsidization across networks and across time.

What was perhaps less clear is that the pay TV business model also benefits from cross-subsidization across time. Programming schedules are necessarily lumpy, punctuated by major political events (the run ups to Presidential elections); high-profile TV shows (like the final season of, say, Game of Thrones); and, of course, big sporting events (the Olympics, Superbowl, NBA finals, March Madness, etc.).

When churn was low and subscribers had little choice but to take the entire pay TV bundle, TV networks were able to count on big programming investments paying dividends over time. As a result, many sports rights contracts are predicated on delivering returns long before and after the event is over.

For instance, when I was at Time Warner, we struck a deal with the NCAA, in partnership with CBS, to carry March Madness. At the time, we publicly disclosed that we intended to seek a monthly surcharge from our distributors in the subsequent round of affiliate negotiations to generate a return on this contract. In other words, a big part of the rationale for the investment was that we would get paid all year for

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programming that only aired for one month. If consumers are prone to churn on and
off based on when high-profile programming airs it erodes the economic foundation
of these limited-run events.

Many sports rights contracts are predicated on getting paid elevated affiliate fees for a full
year, for programming that's only on for a few months or even weeks.

## The Root of Higher Churn: Lower Switching Costs

Why did churn catch the industry by surprise? It's not just a matter of curiosity or
history. Understanding the answer is necessary to arrest the problem.

It happened because of much lower "switching costs," the costs to cease using a
product or service. One of the defining characteristics of the Internet is that it has
shifted power to consumers, in the form of greater competition (as it has reduced entry
barriers), easier price discovery and lower switching costs. Streaming is no different.
But while it has long been clear that streaming has much lower switching costs than
traditional pay TV, it was impossible to predict with precision how this would effect
churn. Turns out that it effects it a lot.

There are many types of switching costs and several taxonomies for categorizing them,
but the simplest way to think about them is probably in two categories: positive and
negative switching costs. By "positive” and “negative,” I mean the emotions these
costs engender in customers about the service provider. Positive switching costs are
the reasons you'd regret no longer subscribing, negative switching costs are the things
you hate about the cancelling process.

*   Positive switching costs are the opportunity costs, or foregone benefits, of
    dropping the service. These can include the direct benefits provided by the service
    ("I like the content") or indirect benefits, such as the social value of interacting
    with other users; the perceived status of patronizing a certain brand; or the cost of
    abandoning earned status or loyalty rewards.
*   Negative switching costs may be inherent to the product or service or may be
    intentionally intended to make it hard to cancel. They include the procedural costs
    of cancelling (like needing to wait for a truck roll, submit paperwork or navigate
    many computer prompts to speak to a human); long-term contracts with stiff
    penalties; sunk investments in complementary goods and services; and sunk
    investment in learning to use the service.

Historically, pay TV churn was very low, approximating move churn (the rate at which
people move homes). That's because the switching costs are so high. When you cancel
your pay TV service, you either need to call up customer service and wait for a
technician or disconnect your set-tops yourself and return them. If you're moving to a
new provider, you also need to wait for an installer to show up. It's a huge pain in the
neck. Or somewhere else. (When you move, however, you have no choice but to go
through this process, which is why churn approached move churn.)

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Both positive and negative switching costs for streaming are much lower than they are
for pay TV. The opportunity costs to cancel any individual streaming service are lower
when they all aren't packaged together in one take-it-or-leave-it bundle and the
procedural costs are very low-you can cancel with just a few clicks.

Both positive and negative switching costs for streaming are much lower than they are for
pay TV.

## Are Consumers Becoming Habituated to Churning?
### Seems Like It

How hard will it be to fix the problem? Might churn even start to decline organically
as streaming matures? Recall that pay TV penetration in the U.S. is still over 60%, so
most streaming households are using streaming services to supplement traditional pay
TV. Maybe as more homes transition to streaming-only they will churn less often?

Unfortunately, this is just wishful thinking. Replicating a chart I showed above, over
the last few years churn has been climbing on a subscriber-weighted basis, not
declining, even as more people have cut the pay TV cord (Figure 13).

Figure 13. Streaming Churn Has Been Rising Steadily

The image is a line graph titled "Figure 13. Streaming Churn Has Been Rising Steadily". The x-axis represents time in months from January 2019 to September 2022. The y-axis represents the "Active Monthly Churn Rate" in percentage from 0% to 8%. The graph shows an upward trend in the churn rate over the period.

Note: Subscriber-weighted average of Apple TV+, Discovery+, Disney+, HBO Max, Hulu
(SVOD), Netflix, Paramount+, Peacock, Showtime and Starz. US only; excludes Free Tiers,
MVPD & Telco Distribution, and select Bundles. Source: Antenna.

There is also growing circumstantial evidence that churn is becoming an ingrained
consumer behavior. There are a few ways to triangulate on this conclusion. With the
help of The Wall Street Journal, earlier this year Antenna published a “content cohort
analysis," which shows that the people who sign up around big content releases churn
quickly. As shown in Figure 14, half of the the customers who signed up around events
like Hamilton on Disney+ and WW84 on HBO Max were gone in six months.

Figure 14. About Half of Subs Who Sign Up Around These Big Content Releases are Gone
After Six Months

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The image is a line graph showing the percentage of new subscribers still subscribed over time, measured in months. The x-axis represents "Customer Lifetime (months)" from 0 to 6. The y-axis represents "% New Subscribers Still Subscribed" from 0% to 100%. There are three lines on the graph, representing "Hamilton (Disney+)", "WW84 (HBO Max)", and "Greyhound (Apple TV+)". All three lines show a decline in the percentage of subscribers still subscribed over time, indicating churn.

To Everything, Churn, Churn, Churn - by Doug Shapiro

100%
90%
% New Subscribers Still Subscribed
80%
70%
60%
50%
40%
30%
20%
10%
0%
0
1
2
3
4
5
6
-Hamilton (Disney+)
-WW84 (HBO Max)
-Greyhound (Apple TV+)
Customer Lifetime (months)

Note: Subscribers who signed up within three days of release, including trial non-converts. US
only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source: Antenna.

Antenna has also published data, again with the WSJ, on what it defines as “serial
churners." These are subscribers who have disconnected three or more services in the
past two years. As shown in Figure 15, that figure continues to climb.

Figure 15. The Proportion of Subs Who Have Canceled Three or More Services in the Prior
Two Years- "Serial Churners” - Keeps Going Up

The image is a bar graph titled "Figure 15. The Proportion of Subs Who Have Canceled Three or More Services in the Prior Two Years- 'Serial Churners' - Keeps Going Up". The x-axis represents years from 2019 to 2022. The y-axis represents "% of Premium SVOD Subscribers that are Serial Churners" from 0% to 18%. The graph shows an upward trend in the percentage of serial churners over the period.

% of Premium SVOD Subscrirbers that are Serial
Churners
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2019
2020
2021
2022

Note: US only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source:
Antenna.

"Serial churners” is an interesting data point, but it's not clear whether this increase
reflects an emerging consumer behavior or just the increase in streaming services over
the last several years. Disney+, HBO Max, Peacock and Paramount all launched
between 2019-2021, so it's understandable that a growing proportion of subscribers
have canceled multiple services. This metric also doesn't indicate whether these
homes are churning on and off the same service repeatedly or moving from service to
service.

To better understand how common it is to churn on and off the same service, I asked
Antenna to provide data that it hasn't released publicly before: the 12-month
resubscribe rate. This is defined as the proportion of gross additions for any service in
a given month who are resubscribing to that service after having canceled within the
prior 12 months. By definition, it shows the people who are churning on and off a
service at a relatively frequent pace. As shown in Figure 16, for many services the
resubscribe rate is very high, and climbing. For Netflix, in recent months over 40% of

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its gross additions had canceled within the prior year. For Disney+, HBO Max and
Hulu, about 30% of gross adds each month are “resubscribers.”

In recent months, over 40% of Netflix's gross adds were customers who had canceled within the
prior year.

Figure 16. The “Resubscribe Rate” Is High and Climbing

The image is a line graph titled "Figure 16. The 'Resubscribe Rate' Is High and Climbing". The x-axis represents time in months from October 2020 to September 2022. The y-axis represents "12-month Resubscribe Rate" in percentage from 0% to 50%. There are multiple lines on the graph, each representing a different streaming service: Apple TV+, Discovery+, Disney+, HBO Max, Hulu, Netflix, Paramount+, Peacock, Showtime, and Starz. The graph shows the resubscribe rate for each service over time.

12-month Resubscribe Rate
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
-Apple TV+
Discovery+
-Disney+
-НВО Max
-Hulu
-Netflix
-Paramount+
-Peacock
-Showtime
Starz

Note: Reflects the proportion of gross additions in any given month that canceled within the
prior 12 months. US only; excludes Free Tiers, MVPD & Telco Distribution, and select
Bundles. Source: Antenna.

Taken together, these data points strongly suggest that a growing proportion of
streaming subscribers are becoming accustomed to churning on and off to manage
their streaming spending, probably correlated with when specific content is available.

## What Can the Industry Do?

For all the reasons cited above, taming churn should be job #1. Contrary to wishful
thinking or what might be hard-coded into row 72 of some corporate Excel model, the
problem doesn't seem likely to magically cure itself.

What to do? Above, I drew the distinction between positive and negative switching
costs. For businesses that have structural negative switching costs, it may be possible
to intentionally raise these gates in ways that may be tough for consumers to discern.
(For instance, long wait times to get an appointment or large windows of time when
the technician may show up.) But transparently making it a lot harder to cancel is sure
to piss people off.

Instead, the industry needs to focus on positive switching costs, i.e., creating more
reasons that people want to stick around. There is no silver bullet, but a combination
of the following, some of which is already in the works, may help:

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The image is a meme featuring a still from a movie or TV show, with two men in suits standing close to each other. The text "I HAVE ONE WORD FOR YOU" is superimposed above them. Below the image, the text "Bundles, Bundles, Bundles" is written in a larger font. The image is meant to convey the idea that bundling is the solution to a problem.

I HAVE ONE WORD FOR YOU

dles, Bundles, Bundles
imgflip.com
BUNDLES

The heart of the TV industry's problem is that streaming is unbundling the pay TV
bundle. The obvious solution? Re-bundle! But this raises a question: don't consumers
hate bundles?

If you're wonkish enough to have made it this far, I recommended reading Four Myths
of Bundling by Shishir Mehrotra, which provides a good general framework for
thinking about bundles. One of Mehrotra's contentions (Myth#3/Thesis#3) is that
consumers like bundles when they can see the discount for the bundle relative to the a
la carte price for the components. So, we can define two kinds of bundles: "bad" (or
forced) bundles, in which it isn't possible to buy the components individually (like
cable TV or the newspaper) and “good” (or voluntary) bundles, in which it is.

Bad bundles reduce churn because they offer all or nothing, so the opportunity cost of
dropping the bundle is forgoing the benefits of all of the components. Good bundles
provide consumers more choice when contemplating canceling: they can drop the
entire bundle or downgrade to one or several components. Good bundles reduce churn
because, just like a bad bundle, canceling the entire bundle incurs the opportunity cost
of losing access to all the components, while downgrading to one or more components
requires forgoing the bundled discount. But because consumers perceive there to be
limited choice in bad bundles, they elicit bad will. Good bundles both provide choice
and make the benefit of bundling explicit. They engender goodwill.

Bad bundles engender bad will, good bundles elicit goodwill.

The Disney streaming bundle is a good example of a good bundle. After Disney+
introduces ads (and raises prices on its ad-free tier) next month, the a la carte monthly
price of Disney+ (with ads) will be $7.99, Hulu (with ads) is $7.99 and ESPN+ is $9.99, or
a total of almost $28. The Disney Bundle of those components is only $12.99, or less
than half the a la carte price. For a subscriber to The Disney Bundle, canceling service
altogether means losing access to a lot of content and downgrading to one or two of
the components makes no sense economically. On its recent F4Q22 earnings call, CFO
Christine McCarthy mentioned that over 40% of U.S. Disney+ subscribers now opt for
the Disney Bundle. Not surprisingly, the churn on this bundle is far lower than the
churn on the individual components (Figure 17). Paramount also bundles Paramount+
with Showtime. The offer is also a good bundle but isn't as compelling; Paramount+

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(with ads) is $4.99 and Showtime is $10.99, with a bundled price of $11.99, a 25% monthly savings.

Figure 17. Churn on The Disney Bundle is Much Lower than the Components

The image is a line graph comparing the active monthly churn rate of ESPN+ (Standalone), Hulu (Standalone), Disney+ (Standalone), and The Disney Bundle over time. The x-axis represents time, spanning from October 2020 to May 2022. The y-axis represents the active monthly churn rate, ranging from 0% to 9%. Each streaming service is represented by a different colored line: ESPN+ is orange, Hulu is green, Disney+ is purple, and The Disney Bundle is blue. The graph shows that The Disney Bundle consistently has a lower churn rate compared to the individual streaming services.

Note: US only; excludes Free Tiers, MVPD & Telco Distribution, and select Bundles. Source: Antenna.

So, what should the streamers do?

*   Bundle multiple streaming products with clear a la carte prices. Providers with multiple discrete products should bundle them, with a clear a la carte price for the components and an attractive discount. WarnerBros. Discovery has announced its intentions to combine HBO Max and Discovery+ into one streaming service, launching in the spring. It hasn't yet provided any details. But rather than roll out one broad service, I think it would make more sense to combine both services into one UI, but offer both a la carte and bundled options, with a clear and compelling bundled discount. The shuttering of CNN+ is obviously water under the bridge at this point, but adding another service with a clear a la carte price to the bundle would make it even more attractive.

*   Bundle other products and services. Another contention of Mehrotra's article is that, contrary to the perception that bundles should be narrowly constructed with similar services targeting similar consumer segments, the bigger the bundle, the better (Myth #4/Thesis #4). Disney has reportedly been contemplating a “Disney Prime" type service that packages access to the parks, exclusive merchandise and streaming services. The other streamers clearly don't have the range of consumer offerings that Disney does, but they should all be looking to partner with other subscription services, even those that may appear far afield. It is already common practice to bundle with wireless providers (AT&T, T-Mobile and Verizon all offer one or more streaming services for free to high-end subscribers) and Walmart recently struck a deal to bundle Paramount+ with its Walmart+ service. Spotify bundles Hulu or Showtime for students. These kinds of bundles obviously carry lower ARPUs then selling direct, but there should be a way to structure them such that the combination of lower SAC and lower churn more than compensates. Expect to see more of this.

*   Bundle with unaffiliated streaming services. Streaming services would benefit from re-aggregating attractive bundles with each other. The challenge so far has been how to structure these deals and share economics. Comcast and Paramount

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started rolling out a joint streaming service in Europe (SkyShowtime) a few months ago, so it's possible to overcome these hurdles. Another possibility is to empower a connected device manufacturer, such as Apple or Roku, to construct and sell attractive bundles. For instance, streamers could offer a "bundled" rate card that offers a progressively larger discount the more services with which their streaming service(s) is/are bundled. Amazon's Prime Video Channels currently offers Discovery+, Paramount+, Showtime, Starz and several other services, but offers no bundled discounts, which seems like a missed opportunity.

Attractive Annual (or Longer) Plans

Obviously, it makes sense to give consumers an economic incentive to stick around longer. Under the general dictum that consumers hate restrictions (“contract” is a four-letter word) but love choice, most streamers offer a discounted annual plan. However, the discounts are relatively small (most of them are 16-17% relative to the monthly plan), they are inconsistent (Disney offers one only for Disney+, but not for the Disney Bundle or the components) and they are not always well marketed.

Streamers should be, and likely are, evaluating whether more aggressive and better marketed annual plans make sense in light of rising churn. Recently, coincident with the launch of House of the Dragon, HBO Max offered a 40% discounted annual plan. While it might seem counterintuitive to offer such a big discount timed with the release of some of its most-anticipated programming in years, clearly HBO Max management believed that these new subscribers were prone to churn quickly.

Creating Customized Save Plans and Accommodating Frequent Churners

Pay TV distributors typically have "save desks" to which customers are transferred when they call up to cancel. These customer service reps are usually incentivized to keep people subscribing and empowered to offer them additional programming or discounts. Streamers could also offer customized (and automated) save plans when subscribers try to cancel, such as discounts or other incentives. Subscribers with many profiles or high levels of engagement might need less persuasion that those with low usage levels. The challenge, of course, is customizing them or even randomizing them in such a way that we don't see a flood of articles titled "Looking for cheaper Netflix, here's how!"

Another approach is accommodating frequent churners by making it easy for them to sign back up. (While this might not solve the churn problem, it could dramatically reduce the SAC to re-acquire these subs.) For instance, this might include offering to put the account on hiatus and sending an SMS monthly enabling a 1-click resubscribe.

Content Scheduling, Live Programming and Cross Marketing

Throw this one in the obvious bucket too, but I also expect to see streamers adopt more programming strategies that are geared specifically to combatting churn.

That means ensuring that tentpole programming is launching year-round. It also means getting viewers hooked on their next show. Netflix uses its recommendation algorithm and outbound email campaigns for this purpose, but those streamers who offer ad-supported plans should also use their ad inventory to cross-market other programming.

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Netflix has said it remains committed to its binge release model, which builds momentum for new programming. Once shows have a strong following, however, it makes sense to release subsequent seasons on an episodic (or semi-staggered basis). For instance, Netflix broke season 4 of Stranger Things into two tranches. A middle- ground between dropping all episodes simultaneously and episodic (weekly) release, this approach keeps subscribers sticking around and the show in the zeitgeist longer.

Another approach is to invest more in live programming that compels sustained and regular viewing. Netflix also recently announced that Chris Rock will perform live early next year, its first foray into live programming. Whether viewers choose to watch a comedy special live is another matter, but programming that encourages and habituates ongoing live viewing (such as Netflix's reported interest in sports), is another way to ensure sustained subscribership.

Loyalty Programs

Another form of positive switching cost is loyalty and rewards programs that consumers are loath to lose. This could include discounts to other products and services, like Disney's recent discount at DisneyWorld for Disney+ subs. It could also include loyalty rewards that provide price discounts for long-time subscribers ("subscribe for one year and get your 13th month free!") or preferred or exclusive access to content, merchandise or services.

Churn Demands Attention

Stepping back, remember that historically most of the big media companies had limited or no direct exposure to consumers. They were largely wholesalers and didn't have to worry about all the messy elements of dealing with people, like consumer billing, bad debt, customer support, performance marketing and, yes, retention.

But churn is a real problem that has caught just about everyone short. Unless the industry focuses squarely on fixing it, for some the streaming business may never turn a profit.

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By Doug Shapiro

The Mediator is (mostly) about the long term structural changes in the media industry and the business, cultural, and societal implications of those shifts. I write it to get closer to the frontier.

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