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Small players can succeed in the fiercely competitive subscription streaming marketKPMG’s annual cable and OTT survey
The OTT market is a complex space dominated by three powerful players. To succeed, small providers need to focus on providing unique content and on developing sophisticated approaches to pricing, account sharing, and customer retention challenges.
The fiercely competitive subscription streaming market is still heavily dominated by the “Big 3”. Multiple responses allowed. N=1402
84%57%
39%10%9%
6%6%5%5%4%3%
2%
3%3%
2%0%
Netflix
Amazon Prime Video
Hulu or Hulu TV
HBO Now
YouTube TV
Showtime
CBS All Access
Sling TV
Starz
DirectTV Now
Crunchyroll
Sports Streaming Services
PlayStation Vue
Other
Acorn TV
VRV
Source: 2018 KPMG OTT Survey
KPMG’s annual consumer survey seeks to understand the shift in video consumption preferences. The 2018 results indicate that although the streaming market is heavily concentrated among the Big 3—Netflix, Amazon Prime Video, and Hulu—opportunities do exist for smaller players. Despite their dominating numbers (84 percent of all OTT users subscribe to Netflix, 57 percent to Amazon Prime Video, and 39 percent to Hulu), 35 percent of OTT consumers still subscribe to at least one service besides the Big 3. Additionally, over 50 percent of OTT respondents said they would be willing to pay for additional streaming subscriptions beyond those they already have.
Smaller players face challenges finding their place in a fiercely competitive subscription streaming market where content is king, but opportunities do exist to gain a greater share of wallet. To increase stickiness (and potentially chip away at the Big 3 dominance), OTT service providers need to focus on four areas:
Methodology In 2018, KPMG surveyed 2,000 U.S. adults (18+) online, who self-declared their OTT and cable usage. Respondent quotas were equally split across cable-only, OTT-only, and cable + OTT subscribers (paying and nonpaying).
1. Provide curated content, not massive content libraries
4. Reduce churn through improved customer relations
3. Get the price right
2. Limit account sharing
1© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The survey results indicate that although price is an important factor when purchasing cable or OTT services, content still drives most consumer choices. Seventy percent of survey respondents still subscribe to cable, for example, even though they spend $100/month on cable compared to $30/month for OTT-only customers. The reason is largely content: 40 percent say they subscribe to cable because “I like being able to watch anything I want”, and an additional 14 percent say “I want to watch sports and/or live programming”, for a total of 54 percent responding with content-related answers. The next closest reason is “I have a good deal on my cable-and-internet bundle” at 16 percent.
Additionally, 39 percent of respondents subscribe to both cable and OTT services despite paying on average $135/month to get both platforms. Content is again the primary reason they subscribe to both: 42 percent say they like the shows, movies, etc., offered by both services, and an additional 30 percent say they enjoy having access to both live TV and on-demand content.
For OTT and cable providers alike, this emphasis on content is good news. The question for the majority of providers then becomes: How do we compete against the Big 3 and cable on content?
Competing on breadth of content may be difficult given the vast (and rapidly growing) content libraries already available on the Big 3. A broad mix of quality content tends to be what users value from the Big 3, with “Access to the vast library of
content” cited as the number one reason users subscribe to these services (30 percent of subscribers).
Subscribers seek out smaller players for targeted content, but a one-hit wonder is not sufficient! Respondents are much more likely to subscribe to niche players because of several shows rather than just one—but the same is not true for the Big 3. These providers would do well to double down on targeted content consumers cannot view at the Big 3 and avoid competing on volume.
Provide curated content, not massive libraries
Content is the main reason households have dual streaming subscriptions. N = 790
There are a variety of reasons households prefer streaming subscriptions. N = 1402
To get access to the large library of content
For live TV contentFor the convenienceFor a single specific show, movie, or event
It was a good deal/ good price
For several shows
Source: 2018 KPMG OTT Survey
Source: 2018 KPMG OTT SurveyNote: Niche services include Showtime, Starz, CBS All Access, AcornTV, Crunchyroll, VRV, sports streaming services, and others.
Netflix
Amazon Prime Video
Hulu or Hulu TV
Niche
I like the content (e.g., shows and movies) offered by both
services
I enjoy having access to both live TV and on-demand content
Some people in my household like cable, others like streaming
services, so we need both
Other
It is cheaper to add a streaming subscription than additional
channels to cableThe service comes as a bundle (e.g., Amazon Prime and Prime
Video, T-Mobile, and Netflix, etc.)
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
With switching costs near zero, retaining paying OTT consumers can be challenging. The survey results indicate that churn rates are 30 percent per year across all OTT providers and 14 percent to 42 percent for non–Big 3 providers. This self-reported data is likely to understate actual churn rates given consumers’ fallible memories.
Across all service providers, the most frequently cited reason for canceling a service was that a trial period had ended (38 percent). When asked whether service providers had tried to dissuade subscribers from canceling, 67 percent of the respondents said no. Service providers, therefore, have an opportunity to increase customer retention by trying to dissuade consumers from leaving (e.g., by addressing points of concern or offering a promotion).
Generally, with churn rates as high as they are, it is critical for providers to understand what is motivating customers to cancel, take the easy steps to retain customers (e.g., offering promotions to prevent cancellations), and develop comprehensive strategies to address remaining issues.
By taking a close lens to customer trends, OTT providers will be able to gather significant insight into the key drivers of customer churn.
To read more on the importance of data gathering and the benefits it can do for revenue growth, please visit https://advisory.kpmg.us/articles/2018/data-driven-growth.html.
Although users highly value content, price still matters, too. Of the survey respondents who canceled a cable subscription in the last year, 81 percent cite price as a reason. Given the low marginal price of adding an OTT service compared to what respondents historically pay for cable channels, it is somewhat surprising that price is such a strong deterrent.
Price anchoring is likely a contributing factor. Over the course of several decades, consumers have been conditioned to expect a certain price from cable—shelling out $100/month may be unpleasant, but it is not unexpected. The OTT market,
however, has the opposite problem: Consumer expectations in this relatively young market have anchored on prices of around $8 to $12 a month, for an expansive content library.
What this means for OTT providers is that consumers may judge the price/value relationship for a narrow range of content relative to this lower OTT price anchor, rather than in relation to the higher cable price anchor, even if for the same type of niche content. As a result, OTT providers struggle to price their services higher than the OTT anchor. However, a few providers have been able to break out of the paradigm by reinforcing the value proposition they provide and justify higher pricing.
Get the price right
An additional challenge for OTT service providers is getting consumers to pay for content. Thirty percent of respondents do not pay for some portion of the OTT services they consume, with the percentages increasing as the age of consumers decreases. On top of that, 52 percent of subscribers say they would try to access new content that falls outside of their subscription without paying for it; this includes the use of password sharing, illegal live streaming, and digital piracy.
Eliminating nonpayers or partial payers isn’t feasible, but the
status quo will take a toll on the smaller providers. These providers need to carefully think through their offer terms (e.g., number of allowable simultaneous screens and number of allowable profiles) to minimize abuse while not alienating honest consumers who seek broad access across multiple platforms and locations.
Even advertising video on demand (AVOD) players who might consider this not applicable would do well to use log-ins because it would enable/ensure improved monetization importunities by tracking user behavior.
Limit account sharing
Reduce churn through improved customer relationsA strong customer retention program can reduce OTT customer churn. N = 296
Of households that canceled any video streaming service subscriptions in the past six months, these are the reasons given for cancellation.
I signed up for a trial, decided not to continue
Watched all content interested in
Was too expensive (but liked content)
My preferred show/season has ended
Content subscribed for is no longer available
Technical issues
Stopped subscribing to bundling partner (e.g., Amazon Prime)
Got all of the content I need already
Source: 2018 KPMG OTT Survey
3© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
How KPMG can help KPMG, with its deep industry experience and ability to support customers from strategy concept through implementation, is strongly positioned to shepherd OTT service providers through the increasingly complex and dynamic video streaming market.
KPMG recently helped a new digital subscription video on demand (SVOD) company develop a new perspective on growth. Under pressure to keep pace with established players and online video content providers, the company was struggling to execute a broad-based content strategy. Our team assisted leadership in redefining the target customer
segment and realigned the content, partnership, user engagement, and data management strategies around the target customer. Alongside these efforts, we also identified tactical improvement opportunities to kick-start growth in the viewership base, ranging from raising awareness through increased social media engagement to reshaping the free trial model to drive better conversion. KPMG’S advanced analytics capabilities will continue to generate numerous insights into the future of this industry and will help our clients adapt to the changing market. For further information or to discuss this topic, please contact Serena Crivellaro or Scott Purdy.
About the authors
Serena works with clients to craft and implement successful pricing and go-to-market strategies, with a focus on changing commercial models to adapt to evolving markets.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Some of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
kpmg.com/socialmedia
Moving forward, OTT providers need to be aware of the changing landscape. Focusing on the content mix, competitive pricing, account sharing, and improved customer relations to reduce churn will help all service providers sustain profitability and evolve with their customer base. Although the smaller players in this market may seem like they are at a disadvantage, they will still be able to find opportunity in the market by focusing on providing curated content, getting the price right, limiting account sharing, and improving customer relations. By doing so, they will be able to not only avoid the pitfalls that similar OTTs face but also secure their spot in the market next to the Big 3.
The time to act is now. With the increasing complexity of the market and massive and aggressive competitors, OTT subscription businesses will quickly fall behind if they lag in their approach to determining an optimal strategy.
Conclusion
Michelle Wroan National Sector Leader Media [email protected] 213-955-8657
Sean Sullivan National Sector Leader Telecommunications [email protected] 303-296-2323
Serena Crivellaro Managing Director Corporate Strategy [email protected] 212-954-7468
Phil Wong Principal Corporate Strategy [email protected] 617-988-6332
Serena CrivellaroManaging Director Corporate Strategy KPMG LLP
Contact usScott Purdy Managing Director Corporate Strategy [email protected] 212-954-4207
Scott is the Media sector lead for KPMG Strategy in the U.S. and has worked across all segments of media, including film, television, digital media, and information service sectors.
Scott PurdyManaging Director Corporate Strategy KPMG LLP
