Are We Nearing an Inflection Point for Over the Top Video?

A study of North American linear subscription video customer churn suggests an uptick in churn rates since the earlier quarters of 2014. In the fourth quarter of 2014, quarterly churn was nearly nine percent, up about two percent compared to the same quarter of 2013.

That works out to about a three percent monthly churn rate, which perhaps is high by recent comparisons. The issue is whether that is a quarterly issue, or something representing a new trend.

Nor does the churn rate, by itself, tell us much. If most of the customers who churn then buy a similar service from another provider, that only speaks to the level of competition in the market, not to a change in end user demand for the product.

The worrisome trend, for service providers, is churn of a different type, where consumers simply stop buying the product from any current supplier. The study does not address that question, though it found about four percent of subscribers claimed they would end their subscriptions at some point in the next six months.

Another 2.6 percent claimed they would switch to an online app sometime in the next six months.

With the caveat that consumers quite frequently do not follow through, dissatisfaction ratings seem to be climbing. Comparing attitudes in 2014 compared to 2013, about four percent fewer respondents claimed they were satisfied with their linear service, while three percent more claimed they were dissatisfied. That is a net swing of about seven percentage points in a year.

The study found that 5.7 percent of subscribers switched service providers during the final three months of 2014.

That works out to a monthly churn rate of less than two percent, which is about in line with recent historical norms, and down dramatically from levels of several decades ago, when three percent churn rates would not have been unusual for any consumer communications or entertainment service.

The study suggests a potentially continuing incremental shift away from linear subscriptions and a growing use of over the top online services. But the change remains slow and incremental.

The coming launches of stand-alone streaming services from HBO, CBS and a comedy-focused service from NBCUniversal, plus the new Dish Network service, will provide more evidence about whether the rate of change finally is about to hit a knee of inflection.