SVOD wars: What telcos can learn from Disney and Netflix

When billions of people across the globe were quarantined due to COVID-19, consumers embraced subscription services of all kinds, from replenishment services and food delivery to retail boxes and skincare. But as economies reopened, much of the subscription growth trended back towards pre-pandemic levels. However, Over-the-Top (OTT) media growth rates, specifically Subscription Video on Demand (SVOD), remain substantially higher than where they were even a few months ago.

There’s no question the telecommunications industry is at an inflection point as the OTT Video Streaming market takes off. The rise of low-cost, internet-based SVOD services such as Disney+ and Netflix are forcing broadband companies to rethink how to retain their existing cable consumers.

Over-the-top services

While most everyone is familiar with OTT services like Apple TV+ and YouTube TV, Telco-OTT services often fly under the radar. When a telecommunications provider delivers film and TV content over an IP network, it tends to not generate as much brand buzz. Consider Spectrum TV Essentials, Verizon Stream and AT&T TV, all major plays in the OTT space, but far from the brand connection of a Hulu or Amazon Prime Video.

Brand buzz should be the least of their concerns though. In the first quarter of 2020 alone, 1.8 million households canceled their pay-TV service. For telcos, retaining those existing consumers they’re so rapidly losing to SVOD services will be critical to their subscriber growth in the coming years.

All it takes for cable providers to lose a good chunk of existing consumers is for the consumer to realize she has been paying more than the value received. Companies should never wait until the moment of cancellation to (re)affirm their value proposition; instead, they need a game plan to maintain their relevance to the consumer.

Customer Lifetime Value: The heartbeat of SVOD

Customer lifetime value (CLV) measures how much a consumer is truly worth to your service, and customer acquisition cost (CAC) tells you how much it costs to be able to call them a customer. Too often, for many brands, this balance is out of whack.

At the beginning of any subscription service, the CAC will almost always be higher than the CLV. Companies need time to build up a significant user base to offset the total cost efforts to acquire users.

In April 2019, Disney CEO Bob Iger announced the company’s plan to take on Netflix with Disney+ by saying, “We are all in. We believe that is the best way for this to succeed.” He continued by providing the bullish numbers Disney was projecting for the service: between 60 and 90 million global subscribers by 2024—the year Disney expected it to be profitable.

Disney knew their CAC would greatly outweigh the CLV after the initial launch. The imbalance could be tolerated as the brand gained the opportunity to learn more about the likes and dislikes of their subscribers, as well as what features and content contributed to consumer retention. As of this writing, Disney+ already has over 60 million subscribers. The approach clearly paid dividends.

Once a brand develops a core userbase, the marketing and product teams need to shift their mindset from providing immediate value upfront to new subscribers—to providing consistent, expectation-exceeding value over time.

Telcos, as an industry, have a relatively large CAC—benchmarked at a whopping $315 per consumer. While Disney can afford to risk subscriber churn at the expense of acquisition, Telcos cannot. Because of this, it’s far more cost-effective for telcos to focus on keeping the subscribers they already have, and the best way to reduce churn is to ensure that consumers gain continuous benefit from the services they are receiving.

Designing for value—not sign-ups

Telcos that provide consumers with the best experience throughout the subscription lifecycle can expect to increase consumer satisfaction, improve sales and retain users. There is a path forward for brands willing to take the steps needed to build consumer engagement throughout the post-sign-up journey.

The key to consumer engagement is designing the right experience at the right time in the lifecycle based on the consumer’s engagement level. After signing up, especially for consumers exhibiting low levels of engagement, focusing the engagement strategy on unlocking value for those consumers is key. As consumers become more engaged with the product or service, the strategy focuses on deepening the brand connection with the consumer.

Personalized experiences based on a consumer’s path lead to increased actual and perceived value and build a stronger brand connection. Using engagement tactics like introducing personally curated content or recommending a product add-on that fits the consumer’s shopping behaviors, help to nudge subscribers towards renewals. Recurring revenue bundles have also proven to be particularly effective for telcos.

In many ways, telcos invented bundles with the early days of cable and the bundling of channels into different packages. But telcos have seen their version of bundling be outstripped by a new breed of digitally native players, like Disney who recently released a package of Hulu, Disney+ and ESPN for a fraction fo the cost of a typical cable subscription.

Telcos are now playing catch up. AT&T offers several free add-ons, including Spotify Premium and HBO, under its Unlimited & More Premium plan. AT&T, like other US telecoms, has realized that they must shift roles from wireless provider to enabler of media consumption, in order to retain consumers. Similarly, Comcast’s new OTT service, Xfinity Flex, includes streaming video and music, along with Comcast’s home Wi-Fi, mobile, security and automation services. Since many of the services telcos have traditionally provided—think landline, cable and internet bundles—no longer generate enough value to the consumer to create a lasting relationship, telcos must now differentiate themselves by expanding what they offer to keep consumers coming back for more.

Rather than assume what the consumer wants, subscription services need to have a two-way conversation with the consumer. While the brand gets rich consumer data, the consumer gets a more personalized and robust in-product experience.

“Declared data” is an excellent way to gather this input. Declared data is information willingly and actively given by consumers, including their motivations, intentions, interests and preferences. There are numerous ways to gather declared data: during consumer onboarding, saving a favorite show, or indicating an interest in a topic are a few examples. This allows brands to provide a richer experience to consumers, such as introducing personally curated content that fits consumers’ behaviors.

Telcos can look to Netflix as a classic example on how to leverage data to gain insights. Netflix uses massive amounts of behavioral data to create personalized recommendations, influencing 80% of the content consumers stream. Powerful algorithms go beyond personalizing the genres and titles that are recommended: consumers even see different artwork for the same titles depending on inferred preferences. Netflix advances images that are fine-tuned to the viewer. For example, if you are an avid Tom Hanks fan, his face will appear in thumbnails for his movies to further draw you into the content.

Consumer behaviors across features and touchpoints determine the tactics that will drive engagement. Better understanding your consumer will yield opportunities throughout the journey to serve the experience and drive incremental engagement.

Staying ahead of the curve

Moving to an SVOD model will allow traditional telecommunications companies to stay ahead of the competition and retain consumers. But be warned, these services require rapid iteration and many business capabilities need to be tapped into. Where we’ve seen success with clients is where there is buy-in at all levels within the organization —and a commitment to exceeding consumer expectations, not just with discounts with the initial sign-ups, but with each product experience meeting and surpassing consumer needs.

Check out our Personalization Table of Elements and discover the potential of personalization.

About the author

Jodi Rausch serves as Director of Integrated Loyalty Solutions at Concentrix Catalyst. She has deep experience developing, transforming and managing differentiated loyalty programs, customer marketing activities and customer experiences driven by data, customer insights and financial rigor. She enjoys building and growing relationships with internal teams, clients and end customers to best understand their needs and exceed expectations.