Streaming’s bundling obsession ignores the real problem with subscription costs

Video streaming providers have a big churn problem. While many streaming companies are not profitable yet, the entire industry is grappling with high and fast cancellation rates.

Users who sign up for streaming services only to cancel a few months later, likely because they watched what they wanted to already or are trying to save money, has created huge churn concerns for streaming companies. Those companies are largely responding with packages that bundle their services with other services, including rival streaming platforms. But with streaming subscribers already pushed to their financial limits, it's time for streaming providers to earn their keep, not piggyback on others.

This week, media research firm Hub Entertainment Research published its 2024 Monetization of Video report with findings from June interviews of 1,600 TV viewers ages 16 to 74. The respondents reportedly each watch at least one hour of TV weekly, and the sample is “US census balanced,” per Hub. When Hub asked respondents if they will "still have/use" their video streaming services a year from now, 85 percent of those using ad-free services said they definitely or probably will, compared to 74 percent of subscribers of streaming services with ads. Further suggesting that ad-free subscription tiers garner more loyalty, 15 percent of ad-free subscribers said they "might/might not" or "probably/definitely won't" have their subscription next year versus 26 percent of ad subscribers.

“Those paying extra for ad-free services say they are more likely to keep that service than cheaper ad-supported plans," the report says. "The act of paying more potentially increases perceived loyalty to that expense.”

Streaming providers charge less for subscriptions that show commercials because they're able to make up the lost revenue through ad sales. Streaming firms like Netflix say they get higher monthly average revenue per user (ARPU) from ad subscribers than those who pay more for commercial-free plans. Despite the lower prices, Hub's research found that 25 percent of respondents associate "excellent" value with paid streaming video on demand (SVOD) services with ads compared to 22 percent who think the same of SVOD without ads.

Churn troubles

Hub's report also highlighted high streaming cancellation rates, noting that 50 percent of respondents “sign up, cancel, then re-subscribe to the same service." Earlier this month Ampere Analysis also detailed high churn rates, saying that 42 percent of US streaming subscribers "regularly subscribe, cancel, and resubscribe" (Ampere said it examined "anonymized subscription receipt data from a panel of 3 million opted-in US email users" between February and March 2024 for its survey).

“As the SVOD market in the US has become increasingly saturated, new subscribers are harder to find, which makes retention all the more important,” said Daniel Monaghan, research manager at Ampere Analysis, said in a statement accompanying the findings.

Streaming providers have largely adopted bundling to combat high cancellation rates, with the idea being that people are less likely to pull the plug on one service if it's tied to others. In Hub's report, 37 percent of respondents said they're “less likely to cancel and then resubscribe to a bundle of multiple services compared to an individual service."

Bundles also carry price savings, a key driver for streaming subscriptions. Per Hub's report and following a slew of streaming price hikes, people are approaching the limit of what they're willing to spend on streaming subscriptions:

But streaming services could better prove their value if they went beyond pricing and tried building loyalty through improved selection and features.

Streamers care about more than just saving money

Incessant price hikes and the shoehorning of ads across streaming platforms have forced users to reassess the value of their subscriptions. And while price is a big factor, streamers are also critical of content availability. Hub's report notes that "specific content drivers, like new theatrical movies, full seasons of TV shows, original/exclusive shows and live sports, can motivate unique audiences.”

When ranking the most important values in a TV service, Hub found the most popular responses to be "lower price than other platforms with similar content" (12.7 MaxDiff prioritization score), "access to new movies that were recently in theaters" (9.1 score), and "all shows are ad free" (8.8 score).

Streamers aren't just blindly seeking the lowest prices available but are hungry for a service that lets them access the stuff that they actually want to see. This could also help explain a growing business around streaming services targeting niches like horror. Hub found the lack of relevant content to be a huge factor among survey respondents who have canceled a subscription within six months of signing up.

True value

Streaming was once the darling of modern TV and movie watching but has since devolved into another form of cable whose race for profits has led to uncertainty around pricing, content availability, platform longevity, and mergers and acquisitions activity.

Bundling somewhat addresses subscribers' financial concerns, but when it comes to providing value, it feels like the industry has lessened its focus on the type of innovation and exclusivity that made streaming exciting in the first place.

One way that Deloitte predicts streaming companies might try to improve perceived value is to offer tiers that are more catered to subscribers' needs. But this could also complicate subscriptions. Per Deloitte’s TMT Predictions 2024 report released in November:

In 2024, Deloitte predicts that the combined number of subscription video on demand tiers offered by the top US providers will more than double between 2022 and 2024: from an average of four options to eight. From cheap ad-supported offerings and gated content to premium tiers with instant access, streamers are expected to shift from growth at all costs to making it easier for all their subscribers to get enough value for the price. Viewers may find it harder to wade through the options, but tiering could help them get more of what they want and less of what they don’t.

Again, a cable-like approach to subscriptions could help some users financially but doesn't improve the actual service that subscribers receive.

What could differentiate services and impress subscribers more, though, is a commitment to delivering sought-after shows and movies. While streaming services are expected to increase their spending on content by 5 percent this year (compared to an 8 percent decline in 2023), they won't reach 2022 levels, per research that MoffettNathanson released in March.

The need to improve the streaming experience so that it's a modern, valuable advantage compared to alternatives seems overlooked these days. Profit goals have led to user drawbacks like widespread password sharing crackdowns, more and new types of ads, and the cutting of features like Dolby Vision and Atmos.

It's rare that we see the type of platform or policy change that immediately benefits subscribers over corporations. There are exceptions, like when streaming providers work on effective UI overhauls. But big upgrades, like Sling starting to offer 4K streaming for free today, remain rare.

Beyond bundling, it's unlikely that streaming providers will lower prices to what they were. But since a wave of price hikes, most streaming services have done little to nothing to earn that extra money. If streaming companies really want to build any sort of subscriber loyalty, more attention should be paid to the actual user experience in order to justify the rising prices. Otherwise, people tired of paying more for the same will keep churning.