Feel the Churn: What Subscriber Cancellations Mean for Streamers

Feel the Churn: What Subscriber Cancellations Mean Streamers
Adobe Stock; Yinchen Niu/VIP+

On top of all their other problems of late, U.S. streamers are still feeling the churn.

From a subscriber perspective, Q3 was a slight improvement over the worrisome second quarter. Net U.S. subscriber additions rose for premium SVOD services after declining in Q1 and Q2, though they remained below the highs of 2021. Gross additions also remained high at over 37 million, per streaming analytics firm Antenna.

The problem? Cancellations also crested to a record high of 32 million, up 14% quarter-on-quarter and nearly 27 percent year-over-year.

As such, the average monthly churn rate for the 10 services tracked by Antenna ticked upward throughout Q3, climbing from just over 5% in June to 5.8% in September.

It all continues to beg the question of whether this is simply streaming’s new normal or a more troublesome trend. Increased churn is at least partly attributable to the crowded SVOD market, which has exploded over the past three years. The monthly churn rates for many services have remained largely stable or declined throughout that time, with the increases coming mainly from mature services like Netflix and Hulu, which historically faced little competition.

Net additions have also yet to turn negative, which should discourage streamers from entering full panic mode just yet. The high volume of additions, coupled with a high rate of cancellations, indicates users are continuing to bounce between services as suits their viewing needs.

But this isn’t exactly good news for companies staring down skeptical investors, who are looking for proof that streaming can become a profitable business model. For that to happen, services will need to hold onto large user bases over the long term, establishing scale and subscriber loyalty that can help sustain streaming’s massive expenses.

But streaming’s business model, by its very design, makes this difficult. The subscription flexibility and low barriers to cancellation were major factors in drawing consumers away from the cable bundle and toward streaming in the first place. And for all the talk of a new streaming bundle, rival services still seem unlikely to package themselves together for a single fee anytime soon.

Instead, services have continued to count on content strategy to retain viewers — for instance, experimenting with spreading out series release dates, which even Netflix, the pioneer of the binge-release model, has started to do over the past year. But it seems this strategy is only delaying the inevitable: Per Antenna data, U.S. Netflix users churned out in record numbers in July, likely after quickly consuming the final two episodes of “Stranger Things” Season 4, which dropped on the first of the month.

What, then, can be done to combat churn? There’s an argument to be made that consumers are simply responding to an overcrowded, expensive market, and that churn is unlikely to decline unless the field of streamers contracts or prices are substantially reduced.

On the latter front, the arrival of cheaper, ad-supported tiers for Netflix (which launched in November) and Disney+ (which launches Thursday) may have an impact. Reduced prices will likely retain some users who would otherwise have canceled, but it is too early to analyze the actual effect on churn for either service.

The upshot is we are continuing to approach a marketplace made up largely of savvy streaming customers who jump between services and juggle subscriptions — “churn and return” — with ease. The best hope for streamers at the moment is to continue offering a regular pipeline of compelling content, but all of the major players may have to face the fact that elevated churn rates are a new fact of life in the streaming biz.