The Netflix Gambit: Instant Gratification or Gone in 60 Seconds

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The current winner of the streaming wars has built up long-term subscriber habits by consistently delivering relevant content in a timely manner.

As subscriber fatigue seeps into customers and cancellation rates increase in the midst of the streaming wars, many video streaming services have offered free trials and bundled promotions with other services to lure cost-sensitive customers. But a fixation on pricing runs the risk of overlooking what people are really looking for when it comes to getting value from their paid entertainment choices.

Many customers cite pricing and affordability as a key factor in whether they cancel a subscription—a subscription price increase was the most popular reason for cancellation among survey respondents in Deloitte’s Digital Media Trends report. But in the bigger picture, customers only start to question the cost of their subscriptions when they’re dissatisfied with the value provided by the service.

Those looking for lessons in delivering value have much to learn from the undisputed leader of video streaming: Netflix. The streaming giant has arguably proven most successful in establishing a steady cadence of value-affirming experiences that can cement subscription-forming habits among customers.  In fact, an August 2020 Piper Sandler survey of 600 Netflix subscribers found that the majority would still pay an average of $2.20 more per month to keep their access to Netflix content. There are also signs that people who have tried multiple streaming services find the greatest value in Netflix’s offerings. When a Whip Media survey asked respondents to make the hypothetical choice of keeping just one streaming service, Netflix was the favorite by far, with 41 percent of the overall vote.

A particularly potent sign of Netflix’s effective focus on delivering value can be found in one metric: the subscriber churn rate that reflects how many customers canceled their subscriptions. Netflix has consistently held its churn rate down at an impressive 2 percent. By comparison, most services such as Disney Plus, Hulu, and HBO Max churned around 4 to 5 percent of their subscribers as of April 2021.

Netflix has won subscribers’ hearts and minds by delivering on this value proposition: customers can find something interesting to watch quickly whenever they sign onto Netflix.

Rising above the competition through data-driven insights to create and deliver content

Keeping customers satisfied is no easy task. Streaming services need to constantly create or license new content that keeps subscribers hooked. Netflix has long been famous for using data to help guide its executives’ creative decisions in commissioning new films or shows. This includes using historical data on the themes, audiences, and performances of past films or shows to train machine learning algorithms to predict how, for example, a dark comedy might perform in Brazil. But this approach can also predict ahead of time if a particular title might find its primary audience in Spain while also attracting viewers in Mexico, Brazil, and Argentina.

Not only does this data-driven approach helps ensure that Netflix’s creative efforts are carefully tailored to local market tastes, but it can also help to create local shows and films with the potential to become international crossover hits. Some examples of local shows that have won international audiences include the Spanish crime drama “Money Heist,” the German time travel show “Dark,” the French thriller “Lupin,” and the South Korean zombie period drama “Kingdom.”

But it’s not enough to have a content library that runs wide and deep if viewers cannot easily find that content. Netflix’s research suggests that users get bored after just a minute to a minute-and-a-half of browsing, giving streaming services only a short window of opportunity to get it right before users are gone in 60 seconds. Video streaming services need a content delivery machine that can provide subscribers with the best personalized content recommendations as quickly as possible. Netflix’s recommendation system bears this out by driving 80 percent of the content hours streamed through its platform as opposed to just 20 percent from user searches.

This sophisticated recommendation system is enabled by a data-driven approach that leverages more than 76,000 categories or subgenres of content to appeal to specific viewer tastes. This level of classification leads to a more nuanced understanding of viewership and results in a Netflix menu with a highly tailored array of content presented to each viewer—the algorithms can even change the artwork illustrating each show or film to appeal to specific viewers.

Netflix’s value proposition based on procuring attractive content, personalized content delivery, and exceptional user experience has proven a winning formula in the streaming wars.

The Takeaway

In the battle for customers’ increasingly fickle attention, streaming services must focus on both content and user experience to drive perceived value that attracts, engages, and keeps users on their platform.

  • The OTT streaming media market is highly competitive, with low barriers for customers to try out or cancel subscription services.
  • Customers who talk about price are often really talking about the value they can get from a subscription service.
  • Flexible or discounted pricing options along with free trials can be a short-term strategy for gaining subscribers, but they won’t stay if they perceive a lack of value.
  • The better long-term strategy to grow the subscriber base involves investing in content creation and delivery to ensure that customers always have the content they want, whenever they want it.

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