GETTING A GRIP ON OTT CHURN

How Subscriber Intelligence Can Prevent OTT Cancellations

TABLE OF CONTENT:

Introduction: the financial risk of churn 2

The value of retaining subscribers from an industry trends perspective 3
Defining why churn occurs 6
Using subscriber intelligence to tackle churn 7
How to efficiently reduce subscriber cancellations 8
Four steps to reducing subscriber cancellations 8
What type of marketing campaigns are at broadcaster’s disposal? 9
One-hit wonder shows in entertainment? 10
How important is customer lifetime value (CLV)? 12
How Cleeng helps broadcasters to tackle churn? 13
How can you forecast churn in advance? 14
Subscriber Retention Management (SRM) platforms as remedy 15

Table of content 1
Introduction: The Financial Risk of Churn

Are subscription video-on-demand (SVOD) providers at risk of becoming

victims of their own success? The insatiable rise of over-the-top (OTT) video has
been driven in part by low-cost entry and the elimination of long-term
contracts. Yet those same factors mean that the churn rate (the percentage of
subscribers who cut ties with the service during a given time period) is also
increasing.

In this highly competitive landscape, many services are forced to promote free
trials, give away hardware gifts and highlight the ease of canceling
subscriptions to attract an initial influx of subscribers. The result is a market
where consumers are primed to switch from service to service, abuse the
industry-standard free month trial, and drift in and out of subscriptions based on
the availability of popular new series.

Overcoming high churn and incentivising retention are notable challenges for
all video providers, especially as the market becomes more saturated and
penetration rates slow.

Ultimately, churn can be fatal. It isn’t unusual to see churn rates ranging from
20% to 40%. Improving these metrics is essential to reaching a positive ROI and
to continue to grow the subscriber base year-on-year.

As the production costs of content continue to rise, media companies must

increase revenue and reduce the endless cycle of signing up and canceling.
If they don’t, they’ll never be able to grow and stay profitable.

Introduction: the financial risk of churn 2

 The Value of Retaining Subscribers from an
Industry Trends Perspective

The adoption of OTT video has happened so rapidly in part because services were easy to subscribe
to and easy to cancel. The fact that the rate of cancellations for OTT video services among US
households has reached approximately 18% over the past three years speaks to the transient nature
of OTT service loyalty and the need for ongoing engagement with consumers.
Further Parks Associates research suggests up to 30% of OTT subscribing households have cancelled
one or more services within the past year.

Subscribers Cancelling OTT Service

© Parks associates
Q4/2015 Q3/2016 Q1/2017 Q1/2018

35%

30%

25%

20%

15%

5%

0%

Subscribers cancelling OTT service as a Overall OTT service cancellation rate

percentage of current OTT subscriber base among all U.S. broadband households

The average subscription length for OTT video services is 30 months overall, although the three top
services in the market - Netflix, Amazon, and Hulu - exhibit most stability, while churn rates for other
services tend to be more volatile.

Even Netflix (which does not publish churn rates) is estimated to churn between 20-25% of its
subscribers in the US over a six-month period, according to Ampere Analysis. Benchmarks for other
companies show that roughly half of consumers follow through, indicating an annual churn rate of
20%.

By comparison, in the Pay TV market, the most successful operators with very satisfied customer bases
have churn rates of between 8%-12% annually. SVOD’s typical one-month rolling contracts mean that
there are fewer barriers to churning and re-subscribing.

The value of retaining subscribers from an Industry trends perspective 3

 Arguably the lower cost of subscriber acquisition in SVOD, compared to Pay TV, means providers can
afford more churn. In addition to which, adoption of multiple OTT services is increasingly common.
Juniper research found that U.S consumers acquire an average of three subscriptions each, in
comparison to 2.5 in the U.K.

But in an increasingly crowded and competitive marketplace where subscriber acquisition costs are
already high and soaring, the 20-30% average is an unsustainable level of churn.

Regular Customer

New Signup
Average Logins/day

Danger Zone

Lost Customer

Time

The value of retaining subscribers from an Industry trends perspective 4

 (Financial Impact on Recurring Subscription Revenue)

ANNUAL SUBSCRIPTION REVENUE $8M

$6M

A small decrease in monthly churn translates to significant increases in monthly recurring

revenue after 12 months. for example.. improving monthly churn rate from 12.0% to 10.0%
will increase your MRR by 28% at the end of a 12-month period, €8.8M in Total Recovered
Revenue (after 12 months).

It highlights the need for services to focus on retention rather than solely acquisition.
Successful services can encourage retention in several ways, such as:

1. COMMUNITY BUILDING

2. CONTINUOUSLY OFFERING NEW AND FRESH CONTENT

3. IMPROVING THEIR USER EXPERIENCE

A study by Price intelligently showed that a 1%

increase in acquisition
affects your bottom line by about 3.3%.

But improving your retention by 1%

increases your bottom line by around 7%.

In other words, retention can be twice

as powerful as acquisition.

The value of retaining subscribers from an industry trends perspective 5

 Defining Why Churn Occurs
Currently, most tech vendors focus on the payment-generated factors for churn, like transaction
failures, expired cards and low balances and set up mechanisms for streamlining that flow.

• Payment churn:

Pay TV providers will classically offer invoice-based payments that are highly predictable and
standardised. OTT providers, on the other hand, will typically offer consumers the ability to transact
using credit cards. On average, these cards expire in three years, meaning you lose 3% monthly due to
payment failure alone. Transactions might also fail due to insufficient balance, missing payment details
or payments identified as fraud.

This is important, yet insufficient. We have identified two other critical groups of factors which
deserve a serious focus.

• Customer satisfaction churn:

Satisfaction defines how happy viewers are with your service and can be registered by the number of
support inquiries or a Net Promoter Score (NPS) score. Digging deeper, dissatisfaction could reveal
issues with the interface, or limited language support. Users may not be happy with the user
experience or feel the service is too expensive.

• Engagement churn:

Engagement-generated churn defines the usage

of your service: frequency and time of viewing,
quality of experience (buffering, start/pause).
Disengagement could also be a function of a
consumer not being able to find what they’re
looking for, or finding more attractive
alternatives [either of which could be a function
of a thin content catalogue or poor search and
recommendation], or simply not having the time
to access the service.
As we can see, churn occurs along the video
subscriber journey but without owning the
network or other infrastructure like the set-top
box, much of the detailed consumption data
remains at best patchy, at worst unknown, to OTT
providers.

Defining why churn occurs 6

 Using subscriber intelligence to tackle churn

To succeed in this world of churn, video services have to rethink their approach to consumer
engagement, community-building, content production, and acquisition.

They can do so by making intelligent use of the data at their disposal. It requires every aspect of the
customer lifecycle from conversion to churn to be collated, mapped and understood.
You cannot fully understand all the different causes and their impact levels, while:

Viewing data is scattered across different systems.

Knowledge of the video subscriber journey is incomplete.

Root causes of cancellations are indeterminate.

Responses to consumer actions – or potential actions - are reactive and past their
sell-by date rather than timely and proactive.

Having a clear and comprehensive view on the full customer journey is a must in order to define a plan
to improve customer retention.

Yet understanding this journey is even more complicated in large organizations where churn will
impact multiple departments - unless you have a centralized view into which customer service,
marketing and payment processing, finance and video performance teams all buy into.

This will empower OTT providers to tackle churn at all phases of the customer journey from login or
initial registration, through payment methods, across all interaction and viewer consumption and
inclusive of customer care.

Using subscriber intelligence to tackle churn 7

 Data is king. towards an intelligent future

VIDEO
VIDEO VIDEO
CONSUMPTION
EXPERIENCE
CONSUMPTION
CHURN PREDICTION
STATUS

Example:
PAYMENT LIFE-TIME
DATA CYCLE John McFloyd = 90% chance
he will chrun within coming
30days due to lack of
engagement as measured by
the number of times he came
in the past 60 days, and
minutes of videos consumed.
AUTHENTICATION CUSTOMER CARE SATISFACTION Ray Johnson = 40% chance he
HISTORY INQUIRIES SCORE will chrun within coming 7 days
due to insufficient balance.

How to Efficiently Reduce Subscriber Cancellations

The analysis of customer data is critical and can help on many fronts. It gives better insight into a users’
behaviour which in turn provides ammunition to tackle churn. Knowing exactly why subscribers left
can help improve a service by fine-tuning content strategy, improving streaming quality and adjusting
marketing targeting.

Four steps to reducing subscriber cancellations

1 Start with data... Take a complete helicopter view of the video subscriber journey

2 Identify the main root causes of subscriber cancellations. Do this continuously

3 Segmentation by root causes will attack large subscriber bases more efficiently

4 Adopt automated and targeted marketing actions

How to efficiently reduce subscriber cancellations 8

 ?
The simple truth is that churn rate
optimization — reducing the number of DID YOU KNOW:
customers who abandon your product or
service — is more essential to your Acquiring a new customer costs 6-7 times
more than retaining and selling to an existing
profitability and long-term success than
one (Bain & Company). A reduction in monthly
conversion rate optimization.
churn rates from 12% to 10% will, on average,
See for yourself what financial results you
increase your subscription revenue by 28%
can expect by reducing churn with our easy over a 12-month period.
to use Churn Impact Forecaster.

What type of marketing campaigns are at

broadcaster’s disposal?

To convert new subs from trial to paying ones the typical marketing strategy involves email
notifications of the end of the trial period. A more sophisticated approach might do this in tandem with
a promotion after the deadline. Limited time promotion offers can be hooked around holiday periods
or gift card discounts. Anticipation for new content can be built up with trailers advertising upcoming
releases.

To prevent existing subscribers from deserting they can be engaged with upgrade offers and
cross-selling opportunities combined with email alerts about their subscription reaching renewal date.
Relevant, upcoming content can also be surfaced with reminders to continue watching.

By offering churning customers a glimpse of what’s coming down the line, you can excite them about
future releases.

More importantly, it follows the key rule of customer communication:

“ don’t tell people to do something, motivate them to do it.”

What type of marketing campaigns are at broadcaster’s disposal? 9

The key to a good retention strategy is spotting the symptoms early with your existing customers.
You’ll know you’re losing a customer when you see gradual disengagement. It’s important you act
during this window because once a user is gone, they’re very difficult to get back.

The issue with seasonality

Sports streaming providers face the additional burden of the seasonality of the sports calendar. This can be
offset to a degree with an inventory of different sports content that is live all year round.

New subscribers can be tempted to stay with discounted sports passes offered midway through a sports
season. Other means of engagement include cross-sell quizzes, fantasy sports, offers of merchandise or
exclusive content.

One-hit wonder shows in entertainment

Programming is the primary weapon used to attract and retaining subscribers – but it costs. Acquisition
costs for US subscribers to Netflix have shot up from $60 to $100, according to Ampere Analysis as the
streamer’s content budget touches $12 billion in 2018.

Nonetheless the main driver for people staying with a service is having access to content that they
can’t get anywhere else. The bigger video streaming services are showing that a constant stream of
exclusive or original content is a powerful tool in retaining subscribers. Encouraging repeat viewing
itself enhances retention. Ultimately, OTT video is a long term play, requiring several quarters to secure
a growing, core base of customers.

It is clear that it’s much more difficult for video streaming services to capture viewer’s attention today
than it was even two years ago, so they have to invest more in order to gain people’s attention. But
providing free hardware (Apple TV for example) to new customers may not be a viable long-term
solution. Consumers that are influenced by promotions are some of the most likely to switch to another
service because of another promotion.

One-hit wonder shows in entertainment 10

Streaming networks like Showtime and Hulu have initiated a number of other strategies alongside
outstanding content to keep their subscribers coming back. These include:

ACCESS LEADING CONVERSE

EVERYWHERE WITH DATA ON SOCIAL MEDIA

After having the best
content, the single most
powerful tool to combat
subscriber churn is
being available on as
many devices as possible.
For example, Showtime
features on Amazon Fire,
Samsung and LG smart TV,
Apple TV, Roku, Xbox One
and more.
Data informs the content
strategy and allow
networks to segment their
audiences with more
precision than ever.
Often, the data prompts
new strategies to get the
most engagement out of
what’s already working.
Rather than blanket
bombing social media
with show promotion,
engage with fans about
their favorite shows and
work with social
influencers to help drive
deeper conversations.
This ultimately grows the
conversation and fan
community.

In sum: design content that matters to your audience, give them easy access to it, listen to their
feedback, and continue to fine-tune your strategy based on relevant data.

One-hit wonder shows in entertainment 11

How important is Customer Lifetime Value (CLV)?

CLV is the expected net profit attributed to the entire future relationship with a customer.
It is a discounted sum of all future customer revenues minus product and servicing and remarketing
costs. There are many components to calculating lifetime value but it should act as an
encouragement to providers to shift their focus from quarterly profits to the long-term health of their
customer relationships.

As an example: On average a customer stays with a streaming service for about 20 months.

The average gross margin that the service makes per customer per month is $2. If we assume that
the marketing costs per month per customer is $0 then the net margin is $2. So, the customer
lifetime value would be $2 x 20, or $40. Any new customer that it acquires is worth about $40;
conversely, the service should not be spending more than $40 to acquire new customers.

Short term gains or losses should be set aside in place of strategies impacting departments from
marketing and content commission/acquisition to customer service which consider the bigger
picture of the Customer Lifetime Value.

How important is customer lifetime value (CLV)? 12

 How Cleeng Helps Broadcasters to Tackle Churn?
Cleeng takes a video focused, data-driven, holistic take on churn. We have the benefit of focusing
strictly on e-commerce video solutions and that allows us to integrate the tech ecosystem into one
solution and build a comprehensive dashboard.

Aggregated data about the three main churn drivers: Payment, Customer Satisfaction,
Customer Engagement;

Data captured from over 80 data sources including partner ecosystems and integrated with
authentication, payment, front-end, QoE, and marketing solutions.

Presents a unique 360-degree view of the subscriber journey to help tackle churn head-on.

Cleeng Churn IQ™ equips decision makers to take actions that reduce churn, minimise workload and
optimise ROI. Why OTT broadcasters love it? Here are its main traits:

Predictive Churn Easy to Deploy 80+ Different eCommerce Powerful & Beautiful
Behaviours Integrations Data Sources Dashboards

Identify subscribers at-risk
of churn, score and segment
them by behaviours to build
even better targeted market-
ing programs.
Easily Integrate with NPAW/
Youbora or other QoS
platforms, add a NPS widget
to your apps, integrate with
Payment and Zendesk tools.
From user profiles to login
information, promotional
activities to payments and
customer satisfaction, form a
full view of your subscriber
activities.
Easily understand how churn
affects your business and what
actions to implement. Show
management the recovered
revenue.

Root Cause Master Customer Proactive Marketing Centralised Subscriber

Diagnostics Data List Actions Data

Understand WHY your
customers are cancelling
subscriptions. We correlate
different data sources to
help identify critical
mitigation actions.
Easily export data into your Out-of-the-box automated Critical data points from
own BI and CRM functions (dunning, subscriber multiple databases are cen-
environments to further cancellation mitigation) and tralised into 1-single repository
enrich customer profiles. create ad-hoc campaigns. and updated in real-time.

How cleeng helps broadcasters to tackle churn? 13

How can you forecast churn in advance?

Identify subscribers at-risk of churn, score and segment them by behaviours to build even better
targeted marketing programs. Remember, small improvements in monthly churn or reductions in
monthly subscriber cancellations leads to big long-term revenue gain.

See for yourself. Try our Churn forecaster:

https://cleeng.com/churn-impact-forecaster

How can you forecast churn in advance? 14

Subscriber Retention Management (SRM)
Platforms as Remedy

At Cleeng we specialize in Subscriber Retention Management (SRM). We’ve developed a set of

solutions to help OTT broadcasters retain their viewers and convert them into long-term customers.
For every aspect of the customer lifecycle, from conversion to churn we have developed tools that
help brands retain customers.

These tools are well synced to each other and are designed to tackle churn at all stages of the
viewer journey. Whether it’s a seamless sign-up and payment experience, multiple trials, and
promotional options, anti-piracy measures, forecasting churn or OTT specialized customer care, we
have developed tools that help you retain your customers.

CLEENG CORE

MERCHANT CHURN IQ ™ HI5 TATTOO

Contact us for a consultation to assess where we can help improve you resolve your retention
challenges with your viewers.

subscriber retention management (SRM) platforms as remedy 15

ABOUT CLEENG

Cleeng has been helping sports, entertainment and media companies like Sinclair Broadcast Group,
Foxtel, Sky, CBC, Golden Boy Promotions to sell and secure their premium video, locally or globally.

The Cleeng platform is modular and includes Identity Management, Commerce, Customer
Support, and Security products.

The company has powered over 20,000+ live PPV events in 2017, reached in over 167 different
countries and processes over 40 million transactions per day.

About CLEENG 16