The annual rate of subscriber churn for online video services in the United States is reported to be around 18%, with the average subscription length of 30 months, although it is more stable for services like Netflix. While high levels of churn can be expected with online services, they present a challenge that providers need to address.

Research from Parks Associates suggests that the rate of cancellations for online services has remained at about 18% for three years.

The average subscription length for online video services is 30 months overall, although the three top services in American the market — Netflix, Amazon, and Hulu — have the most stability, while churn rates for other services tend to be more volatile. Parks has previously said that they can experience churn rates exceeding 50% of their subscriber base.

For traditional television services, a customer churn rate of 10% is generally considered acceptable, while for some operators it might increase to 15%. This is partly a factor of the fixed nature of cable, satellite and telco television services and the fact that people may move house.

A service with a million subscribers and a churn rate of just 10% has to acquire 100,000 subscribers a year just to maintain its customer numbers. A service with 20 million subscribers and a churn rate of 15% has to sign up 3 million a year just to stand still.

For Netflix, with 56 million subscribers in the United States, an annual churn rate of 18% would mean signing up 10 million subscribers a year to stand still. So it is all the more impressive that Netflix actually gained 5.63 million subscribers over the last year, a net gain of over 11%.

In any one quarter, Netflix might have between 1 and 1.5 million ‘members’ who are not actually paying for the service, either because they are in a free trial period or a grace period after a failure to take payment. That is why the informitv Multiscreen Index only refers to the metric of paid memberships rather than total members.

These churn levels must also be taken into account when considering changes in quarterly subscriber numbers for traditional television and video service providers. Commentators may get excited about DIRECTV losing 188,000 subscribers in three months but that is less than 1% of its customer base. The real story is that they lost far more than that, but they managed to acquire new subscribers to replace them, generally from competitors, who also lost subscribers, and so on.

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

Churn in the online video market differs significantly from churn in the traditional pay-TV market. Online video services have low barriers to entry, and this highly competitive landscape forces many services to promote free trials and the ease of cancelling subscriptions to get 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 waft in and out of subscriptions based on the availability of popular new series.

“With OTT service penetration starting to plateau at around 65% adoption among U.S. broadband households, the OTT video market is reaching a level of saturation for the services currently available to consumers,” said Hunter Sappington, a research analyst at Parks Associates. “In an increasingly crowded and competitive marketplace where subscriber acquisition costs are high, this plateau highlights the need for services to focus on retention rather than solely acquisition. Successful services can encourage retention in several ways, such as community building, continuously offering new and fresh content, and improving their user experience.”