Ad plans and trials drive streaming results
Ad supported plans lower streaming acquisition but increase retention
The Marketing Science conference saw a wonderful session on streaming this Saturday, and I am happy to share my front-row seat with you:
Bobbie Krijger (Tilburg PhD student on the job market) painted the problem streaming services face: subscription growth is slowing down, and customer churn is increasing. What can streaming services do?
Two main options: subsidize subscription by free trials, or adding cheaper ad-supported plans. But how do they affect customer acquisition and retention? Let’s start with free trials:
Zach Nolan (U Arizona) presented his research with Matthew McGranaghan (U Delaware), and first showed current industry practice and trade-offs:
They collect user-level panel data describing viewership, community engagement, and subscription status across 100 popular content creators on Twitch:
which gifts free subscriptions for a creator randomly to that creator’s followers:
The researchers leverage this ‘random’ (quasi-exogenous) variation in the allocation of free trials and apply double-robust machine learning, which we successfully used at Amazon Ads.
Zach and Matt find that free trial recipients increase their consumption by 10% and increase engagement by 31% during the trial period. These behavioral effects are persistent across time, lasting beyond the initial trial period, and spill over to other creators on the platform
How about moderators? The effect of a free trial on subscription behavior varies based on prior experience with the subscription’s benefits. Users with prior subscriptions (informed users) are less likely to subscribe after receiving a free trial. In contrast, uninformed users are more likely to subscribe after a free trial, with the increase being larger for those with higher pre-trial consumption, highlighting the trial's informative effect.
But of course, this is not enough for a top marketing journal! With these treatment effect estimates, Zach optimizes the allocation of free trials to balance both subscription acquisition and retention.
Speaking of acquisition and retention, how ‘bout them ad-supported plans?
Mi Hyun Lee (Northwestern U) and Royce Choi (Louisiana State U) analyze the impact of ad-supported plan introduction on 2 platforms: Netflix and Disney+.
They hypothesize that such introduction can DECREASE customer acquisition to the platform due to choice overload: given the now 2 choices for joining the platform, customers may perceive less fairness and defer their choice.
And indeed, we see a decrease in total subscriptions, ad-free sign-ups, and ad-free subscriptions, suggesting cannibalization of premium tiers.
However, we see an INCREASE in customer retention, likely because the availability of a cheaper option makes customers less likely to churn from the platform:
The researchers thus found evidence for reference-dependent choice and contrast effects for Netflix and Disney+, but caution that the ad-supported experience may not be good enough to make up for the price benefits. Indeed, total subscriptions decreased after three months - an excellent ad-supported experience may keep some signups while moving others to upgrade to the premium experience. In other words, streaming services should study the rich marketing literature on product line design.
Specific advice include reframing the value proposition, simplify the product line architecture to avoid choice overload, and anchor retention and upgrade by focusing on the uninterrupted great content of the ad-free plan.
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