Subscription Media companies Flashcards
Trends in average acquisition for top media subscription companies
A significant shift in the unit economics of subscription media, particularly for streaming platforms. It highlights that the average acquisition for the top ten largest streaming platforms drastically decreased from 51% in 2020 to single digits by 2023
This dramatic decline indicates a major change in the landscape of subscriber acquisition. A high acquisition rate in 2020 implies that these platforms were successfully attracting a large percentage of their viewership base, contributing to their growth. However, the fall to single digits in 2023 suggests a substantial slowdown in acquiring new subscribers.
In the context of subscription media, especially streaming services, this trend could be due to market saturation, increased competition, changes in consumer behavior, or other economic factors. The reduction in acquisition rates signals that these platforms can no longer rely solely on aggressive growth strategies and must pivot towards more sustainable, profitability-focused models. This includes optimizing marketing strategies, using precision analytics and AI for better targeting, and managing customer acquisition costs (CAC) more efficiently.
Customer Lifetime Value (LTV):
LTV represents the total revenue a company expects to earn from a customer over the duration of their relationship. A shrinking LTV indicates that customers are either spending less over time or staying with the service for a shorter period
Customer Acquisition Cost (CAC):
This is the cost associated with convincing a customer to buy a product/service, typically including marketing and sales expenses. A rising CAC means it’s becoming more expensive for companies to acquire new customers.
Implications of a declining LTV to CAC ratio
the LTV to CAC ratio has significantly declined. For example, a leading music subscription company saw its LTV to CAC ratio drop from 2.6 to 1.1 between 2019 and 2022, and a global video subscription company’s ratio fell from 2.1 to 0.6 in the same period. This indicates that the revenue these companies are generating from each customer is decreasing relative to the cost of acquiring them.
The decline in LTV is particularly impactful for companies transitioning to direct-to-consumer models. Traditional models like satellite subscriptions may have provided higher LTV compared to new digital streaming services. For instance, a satellite subscription service found that their digital streaming service only delivered a quarter of the LTV of their traditional offering. This suggests a significant shift in profitability and sustainability for companies adapting to the new digital landscape
Why might satellite tv have higher LTV than digital media
Longer Commitment: Satellite subscriptions often involve longer-term contracts, leading to a more extended customer relationship and higher accumulated revenue per customer.
Higher Price Points: Satellite services typically have higher subscription fees than streaming services, contributing to greater revenue per customer.
Bundled Services: Satellite providers often bundle multiple services (TV, internet, phone), which can increase the overall value derived from each customer.
Lower Churn Rates: Customers might be less inclined to frequently switch providers due to the physical installation required for satellite services, leading to lower churn rates.
Less Competition: Satellite services face less competition than streaming services, which are numerous and often compete fiercely on price and content, leading to higher customer retention.
Cost per acquisition at the last touch point
Last Touch CPA: Marketers often focus on reducing the cost of acquiring a customer at the last point of interaction before a purchase (last touch). This is typically the final advertisement that convinces the customer to subscribe.
Problem with This Approach: This strategy aims to minimize the immediate cost of acquiring new customers but does not consider the long-term value of these customers. It doesn’t distinguish between customers who stay subscribed for a long time (high-quality) and those who quickly cancel (low-quality).
Example of Misguided Strategy: A streaming service increased its investment in a particular advertising channel because it showed a low CPA at the last touch. However, this channel brought in customers who were more likely to cancel their subscriptions quickly (high churn rate). So, even though the CPA was low, the overall marketing ROI was negative because these customers did not stay subscribed long enough to cover the acquisition cost and generate profit.
In summary, focusing too much on lowering the CPA at the last touchpoint can lead to acquiring customers who do not contribute significantly to long-term profitability. It’s important to consider both the acquisition cost and the expected lifetime value of the customers.
By focusing on this “last touch,” marketers aim to find the most cost-effective way to convert potential customers into subscribers.
They analyze which types of ads (like the search engine ad) lead directly to subscriptions and try to reduce the cost of these specific ads.
This strategy, while effective in reducing immediate costs, might overlook the overall quality or long-term value of the customers acquired this way. For example, customers attracted by a deep discount might be more likely to cancel after the discounted period ends, compared to those who decided to subscribe for other reasons
