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Does Original Content Help Streaming Services Attract More Subscribers?

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Pay TV has over $100 billion in revenue in the U.S., with a wide array of large and small firms vying for a piece of the action. As recently as 2012, over 90% of U.S. households subscribed to cable, satellite, or another pay TV service. But the market is in turmoil, despite attempts to suggest it’s business as usual, because that proportion has dropped in recent years. Now, many cord-cutters (people who have ended their pay TV subscription) and cord-nevers (those who have never subscribed) are using Streaming video services instead.

These changes aren’t particularly surprising, as they have antecedents in the early days of streaming (more on that below). Further, we expect the calculus to continue: As more content becomes available, more households will find it worthwhile to drop traditional pay TV and merely stream.

More interesting is what’s driving the changes. Users have always wanted to save money on their subscriptions, for example, so price is a factor. Delivery method and technology matter too. But perhaps most important is original content, which some industry insiders believe can and does drive streaming subscriptions. Consistent with this belief is the recent trend of streaming content providers investing more and more in original content — Netflix and Amazon very notably, and even Apple is starting to make its own shows. (Though it’s worth noting that Netflix recently claimed customers don’t care where content comes from.)

However, is there evidence to support this belief in original content’s importance? And perhaps even more compelling, was there any indication during the onset of Streaming Services that original content might drive subscriptions?

To answer these questions, Shane Greenstein of Harvard Business School and I researched the drivers of cord cutting, with a particular focus on content. Netflix and Hulu began offering streaming video services in 2007 and 2008, respectively. By the end of 2008, both had partnered with major networks to provide television content. These streaming services for network content are known as over-the-top (OTT), and serve as alternative means for accessing such content. The emergence of these alternatives altered the purchase decision for customers. With our focus on content, we asked whether OTT content offerings are important drivers of cord cutting.

To perform our analyses, we used a rich data set provided by Forrester Research. The data consisted of independent cross-sectional surveys of tens of thousands of American households on an annual basis. These surveys collect information on technological purchases and preferences, as well as a wide range of demographic information (such as income and education) and location. We focused our analysis on the last few years of the survey in our possession (2007–2009), when the aforementioned shifts in the video content market occurred in the United States. This means our analysis examined choices by early potential streaming customers. Importantly, the Forrester data contained information on what television channels the respondents who subscribed to pay TV claimed to watch regularly. Using the internet archive and press releases, we augmented this data with information on television content offered by Hulu and Netflix by the end of 2009.

Our analysis took each household in our 2009 data, and identified the set of households in the 2008 data that looked like that household on key demographic measures (location, education, household size, age of head of household, and income). We then tested whether the 2008 households’ average viewing rate for television channels that offered content on Hulu and/or Netflix predicted the likelihood of a 2009 household subscribing to pay TV. Put more simply, we examined whether a household preferring channels subsequently offered by Hulu and Netflix predicted cord-cutting. The effectiveness of our approach rests on the assumption that the viewing habits of the 2009 households are, on average, the same as the viewing habits of their matched 2008 households. If these preferences predict cord-cutting, it suggests that content replication is an important factor in the cord-cutting decision; if not, it suggests other factors are likely to be more important.

Our data indicates a significant increase in cord-cutting from 2008 to 2009, making this period particularly promising for investigating its drivers. Yet our full analysis yields no evidence that a streaming service adding content from a TV channel is a notable driver of cord-cutting behavior. In other words, if the TV shows from someone’s favorite channel became available to stream on Netflix, for example, that alone didn’t make them more likely to end their pay TV subscription. We also we found evidence that households already prone to cord-cut (young and low-income people) became even more prone to do it during these years.

Our results indicate that if a streaming service wants to attract subscribers, offering content from TV channels is not a sufficient strategy. Building on this insight, we found that offering original content can be one important way that streaming services can differentiate their offerings from competitors’. This finding both corroborates current trends around original content and shows that early streamers were already providing clues that this trend would emerge. The latter point highlights the value in learning what drives (and doesn’t drive) early movers: The firms that most quickly understood the importance of original content stood to gain the most.

Looking ahead, it is notable that the profile of cord-cutters and cord-nevers still looks similar to what it was during our study. The likely next round of cord-cutters are not wildly different than the early cutters of 2009, and the demographic trend we observed appears to be continuing. Further, given their demographic similarities to cord-cutters, it is reasonable to believe our insights for cord-cutters extend to cord-nevers as well.

Consequently, it seems unlikely that this trend toward an emphasis on, and competition along, original content is likely to end soon. Within this setting, firms will have to strike a balance between investing in original content, which can drive subscriptions, and others’ content, which may drive retention given it takes up the majority of viewing hours.



This post first appeared on 5 Basic Needs Of Virtual Workforces, please read the originial post: here

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Does Original Content Help Streaming Services Attract More Subscribers?

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