SVoD Cutting, the Hidden Crisis of OTT

Cord-cutting” is a term used to refer to the cancellation of service that users have contracted with cable television companies. This phenomenon is widely talked about, as it saves a monthly item in consumers’ budgets and mainly affects telecommunications companies in the United States, as it is a direct consequence of the appearance of cloud video services, such as Holu, Amazon, Youtube Red and Netflix.  According to a consolidated report by Leichtman Research Group, the figure represents an accumulated loss of 9% of homes in the United States since 2010, a percentage that includes the “Cord Nevers“, that is, young users who are not interested in contracting this service when setting up their new home. While in 2010, 88% of U.S. households had a paid TV subscription, at the end of fiscal year 2017, 79% were subscribed to this service.


While it is indisputable that closed TV operators have seen their market possibly reach maturity, OTT platforms, especially those that are paid and on demand, are also exposed to many threats to the stability of their business, ranging from the breakdown of network neutrality, poor infrastructure and lack of relationship with their users to a threat not well known by the public, which has been one of the biggest historical headaches of the OTT: SVoD CUTTING.

You may be interested in the article: Is Network Neutrality at Risk?

What is SVoD CUTTING and How Does it Affect OTT Platforms?

The term SVoD refers to: “Subscription Video on Demand “, i.e. using OTT platforms. Therefore, SVoD CUTTING is a reference that I propose to define the phenomenon whereby Over the Top platforms that offer video on demand services face the loss of subscribers.

Although to an unsuspecting reader, it seems absurd to think that a service that has emerged in such a short time and that has proven to be sufficiently attractive to users, can present instability in the loyalty of its customers and report some kind of decline, the phenomenon exists, is totally verifiable and is produced by various factors.

An analysis carried out by the Spanish Antonio Rentero in 2016, based on the official figures of the OTT SVoD platforms in the United States, found that only 40% of users are totally loyal to the services of Amazon and Holu and 70% of users are loyal to Netflix. This means that more than half of the users of the first two are not guaranteed to remain with the service and 30% are not guaranteed to remain with Netflix either. Along the same lines, Alberto Martín, also a Spanish, analyzed very lucidly in the Hipertextual Blog the causes of this high level of permanence instability and possible desertion among users.

One of the biggest known risk factors are credit cards, which, if lost or stolen from users, or if they fall behind in their payments or the plastic simply expires, it is impossible for the VOD service provider to process the payment and therefore the user is required to renew the information, a process where there is a very high level of desertion, which could be estimated, according to official figures presented by American Express in a sector study in 2013 in the United States, in more than 27% of users who do not update this information.

A second, no less important factor, is the increase in prices or rates for services, since it is estimated that, with each increase in Netflix’s rates, according to estimates presented in a WatchTv study, between 1% and 5% of users are lost, depending on the percentage of the increase and the country where it occurs.

There is another phenomenon that could be catalogued as much more threatening and that I will call: “The SVoD’s deliberative anguish“. Unlike what happens with television on a video-on-demand (VoD) platform, whether it is Holu, Netflix, Amazon, Youtube or any other, the user must make the decision about the content he or she will consume. Even though this seems to be a positive thing and has been promoted by these platforms, the decision-making process necessarily causes an additional cognitive and emotional burden for the user, something that has been widely studied from psychology, but which in the telecommunications environment is still an invisible issue.

When a new SVoD user accesses the service for the first few times, he or she has the perception that the content is infinite or unlimited and that he or she could spend his or her whole life consuming it, something that flows naturally in this first scenario. However, as time goes by, the same user begins to experience a cyclical rotation through the available titles and although he or she may have consumed a very small part of the library, he or she perceives that he or she has already seen all the content.

Netflix is one of the SVoD companies that studies its audiences the most and that is most concerned with continuously redesigning its models, which is why, when it became clear about the risk of the high rate of loss of subscribers, it implemented a rigorous “Personalization” of the interface, the access and consumption environment for users, that is, a personalized offer of titles for each user of the platform. Although this has served to differentiate it from its competitors, it was clearly not enough.

You may be interested in this article: The Frenetic War of Contents

Subsequently, and in view of the effect that I have called SVoD CUTTING, Netflix decided to rethink its strategy and turning its gaze towards the traditional audiovisual industry, it resorted to an old tactic: to concentrate efforts on the creation of its own high quality audiovisual productions, under the premise of achieving greater fidelity if users access exclusive content.

Netflix, which has shown to have a great ability to reinvent itself unlike the subscription television industry, continued in the same line of the previous one of behaving in a much more televised way and decided to take a chance by concentrating its efforts in the production of fiction series with a very televised packaging, that is to say, less cinema and more audiovisual serial format, with the expectation of correcting the phenomenon I called “the SVoD’s deliberative anguish“, since if a user gets hooked on a series for several hours, days or weeks, depending on the time invested, he or she will not have to worry about making decisions regarding the content to be consumed, since when faced with the Netflix home screen, he or she will seek to continue the story he or she started. As it has been exposed in several sector events, the strategy was much more efficient than expected and Netflix discovered that the route to guarantee loyalty was to increase the television consumption models on its platform and the next step was to launch exclusive series with a weekly premiere of a chapter, in the same way that television does, guaranteeing this way that users used to extreme marathons, that is to say that they consume a series in the same day, have a reason to return to the platform every week.

All these strategies of Netflix explain why it reports much higher fidelity indicators than all its competitors.

You may be interested in the article: Do you want Netflix to look like TV?

The market and the industry in context

The Cord-Cutting figures or accumulated subscriber loss of 9% in subscription television in the United States, is an alarm lit by the telecommunications sector regarding the changes that are occurring in the consumption habits of users, thanks to them, governments in many countries have managed to deregulate them, to lower their tax burdens, to make concessionary regimes more flexible and even the TRUMP government and the FCC have decided to break network neutrality. It is a crisis that, although it does not exceed two percentage figures in the United States, has been very well exploited by the subscription television union at a global level, which has focused all its efforts on making an intense government and media lobby in search of benefits and protection policies, in contrast to the OTT model, which has opted for the reinvention and permanent flexibility of its model.

While the downward curve of cable television penetration in the U.S. remains a concern and it is important to protect a sector that generates large contributions to the economy and many direct and indirect jobs globally, many independent and academic studies, as well as industry figures and evidence, show that television remains the most consumed media worldwide.  A report published this week by Mike Snider in USA Today based on a survey presented at the VidCon video show in Anaheim, California, where it is evident that: “While cord-cutting is a growing phenomenon, traditional live pay television is still by far the most watched media in the United States”.

You may be interested in the article: “Cord-cutting from prosperity to uncertainty”

If we take into account that the phenomenon of subscriber defection is not only from subscription television, but also from DVoD platforms, we are clearly not facing a market asymmetry where one of the agents will end up destroying the others, as AT&T, TWC and Comcast want to make it seem, but rather a redistributive expansion of the market, with new models and platforms, in front of a new ecosystem of screens and systems, In which television is far from disappearing, but rather it is consolidating as the most robust model, a reference of adaptation for the other models and where finally all platforms will coexist harmoniously and therefore, it is not the end of television as MOVISTAR wrongly states, but rather the multi-screen and multi-platform expansion of an increasingly strong television and an audiovisual industry that is at its best.