How do top streaming services lower churn rates using AI and data?

Why are your customer acquisition costs killing your subscription business?

Shift from “growth at all costs” to profitable precision marketing. Learn how Boston Consulting Group advises media companies to use incrementality testing and dynamic AI assets to identify high-value subscribers. Stop guessing which ads work—read on to discover the four strategies best-in-class media companies use to predict churn and automate personalization.

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While subscription media companies have embraced a “growth at all costs” mindset in the past, those that want to survive amid heavy losses today must take a different approach. Fortunately, subscription media companies can benefit from the precision marketing approaches leveraged by digital natives and best-in-class companies with the right strategy, rigor and focus. Boston Consulting Group research reveals common mistakes subscription media companies are making, while providing insight into how to emulate the successes of those leading the pack.

Take-Aways

• Subscription media companies are struggling to keep up with the rapid pace of change in their industry.
• “Best-in-class” media companies have four things in common.
• Build a “best-in-class precision marketing engine” to drive success.

Summary

Subscription media companies are struggling to keep up with the rapid pace of change in their industry.

Leaders in media and entertainment must optimize to drive profitable growth, harnessing the potential of artificial intelligence (AI) and precision analytics to drive value. For the 10 biggest streaming platforms, average acquisition dipped from a year-over-year growth of 51% in 2020 to single-digit rates in 2023. Research from Boston Consulting Group reveals that the highest performing subscription media companies had the following in common: They successfully identify and retain high-value customers, with 30% lower churn rates than others, and roughly half break even on their customer acquisition costs (CAC) within a year, as they excel when it comes to marketing efficiency.

“Media and entertainment leaders know it’s time to pivot. Instead of organizing around revenue growth at all costs, media and entertainment leaders must optimize for profitable growth.”

After interviewing over 100 senior leaders in publishing, gaming, video, and audio, Boston Consulting Group discovered several common challenges. Just under a third of leaders reported struggles with performing incrementality testing, which made it difficult to discern which parts of their media spend were having an impact. Many failed to distinguish between higher and lower-value consumers, resulting in high churn rates. Companies also frequently struggled with targeted messaging and creative execution, with 91% of leaders reporting that their organizations weren’t generating creative assets dynamically. The vast majority (70%) of executives admitted that they hadn’t taken measures to streamline their “buy flow” process, which means many lose customers at conversion opportunities. Finally, about three-quarters of executives said they lacked the capacity to properly predict churn. By contrast, successful media companies were those that had a “better mastery of data and more widespread use of precision marketing and AI.”

“Best-in-class” media companies have four things in common.

Emulate successful media companies by doing the following:

1. Identify higher-value customers — Best-in-class marketers tend to use “margin-based marketing” tactics, using incrementality testing to distinguish higher-value customers from lower-value customers and focusing investments on audiences with a lower churn rate.
2. Use AI to deliver content marketing at scale — Over 80% of the most successful marketers take advantage of automation and AI’s potential to create dynamic or customized assets. For example, one of the biggest video streaming services auto-generates trailer cuts to customize content to align with different audience interests on Facebook and YouTube.
3. Personalize sign-up — Best-in-class companies are 50% more likely to attract new users with hyper-personalized or automated one-to-one messaging.
4. Adopt LTV-based churn management — Detect consumer disaffection and prevent churn by identifying key signals that indicate you might lose a customer, then triaging churn risk.

Build a “best-in-class precision marketing engine” to drive success.

Stand out from your competition by doing the following:

• Deepen your understanding of how you use customer intelligence — Analyze your marketing efforts and customer data insights. Meet with your head of marketing to better understand factors including how they measure return on investment (ROI) and whether they’re taking advantage of tactics such as incrementality testing and holdout testing, identifying areas for improvement.
• “Move fast, run tests, refine continuously” — Identify one or two high-impact use cases, tasking cross-functional teams with deploying a “test-and-learn” agenda, using real-time data insights to drive margin-based returns. Take a “sprint-to value” approach, working rapidly to drive increasingly large performance improvements.
• Drive long-term change — Use the insights you’ve generated from rapid experimentation to manage long-term initiatives and short-term initiatives simultaneously and in parallel. Work toward strengthening your data infrastructure, acquiring bedrock applications, and integrating precision marketing processes slowly over time to create long-term change and usher in a new, more integrated way of working.

About the Authors

Derek Rodenhausen, Giorgo Paizanis, Doug Shapiro, and Yazan Aljarrah are professionals with the Boston Consulting Group.