How the streaming boom benefits payment companies

March 19, 2021 11:03 AM

Subscriptions streaming services soared in popularity during 2020 as most consumers were either stuck in their homes, yet the market has changed with a greater focus on content and less on price sensitivity.

Many consumers pay for this entertainment by credit card, but the prevalence of new streaming services — and other factors such as rewards programs — are starting to influence users' payment habits. Some value rewards more than others, and price sensitivity varies by age group.

And with Netflix's recently announced crackdown on password sharing, more consumers are going to have to decide how they want to pay for their streaming entertainment.

About half (49%) of consumers in a J.D. Power TMT Insight Survey reported that they subscribed to four or more streaming services as of December 2020, up from 39% in April 2020, at the early stages of the global pandemic. This represents more than a 25% increase in the span of just eight months. Additionally, about 13% of survey respondents reported that they subscribed to seven or more services in December, up from 8% in April, a growth of over 60%.

J.D. Power reported that this increase in the number of subscriptions has caused the average monthly expenditure on streaming services to rise from $38 in April to $47 in December. Overall, the average number of streaming services subscribed in December was four, up from three in April.

New content and newly launched services were important drivers in the growth of this market. AT&T/WarnerMedia launched HBO Max in May and NBCUniversal launched Peacock in July, bringing significant content libraries to the marketplace to compete with established players.

Netflix produced or streamed 10 of the top 13 most watched programs in the J.D. Power survey including shows such as The Crown, The Queen’s Gambit, Schitt’s Creek and Grey’s Anatomy.

Overall, the most watched show in J.D. Power’s survey was the Disney+ show The Mandalorian, with 73% of respondents reporting having watched it in December.

The preferred payment method for monthly streaming services is a credit card, as reported by 70% of respondents in a LendingTree Survey of 1,546 adults conducted in February 2021. However, almost half of those who used a credit card did not earn rewards on their monthly purchase.

Parents with children under the age of 18 tend to spend the most of all demographics, with 34% who reported spending more than $50 each month compared to the overall survey of 25% spending at that level.

There were two challenges LendingTree identified in its survey that many consumers faced with rising streaming bills. First was that some consumers failed to cancel a subscription after the free or discounted trial ended and they no longer wanted the service or they had watched the show that brought them to the service.

The second challenge was that some consumers kept paying for a subscription service even though they were no longer logging in or watching its content.

Price-sensitive viewers may obtain a login from a friend rather than pay for it themselves, but streaming providers are becoming less tolerant of this practice.

Netflix experiences the most login-sharing, with half (52%) of its audience using a borrowed password, based on data from the LendingTree survey. Since it’s the largest streaming service, it’s an easy target for family and friends to share passwords.

Among those borrowing someone else’s login, 6 out of 10 said the account belongs to a family member, while about one quarter borrowed from a friend, 20% from a significant other and 5% from a former partner.

Netflix has begun to test a clampdown effort on shared passwords, according to the The New York Times. Netflix is testing a feature that could prod users who are borrowing a password from someone outside their household to buy a subscription.

Looking ahead into 2021, consumers reported that interest in content was the biggest driver in getting them to consider adding a new streaming subscription service based on a recent survey from TransUnion. The survey was fielded online among 2,538 adults ages 18 and older in November 2020.

The November survey found that 71% of consumers increased their usage of paid streaming services since May 2020, when an earlier survey had usage up by 56% since the start of the pandemic.

Among the consumers that planned to add a new streaming service in 2021, content was the top driver for consideration, followed by affordability — with the exception of the silent generation, which highlighted convenience as being the second most important reason to add a service. Only among Gen X adults did affordability and content interest almost reach parity with scores of 38% and 39%, respectively.

Traditionally, cost has been a big driver behind customer churn in the streaming subscription market, but that was when consumers had more varied entertainment options.

Data from a Deloitte Insights Survey released in January found that the price sensitivity among consumers canceling a streaming service has fallen during 2020 (where multiple reasons were allowed). The “too expensive” reason fell as a key driver from 36% of respondents in May to 31% in October 2020. Similarly, 35% reported in May that the free or discounted trial ending was a top reason for cancelling the service compared to 28% in October.

Meanwhile, replacing one paid service with another paid service rose from 17% to 25% between May and October, revealing an interest in accessing new content, since few services share the same content. Also, finishing watching a show that brought a subscriber to a paid service remained high in both May (24%) and October (23%) reflecting the fact that the other content on the service held little appeal to a subscriber.

One area that has grown during the pandemic is free access to streaming services from a variety of non-media partners. For example, Domino’s began offering free access to EPIX NOW streaming services for customers who order its food online or through its mobile app.

Netflix may be the king of media streaming services, but a number of competitors are targeting its throne with massive subscription growth during 2020. In a recent J.D. Power survey, 81% of survey respondents reported that they had paid subscriptions or access to a paid subscription to view Netflix in December, down from 85% in April. Note that this figure includes legitimate subscribers and those in their households, as well as the password-borrowers mentioned earlier.

The No. 2 player, Amazon Prime, held almost steady at 65% in December, down just one percentage point (66%) from April.

The fastest growing subscription streaming services, in both paid and borrowed logins, were Peacock, adding 18 percentage points; followed by Disney+ adding 10 percentage points; HBO Max adding nine percentage points and then Hulu growing eight percentage points between April and December 2020.

Based on year-end financial reports, Netflix grew its paid subscriptions from 167.1 million worldwide subscribers on December 31, 2019 to 203.67 million subscribers on December 31, 2020. Disney, which owns Disney+ and Hulu, showed strong growth as well. On December 28, 2019 Disney+ had 26.5 million paid subscribers and Hulu had 30.4 million paid subscribers. On January 2, 2021, Disney+ had reached 94.9 million subscribers and Hulu had 39.4 million subscribers, a growth of 68.4 million and 9 million subscribers, respectively.