“Amazon, if it was still offering books today, and that’s all, people would churn off of it,” he said. “Companies have to evolve. I think you will see a lot more companies that offer direct to consumer products, like Spotify or Netflix, offer more and more services,” he added, giving the example of Netflix getting into gaming.
LionTree founder and CEO Aryeh Bourkoff spoke at the Tribeca X conference in New York last Friday, and churn was a key theme of his talk.
I wrote about churn in yesterday’s Monday AM Briefing. I think we may be hearing more about churn lately because “Q2 earnings are likely to show elevated churn from the “pull-forward impact” and other factors like the post-pandemic economy kicking back into gear.”
Bourkoff’s point is streaming services will need better solutions for how they manage churn. Increased content spend and larger libraries for streaming services, alone, are insufficient:
“It does frustrate classic industries to play defense,” Bourkoff said. “In order to play offense in a direct-to-consumer digitized environment … you have to regain financial flexibility to get back on your front foot, reorient your capital structure.”
In other words, even Netflix can spend more than $17B and it still will lose 2.5% of subscribers per quarter (or an average of 2.5% of subscribers per month). Recent Netflix initiatives in gaming and shopping reflect the need to reduce churn.
However, Bourkoff’s connection between capital structure and churn misses an important point: streaming services still need to produce “consistently good” content to manage churn.
Meaning, a renewed supply of content still needs to be perceived by audiences to be “good”, and in turn, a consistent cadence of supply should help to minimize churn.
The problem, as Bourkoff noted, is that many services do not have the financial flexibility to reorient their capital structure to deliver “consistently good” content. In other words, even if they could increase content spend well past their current budgets, and deliver a higher cadence of content releases on streaming, it still may not be enough to solve for churn.
Netflix’s and Disney’s models are particularly helpful in explaining this problem.
“It was easy to be great. Every entertainer has a night when everything is clicking. These nights are accidental and statistical: Like lucky cards in poker, you can count on them occurring over time. What was hard was to be good, consistently good, night after ...