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Do the seasons affect SVOD as much as traditional television?

Netflix US sub gains 2010-2015

The seasonality of the television business is well known. In winter, people stay home and watch TV, and in the summer they head out doors forgetting about television in the process. The whole industry has adapted to this, focusing new show releases in the fall and spring seasons.  Does SVOD play by the same rules?

For decades the television industry has accepted the summer slump in viewing as a fact of life. The industry has even adapted to it by saving the new releases for the onset of fall, in September and October, and the dead of winter, January and February. Of later, however, channels like TNT and CBS have been releasing marquee productions like Extant and The Last Ship for the traditionally slow summer months. Have these summer releases made any difference to summer viewing numbers? In short, not at all.

US live TV viewing by quarter 2010-2014According to Nielsen numbers, live TV viewing peeks in that chilly first quarter, tanks in the second quarter, stays low in the third, and then picks up again in fourth quarter. This has been the rhythm of television watching, certainly for the last 5 years, and I suspect for decades previously. Those summer releases have made no appreciable difference in Q2 and Q3 viewing. In fact, the second and third quarter 2014 viewing numbers were the lowest of any over the last 5 years.

Comcast pay TV sub gains 2010-2015Pay TV has also learned to live with the summer pinch. Looking at Comcast pay TV subscriber numbers between 2010 and 2015, losses were the smallest in the fourth and first quarters, got much worse in the second quarter, and recovered slightly in the third quarter.

DirecTV monthly churn 2010-2015Satellite TV is not spared this annual cycle either. DirecTV average monthly churn is lowest in the fourth and first quarter, increases in the second quarter, and reaches its peak in the third.

One reason I’ve heard for pay TV’s seasonality is that college students quit the service when they head home for summer. Another related reason is that pay TV, and television in general, is still not very portable. A subscriber just can’t take it with them when they head off for vacation. If that is true, could services like Netflix be immune to the summer slump? SVOD services are very portable, and Netflix is available anywhere there is a network connection.

Looking at Netflix quarter-over-quarter subscriber gains reveals the same seasonal pattern as traditional TV. Subscriber additions peak in the fourth and first quarter, plummet in the second, and stage a small recovery while remaining low in the third.

What is shocking about the Netflix numbers, however, is how extreme the difference is between summer and winter. For example, in Q2 2014 Netflix gained just over half a million subscribers. In Q1 2015 the company gained 2.3 million subs. That’s a 1.8M difference, or approximately 5% of the US subscriber base. Looking at the difference between Comcast’s annual peak and low subscriber loss numbers we see a difference of less than 200,000, or approximately 1% of the total subscriber base.

This suggests that Netflix churn in Q2 could be much higher than is typically experienced by pay TV operators. Why might this be? Simply put, Netflix is very easy to cancel. A subscriber must call the cable company, and then return all the equipment (and standing in line at the Comcast store is no fun at all.) Cancelling Netflix requires just a couple of clicks on a connected device.

These factors could also explain why Netflix stopped providing churn numbers in their quarterly reports back in 2010. That said, I remain skeptical that churn is a valid measure of an SVOD provider’s performance. I still believe that subscriber retention time is a much better measure.

However, one thing is very clear from the Netflix data. Its business is as seasonal as the traditional television business has ever been.

Why it matters

The television is very seasonal, peaking in the winter and slumping in the summer.

Some of the reasons given for the summer TV slump don’t seem to apply to SVOD services.

However, Netflix data shows that SVOD services are subject to the same seasonality as traditional television.

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