Discounted Annual Subscriptions Give Streamers a Leg Up in Crowded Space

Services roll out extended plans to lock customers in for longer

netflix, hulu, disney+, hbo max, peacock logos on a screen with little figures sitting and looking at it
Some newer services, like Peacock, are taking on the legacy streamers by offering different types of subscription options. Getty Images
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Key insight:

When NBCUniversal’s streaming service Peacock debuted nationally this month, its most-advertised price point was the tier executives thought would be most appealing to consumers during the pandemic: free.

But for users who wanted to lock in a year’s worth of Peacock Premium—which offers additional content beyond the free version—the service offered a 40% discount on an annual payment for Peacock’s ad-supported and ad-free tiers, hoping to entice consumers to commit early to a better deal than the post-launch sticker prices. The offer rewarded customers by giving them a reason to sign up early. It also locked in some customers for the long term, ensuring that the company would get at least some revenue from customers upfront while giving them a reason to stream the platform again and again. After all, they’ve already paid for it.

“There’s just no question that there’s a segment in the market that wants and values more and is willing to pay for that,” said Peacock chairman Matt Strauss. “There are a lot of people who are content carnivores. Having the option for someone who wants more and having ways for them to access that is part of our job, and we have to make sure we give them that choice.”

One-time payments and upfront deals that offer savings to customers if they can pony up subscription costs all at once are becoming more common in the streaming space, which is growing more fiercely competitive each day. Prior to its rollout last November, Disney+ offered one of the largest streaming discounts yet with a three-year early sign-up deal that worked out to less than $3 a month and helped the platform grow to 50 million subscribers in less than five months.

Discounts like these help streamers accomplish two goals: scale up fast while also battling high rates of subscriber churn by reducing the chance that a customer will back out of a service. And when customers are seeing just one annual charge instead of 12 monthly payments, it can ease the friction that comes with keeping them around.

“Shifting to annual or longer-term commitments almost always works out into a significant discount for the vendor, too,” said Guy Marion, CEO of Brightback, a company that provides customer retention software. “Not only do companies not have to expend resources to retain that customer, but now they are able to focus on improving the product with those retained customers.”

While some streamers, including Peacock, more aggressively promote their monthly prices, others such as CBS All Access market the discount that comes with an annual plan (15% less than a monthly subscription in All Access’ case). Those annual perks are getting adopted in other places in the streaming landscape.

BritBox, a British television subscription streamer from the BBC and ITV with more than a million subscribers, introduced an annual subscription plan in 2018, which has been well received by customers. The discounted annual rate helps reward customers who are watching regularly while also enabling the streamer to personalize marketing and retention strategies depending on what type of customer that viewer is.

“We know there are some customers who are on a month-to-month plan for whatever reason, and we want to give them that flexibility,” said Soumya Sriraman, BritBox’s president. “Equally, we know that there are people who would rather take the hit one time at a discount because they know that their circumstances may not be the same later in the year. And for some of them, it doesn’t bother them either way because their economic circumstances don’t require it.”

When a streamer is attracting customers of various financial circumstances, the monthly offer is still important. “We don’t want to presuppose for customers what is right for them,” Sriraman continued.

It also comes down to keeping customers happy depending on how they want to pay. “People hate being locked into long-term contracts, and they hate paying for things that they don’t need,” Marion explained.

Annual plans aren’t for everyone; services like HBO Max, Hulu and Netflix don’t offer them. And whether they meaningfully affect churn rates or customer satisfaction remains a proof point that companies are keeping close to their vests. For streamers with advertising partners, focusing on scale is more important, and pricing tiers may be more important for investors than for those marketers.

“Overall, churn isn’t that big a factor yet, especially if [services] can reach scale and ideally get to audiences who they wouldn’t get otherwise with a standard TV or digital video buy,” said Noah Mallin, chief brand strategist at IMGN Media. “There is still the sense we are in early days yet.”

This story first appeared in the July 27, 2020, issue of Adweek magazine. Click here to subscribe.

@kelseymsutton Kelsey Sutton is the streaming editor at Adweek, where she covers the business of streaming television.