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Streaming Cancellations Are Coming. Will They Impact Disney and Netflix?

Even the biggest streaming services aren’t immune to consumer churn.

It’s a streaming world these days, as more than 1 billion people around the world became a subscriber to at least one service last year. But as the major players such as Disney+ ( (DIS) - Get Walt Disney Company Report) and Netflix ( (NFLX) - Get Netflix, Inc. Report) try to continue to grow, and smaller services such as Comcast's Peacock (CMCSA) hope to level up, they are all increasingly having to confront their mortal foe: churn rate. Also known as the attrition rate, this is the rate at which a customer cancels their account. 

The global consulting firm Deloitte predicts that next year will see 150 million people cancel a paid streaming subscription in 2022, according to The Hollywood Reporter. Deloitte is predicting a global churn rate of 30%, with a U.S. churn of 38%.

Streaming Churn Goes Both Ways

While no business, in any field whatsoever, loves the idea of losing a paying customer, streaming services can take comfort in knowing that customer preferences are generally fluid. The streaming industry isn’t, overall, losing customers as a whole to, say, books or going outside (Heaven forbid), but they are watching viewers jump around from service to service. 

Deloitte’s research suggests that about 25% of consumers, particularly young ones, engage in the practice known as “churn and return,” in which consumers sign up for a subscription with a streamer in order to check out a highly buzzed-about title, such as Hulu’s “Only Murders in The Building” or Disney+’s "The Beatles: Get Back," only to quit once they’re done watching the latest season. But that same viewers could potentially return when, say, a new season of "The Mandalorian" premieres. 

Disney and Netflix Have Low Churn

While it would seem that customer loyalty is become a bit of an antiquated notion, particularly to younger viewers, that's not entirely true when it comes to Disney and Netflix. Both companies keep their actual churn rates close to the vest, but Netflix CFO Spence Neumann commented on the subject during the company's third-quarter earnings call.

"So throughout the quarter, the business remained healthy as it had been throughout the year with churn at low levels, down prior to the comparable periods, both in 2020 and two years ago, pre-COVID in 2019. So retention was very healthy," he said.

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Disney and Netflix have lower churn rates than the rest of the industry, according to Variety.

"The monthly active churn rate for Disney Plus at year-end 2020 was reported to be only 4.3% compared to Apple TV Plus (15.6%), Peacock (9.5%), and HBO Max (6.7%). Only Netflix at 2.5% beats Disney Plus," wrote Variety's Gene Del Vecchio citing data from Antenna.

Churn has historically had a greater impact on smaller services, as while there are some households that will have a subscription to, say, Showtime Anytime, regardless of what it was offering, more viewers are taking an a la carte approach. Churning is as much about adding new services while getting rid of old ones, so it’s always possible that whenever Disney+ loses a customer, HBO Max will entice them to sign up with a new limited series, thus ensuring that the streaming wars for consumer eyeballs won’t be cooling down anytime soon. 

It's possible that Disney and Netflix will see churn increase as more competition ramps up. Their content budgets and stream of name-brand shows and films suggest that won't happen, but lesser players are likely to experience a rockier road.

Disney Stock is currently slightly down, with  0.80% drop, while Netflix is also down 1.73%.