Free trials work! 60% convert to paying customers

It can be a struggle to find and retain subscribers for smaller SVOD services. New data from Vimeo shows that a free trial is a critical tool in converting subscribers and apps help cement the relationship.

Vimeo has been helping content rights holders launch online video services for more than a decade. It has plumbed data from 3.6 million worldwide online subscribers to bring some insights into how to build a successful video service. Two of the five data points in the just-released The 2018 OTT Revolution report struck me as particularly useful to any online video service provider looking to boost subscribers and increase customer lifetime value.

Free trials work

Online video service providers (OVSPs) could be forgiven for hesitating to provide a free trial. There are risks that many people will signup, binge the content they want, and then bolt without paying a dime. New data from Vimeo shows it is worth taking the risk. Vimeo data shows that any online video service provider (OVSP) would foolish not to allow free trials of the service. The company found that 60% of people that sign up for a free trial from any platform end up becoming a paying customer.

The company saw the highest conversion rates through iOS devices, 69.6%, and Roku devices, 69.4%. 68.4% of those signing up through a web interface converted to paying customers. Android TV and Android conversions were slightly lower, 64.7% and 62.7%, but only slightly.

The challenge is to get people to sign up for a free trial. Vimeo says an OVSP can increase its chances of that happening by one-third if it can get them to use the service app rather than the web interface. Since downloading an app implies a bigger commitment than browsing the website, it makes sense that free signups would be higher. The trick, however, is to get people to download the app in the first place.

Apps a critical part of the ecosystem

Vimeo says that it examined subscriptions to hundreds of online video services it powers. It found that more than 73,000 people subscribed through a web browser in 2017. Of those, over three-quarters also watched through an app. 32% watched through an app on their iPhone, 20% on an Android device, 2.4% through a Roku, and 3.3% through an iPad. This data strongly supports the idea that when consumers signup for a service they expect to have access to it through all the screens they use.

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Roku transitions to an ad-driven business

Roku had a very strong finish to 2017, with strong growth in active users and revenue from its platform business. The company seems well positioned to take advantage of the expansion of the online TV market, despite a tightening streaming media player market.

Q4 2017 sees strong growth in Roku’s key strategies

One of the key strategies for Roku is to grow the base of active accounts. On that basis, 2017 was a very successful year. Active accounts increase 44% year-over-year (YoY) to 19.5 million. The amount of streaming time also increased sharply, up 54% to 4.3 billion hours. However, on a per active subscriber basis, viewing was flat over the previous quarter, though up from one year ago. In Q4 2017, the average active user streamed 2 hours and 25 minutes per day. In Q3, average users streamed 3 minutes more and in Q4 2016 16 minutes less.

Player market tightens

In the earnings call and the investor letter, Roku was clear that it does not view player sales as a key engine of revenue growth for the company. The player is a tool to help the company expand its user base:

“Our primary focus in selling players is to increase active accounts; we are not focused on maximizing hardware revenue and hardware gross profit.”

In an ultra-competitive market like streaming media players (SMPs), there is little opportunity to charge a premium price. Apple is trying with Apple TV but not seeing much success. Roku lowered the price of its premium player, the Ultra, from $129.99 to $99 in the fourth quarter. That help to boost unit sales volume by 25%, according to Roku’s CFO Steve Louden, but led to a 7% decline in player revenue versus Q4 2016.

Even though rivals are selling their SMPs at close to cost, Roku continues to make 9.5% gross margin on its player business. Last year in the same quarter gross margins were 13.3%. Expect margins to continue to tighten this year.

Platform revenue surges driven by advertising

Platform revenue continues to grow strongly. It grew 129% YoY to $85.4 million in 2017. It accounted for 45% of total revenue, up from 25% in 2016. The company expects it to overtake platform revenue in 2018. 75% of platform revenue comes from advertising and 25% from platform licensing.

Though it does not provide much revenue, license sales are an essential part of Roku’s strategy. Most importantly, the company continues to win over smart TV manufacturers and help them sell TVs. Anthony Wood, Roku Founder and CEO, says that: “1-in-5 smart TV’s sold in the US in 2017 were Roku TVs.” He later commented that half of the new active accounts came from licensed sources.

2017 was the first year that smart TV sales exceeded streaming media player sales. Roku’s strong footprint in the smart TV and SMP markets positions it well to continue to drive the expansion of active users throughout 2018 and beyond.

The success of The Roku Channel is helping drive ad revenue growth. The free ad-support channel launched late last year and is already the third most popular ad-supported channel on Roku. Mr. Woods was clear about the importance of ad revenue to Roku’s future:

“We are increasingly tapping into the $70 billion that US advertisers spend on TV as the TV ad ecosystem moves online.”

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Connected TV Advertising is Surging

It’s no secret that connected TV devices have made huge gains in the U.S., with penetration at 60% of homes or more depending on the research source. But whereas these devices were initially used mainly for streaming Netflix and other ad-free SVOD services, evidence is building that viewers are also now using these devices to watch ad-supported video, in turn driving a huge expansion of ad inventory.

For example, Roku has been saying for a while that Netflix’s share of overall Roku users’ watch time has been steadily decreasing, with ad-supported channels gaining. And today, Beachfront Media, a video supply-side platform, said that it saw a huge jump in CTV ad requests to over 2 billion in Q3 ’17. Beachfront works mainly with mid-tail and long-tail video providers like WatchMojo, Newsy and Crunchyroll.

Beachfront’s CEO and founder Frank Sinton told me in a briefing that the company has seen completion rates of 97% and viewability of 100% on CTV inventory, the 2 main performance indicators buyers focus on. Measured CPMs are also 3 times higher on CTV than on mobile video and aren’t showing any signs of softening as CTV inventory continues to be in short supply relative to demand.

While CTV combines the best of the big screen experience with the best of digital targeting, Frank said it’s not yet clear to him which budgets CTV spending is coming from, TV or digital. However, he did say that anecdotally he’s hearing more and more interest in CTV and that 2018 is shaping up to be a strong growth year.

Roku’s Share of Streaming Market Rising

As streaming becomes more popular as a way to consume TV programming, Roku is increasing the number of homes in which its devices are used, according to a new report from Parks Associates.
In the first quarter, Roku’s leading share of the streaming media player market in the U.S. grew to 37% from 30% a year ago.

The gain puts Roku further ahead of competitors including Amazon, Google and Apple.
“Roku emerged early as a U.S. market leader for streaming media players, and the company has held firmly to that position,” said Glenn Hower, senior analyst at Parks Associates. “Higher-priced devices, such as the Apple TV, have not been able to keep up with low-priced and readily available Roku devices, which can be found at Walmart for as low as $29.99.”

Amazon’s Fire TV increased it share to 24% from 16% in the quarter. Google’s Chromecast dropped to 18% and Apple TV fell to 15%, according to Parks.

“One-third of U.S. broadband households own a streaming media player,” Hower said. “The growth of the U.S. OTT market provided consumers with unprecedented ease of access to video content. These streaming media devices make for quick and easy access to the top OTT libraries.”

The Parks report, Reinventing CE: Transforming Devices to Service Platforms, looks at how the CE industry has migrated from producing and distributing hardware to distributing OTT content and leveraging advertising models.

Roku Moves From Audience Measurement To Demographic Guarantees

Two years after Roku starting working with Nielsen on audience measurement it’s become the first OTT platform to offer demographic guarantees based on Nielsen Digital Ad Ratings. “It’s a huge mile marker for our industry,” Jim Lombard, Head of Advertising Sales, says in this interview today with Beet.TV during a break at the 2017 Transformation conference of the 4A’s.

The advancement of Roku’s video ad platform capabilities helps advertisers reach audiences on its 300-plus channels that are drifting away from linear television while using detailed demographic metrics comparable to linear TV. “It allows for advertisers to transact the same way as they would with measurements in the linear space in the OTT space,” says Lombard.

Two years ago, Roku announced that it was working with Nielsen on audience measurement deals. The next logical step was audience guarantees, particularly since they are becoming more popular with linear TV buys.

“Essentially, what we’ve done is Roku registration data is matched with a third-party vendor,” Lombard explains. “The metadata is passed through in the ad call, and then Nielsen uses their measurement tool to be able to verify age and demo against that ad call.”

One of the ways Roku has differentiated itself is that its technology enables its channel partners to do targeting, measurement and interactivity. The company also has its own sales team that sells and monetizes inventory across more than 300 channels.

It’s also the only platform that has both comScore and Nielsen, according to Lombard.

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