The era of “growth at all costs” is over for subscription media companies. Customer growth has slowed, acquisition costs have risen, and churn is way up. These changes impact direct-to-consumer businesses across video streaming, audio, gaming, and publishing. Traditional media companies still transitioning to these models have been especially challenged, since they’re confronting these issues while also trying to keep up with digital native companies that pioneered many of today’s subscription marketing approaches.
Shifting priorities on Wall Street have only added to the pressure. Impatient with heavy losses in new digital subscription business models, investors are increasingly rewarding profits, not just unit growth. Valuations for many media subscription businesses are down substantially, with seven of the top ten streaming media companies in the US underperforming the S&P 500 index by 41% from September 2021 to September 2023.
Media and entertainment leaders know it’s time to pivot. Instead of organizing around revenue growth at all costs, they need to optimize for profitable growth.
Some high-performing businesses have already begun this transition, and they are incorporating precision analytics and artificial intelligence (AI) into their marketing capabilities to improve unit economics. BCG found that these businesses are more successful at identifying—and retaining—high-value customers, with churn rates that are 30% lower than the average. They also excel at marketing efficiency, with nearly 50% breaking even on customer acquisition costs (CAC) within a year, versus the more typical three-to-five-year payback period.
What these companies are doing well, others can emulate, and they don’t need to bite off sweeping changes to do so. Our research and client experience show that targeted shifts can yield significant results, and gains can compound over time as companies expand their capabilities.
Current Unit Economics Are Not Sustainable
Since 2016, the number of video-on-demand services with more than 1 million subscribers globally has quadrupled, from 28 in 2016 to 120 in 2022. During most of that time, subscriber growth also soared. But that’s changed: the top ten biggest streaming platforms saw average acquisition plummet from 51% year-over-year growth in 2020 down to single digits in 2023.
To attract and retain customers in this saturated market, some media companies have leaned hard into content, significantly ratcheting up spending on production and licensing. In 2022 alone, spending on original content jumped by 45%. But this surge has driven down margins and further pressured unit economics. In response, some companies have recently begun to rein in content spending, but there can be peril in that path, too, since cutting quality programming will give customers less reason to stick around and may increase churn.
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