The subscription model sprinted to popularity during the pandemic as consumers gravitated toward convenience and predictability, while companies offering subscription services benefitted from the stability of recurring revenue. Nearly three-quarters of direct-toconsumer businesses now offer some kind of subscription service, while the average US consumer pays for twelve monthly subscriptions.

But the rapid adoption of the model has led to consumers experiencing subscription fatigue—the feeling of inundation from the number of subscriptions consumers must manage. Burdened with ever-growing costs and options, consumers are beginning to act— and they’re starting with streaming. The looming challenges facing subscription-based media, if not mitigated, will likely impede profitability. And that may happen sooner than you think.

Subscription Fatigue and Increased Churn in Streaming

The dominance of streaming services is indisputable, with 99 percent of US households subscribing to at least one paid streaming service. Their meteoric growth has begun to plateau, however. Among major streaming platforms, net additions have nearly halved since 2021, and subscription growth has stalled.

US Subscription Growth and Net Additions (2020–2023)

Unsurprisingly, subscription fatigue has grown over the same period. Over 60 percent of streaming consumers now report subscription fatigue. As a result, one-third of streaming subscribers in 2023 canceled at least one subscription video service, up from one-quarter in 2020.

Active consumers also have become “smarter” in their exercise of subscriptions. Nearly half claim to sign up to watch something specific before canceling or pausing their membership. Over the past two years, streaming platforms have seen 23 percent of new subscribers cancel or pause their membership three or more times. For new subscribers in 2019, only 3 percent did so.

Subscription fatigue, coupled with consumers’ savviness, played a major role in churn tripling among subscribers over the past four years.7 As a result, many media companies have turned to a quick-fix solution to protect their profitability: raising prices.

Increasing Price Is a Band-Aid, Not a Tourniquet

Consumers’ inboxes have become littered with warnings of upcoming price increases in recent years—a wave so notable it’s been dubbed “streamflation.”8 In 2023, price increases for major streaming platforms were nearly 25 percent on average,9 and prices have continued to increase in 2024.

But subscription-based media might be underestimating its customers’ price sensitivity. After all, close to 90 percent of consumers across the board say their incomes have not increased fast enough to compensate for price increases.  That’s true of streaming subscribers as well: over half of active users either have reduced or anticipate reducing spending on streaming due to rising prices.

Ad-Free Standard Plan Prices for New Customers (2021–2023)

Major streaming platforms offered lower-cost ad-supported plans as another pricing strategy, aiming to retain consumers and upsell them in the future. But the upselling is eclipsed by trade downs. Of consumers keen to cut back, more than 40 percent downgraded to an ad-supported plan, while an additional 15 percent plan to do so.

The growth of ad-supported subscriptions has therefore been outpacing that of ad-free services. The success of this tier is dependent on ad dollars—and platforms are betting on marketers shifting their spend from traditional TV to streaming. Yet while traditional TV advertising is projected to decline, it is still expected to continue holding the majority share of upfront ad revenue, in some part due to the lower tolerance streamers have for ads than traditional TV viewers.

In the near term, ad revenue for streaming platforms is not expected to grow at a rate high enough to cover the value lost by tier downgrades. In fact, ad revenue for most major streaming services is projected to grow in the single digits over the next two years. To be value accretive, the ad-supported plan would have to either convert would-be cancellations to ad-supported customers (i.e., reduce churn) or drive incremental user growth.

The illustrative sensitivity table below represents the conditions major streaming platforms would have to sustain to break even on ad-supported plans. Percentages show the highest rate at which streamers can switch from ad-free to ad-supported plans without incurring revenue loss, based on conversion and user growth.

Breakeven Analysis – Percentage of Users Trading Down from Ad-free to Ad-supported Plans

If streaming services do not take steps to drive incremental user growth or reduce churn, they should consider a review of the ad- supported plan amid the ongoing pursuit to get their pricing strategy and suite of offerings “right.”

Sleeping Dogs No Longer a Crutch

While some consumers have taken control of their streaming experiences, most subscription-based media companies remain propped up by the revenue derived from inactive users. These “sleeping dogs” signed up for a platform or bundle and continue to pay through automatic renewal without engaging in active viewership.

Generally speaking, over 85 percent of subscribers indicate they have at least one paid subscription unused in the past month, and the average US consumer has 3.3 subscriptions they are not using each month. Close to 40 percent of users cite automatic renewal, and over 35 percent cite difficult cancellation policies as a primary reason why they remain subscribed.

In 2020, Netflix began rooting out sleeping dogs by closing accounts that had been inactive for over two years. However, the majority of subscription-based media companies have not done so—and new legislation may soon put this revenue at risk.

In the past several years, over half of states have adopted automatic renewal laws requiring renewal notices to users, which are expected to increase cancellations among the inactive user base. Actions are being taken at a federal level as well. In October 2024, the Federal Trade Commission announced a “click-to-cancel” rule, which aims to make it easier for consumers to end recurring subscriptions and memberships. Subscription services will have 180 days before most of the provisions go into effect, but planning should not stop there. The most recent legislation and future provisions could lead to an exodus of sleeping dogs hitting the top line, in addition to the growing challenges presented by active user bases. As a result, optimizing revenue streams is more important today than yesterday.

What Subscription Services Can Do to Get Ahead

Using proper tools and laying the groundwork for a sustainable go-forward strategy can provide a competitive advantage. BRG’s Corporate Finance team proposes five key tools and measures that subscription services should consider implementing to get ahead:

Read on for detail on how a rigorous and data-informed approach can set subscription-based companies on the path to success.

Strategy Workshopping

  • Analyzing lifetime value and customer centricity to inform subscription strategies will help ensure companies offer a differentiated service at appealing price points.
  • Effectively managing customer acquisition costs will drive these strategies forward.
  • Calibrating pricing strategy, including intentional price setting for premium versus standard offerings, helps optimizing profitability.
  • Adopting a value-based lens to advertising ensures a mutually beneficial relationship with brands.

Integrated P&L Model to Understand Profitability Implications

 

  • In tandem with the subscriber model, streaming platforms must assess the impact that various scenarios would have on profitability.
  • An integrated profit-and-loss (P&L) model provides prompt insights on the feasibility of proposed initiatives.

Cost Takeout

  • As subscription services continue to face financial headwinds, redirecting attention to cost efficiencies can be a key lever to improving profitability.
  • Actionable measures for cost takeout include content reviews and a critical analysis of indirect costs.

Subscriber Models for Scenario Testing

 

  • Subscription-based media companies require dynamic subscriber models that allow for multifactor scenario testing, including the employment of promotions and bundling.
  • Cohort analysis offers a detailed look at tranches of subscribers and can provide greater insight on attrition/retention and the results of historical initiatives, such as stricter account-sharing policies

KPI Reporting

  • The creation of a single dashboard for real-time feedback on subscriber tenure, depth (hours watched per month), diversity (series/genres watched), frequency (sessions/active days), and churn could aid leadership in game-time decisions.
  • Companies must know how to distill the deluge of data now being tracked into digestible insights.