How Subscriptions Increase Revenue and Improve Customer Engagement
Historically, subscriptions have been a major business model in media.
Well before there was streaming media, print publications relied on subscriptions as a revenue stream alongside advertising.
Though print magazines are past their prime, subscriptions are gaining traction across a range of verticals as marketers look for ways to enhance customer engagement, and, ultimately, increase LifeTime user Value (LTV). And the growth of subscriptions will benefit streaming media.
There’s a subscription for that
The subscription economy is a shift from the traditional payment for the purchase of a product or service to instead paying for access to products/services for a set period of time.
The benefits of subscriptions as a business model for marketers include a recurring revenue stream, access over ownership, continuous value delivery, and a customer-centric focus. The migration to subscription-based business models is being driven by advancements in technology, customer needs, economic outlook, and the business advantages of this business model.
Between 2012 and 2021, the subscription economy grew by 435% and is expected to generate $1.5 trillion in 2025, according to The Subscription Economy Index. Research from subscription solution provider Bango found that the average American now spends $900 on 5.4 subscriptions annually. According to the company, since Netflix’s much-publicized password crackdown, 35% of US subscribers now pay for the service they previously accessed for free.
Subscriptions are prevalent in traditional subscription industries like content, including cable, streaming video, and digital content publications like newspapers, as well as in newer industries like vehicle rentals via Zipcar and ecommerce through the broad range of subscription boxes for meal delivery kits, wine, books, etc.
Streaming video is the most common category for subscriptions, with 75% of consumers paying for streaming services, followed by retail (62%), music (43%), gaming (22%), sports SVOD (19%), home/tech (16%), news (15%) and social media (14%). Subscription patterns are pretty consistent across age groups, except for music, gaming, and social media. Among 18-24 year-olds, music is the leading subscription category at 59% and the 2nd category among 25-34 year-olds at 57%. Both 46% of 18-24 year-olds and 25-34 year-olds subscribe to games. With social media, 27% of 25-34 year-olds and 23% of 18-24 year-olds have paid subscriptions.
Despite the strength of subscriptions in gaming, Piers Harding-Rolls, research director at Ampere Analysis and head of the games research team, believes that it’s unlikely that subscriptions will become a dominant form of monetization for games. Instead, he believes that subscriptions are more of a user acquisition channel for games. According to Ampere Analysis forecasting, subscriptions are only expected to account for 7.5% of the total games market in 2025.
Bundling: better together
Historically, consumers subscribed directly, like going to Hulu.com to sign up for Hulu. But today, more and more consumers are subscribing indirectly. According to data from Bango, of the 5.4 average subscriptions paid for by US subscribers, two are acquired indirectly through third-party channels or bundles.
Even competing services can partner to enable indirect subscriptions. Amazon Prime Video offers 35 add-on subscriptions, the most popular of which is Paramount+, accessed by 33% of Amazon Prime Video subscribers. While it might appear counterintuitive for Amazon Prime Video to offer additional video services, Amazon is interested in improving its customers’ experience to improve corporate revenue, even if it might cannibalize video viewing.
The move to indirect subscription sign-ups is being driven by consumers. According to research from Bango, 28% of US subscribers (and 41% of those under 35) believe they receive a worse deal when subscribing directly. In addition, 62% of subscribers surveyed prefer a bundle instead of buying multiple individual subscriptions. Cell phone providers (55%) are the leading source for indirect subscriptions, followed by retailers (34%), TV/Satellite/Cable providers (25%), payment/wallet companies (23%), and social media (19%).
The increasing sophistication of subscription services and consumer demand for greater control have resulted in the creation of content hubs, which enable subscribers to select their subscriptions and toggle between content services, turning them on and off as they see fit.
And the winner is…
Despite Amazon’s broad video offering, when asked, consumers said that mobile operators (50%) should own ‘super bundling’, followed by TV/cable providers (29%), payment companies (26%), broadband providers (26%), banks or credit unions (18%) and retailers (18%).
Another factor that is bound to impact subscription marketing is Artificial Intelligence (AI) technology. Will Amazon use AI technology to recommend video services based on the books and other products users purchase? OR will a cell phone provider make content recommendations based on calling times and other usage patterns?
A factor for content providers who own their content is going global. International subscriptions are an incremental revenue stream that will also enable growing the content’s brand, which spurs additional revenue sources like memorabilia and additional content sales.
Regardless of who will be the specific winner, streaming media will benefit as a key component of most subscription offerings.
Moving forward, what’s clear is that many marketers will offer subscriptions from a broad range of services – even competitors – to improve customer engagement, revenue, and LTV via subscriptions. Time will tell who the winners will be.
[Editor's note: This is a contributed article from Zoomd. Streaming Media accepts vendor bylines based solely on their value to our readers.]