Streaming upstarts seize traditional television’s crown

By Aarthi Rayapura November 3, 2016

By Alexandra Frean in The Times

Britain is turning into a digital couch potato economy, with four in five of us subscribing to at least one streaming service.

One of the biggest dramas on television this year is expected to be The Crown, a £100 million production about the young Queen Elizabeth that begins tomorrow and comes not from the producers of Downton Abbey or Poldark but Netflix.

Subscriptions are also becoming an increasingly popular way to buy goods and services.

The rapid uptake is changing behaviour dramatically, with more than 40 per cent of the 14 million adults in Britain who subscribe to Netflix and Amazon video saying that they now rarely watch “normal” broadcast television any more.

Britons spend more than a tenth of their disposable income on subscriptions each year, according to research from YouGov and Zuora, a provider of subscription billing. That works out at around £178 a month.

Among the wider population, the average spend on video streaming alone is £17.53 per month, indicating that many users are signed up to multiple services simultaneously. While this figure is growing rapidly, it is still dwarfed by the average monthly spend of £60.83 on cable or satellite, suggesting huge potential for growth.

Revenue from music, TV shows, films and video games hit an all-time high of £6.1 billion last year , according to the Entertainment Retailers Association, which expects that figure to grow by 8 per cent to $6.6 billion this year.

The market is not limited to entertainment. In America, subscription-based start-ups have raised more than $1.4 billion, according to CB Insights, a research company. They include Datebox, which delivers items for a date each month to couples.

Unilever’s $1 billion acquisition of Dollar Shave, a mail-order razor provider, in July and its estimated $1 billion purchase in September of the Honest Co, a subscription-based household goods and baby business, show that the attraction of the subscription model is not limited to start-ups. In America, adidas has launched Avenue A, a service that delivers athletics apparel chosen by celebrities once a quarter for $150 a box.

For the customer, subscription services provide convenience and value, while for businesses it offers predictable cashflows and reduced marketing costs, says Dion McKenzie, of Iron, which invests solely in subscription-based companies in Europe.

Every pound brought in by a subscription company is considered to be worth up to six times as much as one brought in by a company that gets its cash the old way, or upfront, according to estimates from Zuora.

“If you look at the marketplace, there is a feeling that a lot of consumers, particularly in the millennial generation, don’t want to own things any more, but they want access to things,” Mr McKenzie said. “It’s part of the always-on culture. In entertainment, customers want to access a huge library of content whenever they want. They don’t care if they own it or not.”

Yet while the subscription model can make it easier for companies to forecast revenues and acquire customers, freeing them up to invest more in product development, it can also put a lot of pressure on them to keep customers engaged so that they do not cancel their subscription. It also means finding a new set of metrics to measure success that moves away from simple profit and loss to annual recurring revenue. At Sage, the business software company, Steve Hare, finance director, has created new metrics to cover the changing approach to retail.

Eric Boroian, an analyst at Focus Asset Management, said that for all of its advantages, there was a danger that the subscription economy could overheat. “There are a lot of companies jumping on this bandwagon, but if they don’t differentiate their product sufficiently it won’t work,” he said. For the subscription-based model to work long-term, companies needed to constantly reinvest to develop a superior product, or risk losing subscribers.

Digital brands click for British customers
Netflix, Apple and Google are Britain’s three best-loved consumer brands, according to research that illustrates the extent to which technology companies have become embedded in people’s daily lives (Alexandra Frean writes).

Almost all of the companies in the top ten league table — the Love Index, compiled by Fjord, a design consultancy, and Accenture Interactive — are digital and most are foreign-owned.

The other companies are Samsung, Sony, Microsoft, Facebook, Amazon, Sky, eBay and Virgin.

The index identifies five traits of a popular brand: the ability to hold customers’ attention, provide clear information, identify with individual needs, to connect people and to adapt to users’ changing needs.

“We’ve found that many of the traits people seek out in their human relationships also apply to their relationships with brands,” Nan Nayak, of Fjord, said, adding that the research was designed to help companies to develop brand loyalty.

Download the report “A Nation Subscribed” here and register for our Subscribed conference in London on November 15th today!