Subscription Economy News - Week of 4/29/2019

Subscription Economy News - Week of 4/29/2019

Every week, we bring you the top stories and analyses from the global Subscription Economy. 

The Guardian looks to its future as it makes first operating profit in 20 years 
Excerpts from an article by Jessica Davies in Digiday

The Guardian has slam-dunked its way to financial sustainability.

The publisher has emerged battle-worn but victorious from a grueling three-year plan in which it cut costs by 20% and resisted erecting a hard paywall in favor of a donation-based membership scheme.

That plan has now born fruit. On May 1, the publisher reported April 2018 to April 2019 revenue of £223 million ($292 million) and an £800,000 ($1.47 million) operating profit — its first in two decades. In 2016, the publisher had 12,000 paying members, today it has 655,000 and counting. Of those, 360,000 are recurring paying members and 290,000 pay-for-print papers and digital memberships, according to the publisher.

In total, it has received 1 million payments, a mix of one-off donations or recurring membership payments and print sales, in the last three years. Digital revenue, comprising advertising and reader payments, now accounts for 55% of all revenue.

The Guardian has now shaken off the tunnel vision needed to reverse its former operating deficit of £80 million ($105 million), and revealed a new target. Its business strategy for the next three years is two-pronged: reach 2 million paying members and contributors by 2022, and remain vigilant on ensuring cash requirements remain in line with the expected long-term annual returns of its owner the Scott Trust Endowment fund of £25-$30 million ($33-$39 million).

The success of their membership model is evidence of reader appetite for quality and trust in media brands that stick to the principles of what they stand for. Plus, advertiser attitude toward the big digital platforms is also gradually changing in a way that should benefit publishers.

Read the full article in Digiday.

The Rise of The Industrial Subscription Economy 
Excerpts from an article by Jeff Wilkins in Forbes. 
Changes in consumption are remaking the economy. Consumers increasingly value access and usage of a product over ownership. Companies are racing to craft subscriptions to meet these needs, accessed through the internet and powered by software, data and analytics. Investors are rewarding these businesses with predictable subscription revenue with richer valuations.

Judging by the number of companies seeking to cast themselves as “____-as-a-service” providers, subscriptions are hot.

Subscriptions are likely to grow beyond the simple consumer-centric replenishment, curation and access-based models of today. Industrial applications will represent the next wave.

A big driver is margin expansion. The average gross margin for U.S. companies is 36.86%. Many industrial segments lag behind: Oilfield services and equipment are at 10.70%, automobiles and trucks sit at 11.45%, farming and agriculture are at 12.06%, engineering and construction see 12.15% and steel sits at 17.22%.

Manufacturers of industrial equipment and building products are well positioned to participate in the subscription economy. Many already sell higher margin aftermarket parts and services. For some manufacturers, it accounts for more than 50% of their revenue. Subscriptions are the next logical step.

Read the full article in Forbes. 

Remember Rollover Minutes? This Subscription Service Lets You Roll Over Flights (Or Give Them Away)
Excerpts from an article by Julie Walmsley in Forbes
A Dallas-based startup has joined the travel subscription niche. Wanderift offers three one-way flights per month for $369 or four one-way flights per month for $459, to 28 U.S. destinations on American, Delta, and United Airlines.

It’s a simple concept of connecting customers with unused product, against a broader business trend of subscriptions replacing piecemeal spending in multiple sectors. Airlines win by offloading unsold seats, travelers win by accessing flights at a predictable price point, and Wanderift wins by brokering the ticket sales for a monthly fee.

Wanderift, a portmanteau of wander (its clientele’s desire) and rift (a gap in the airline industry’s efficiency), expects to fly above its competition with transferable flights and no cancellation or suspension fees. A policy of no charges for membership cancellation or suspension is already in effect, as is the option to roll over one or two unused flights into the next month for one’s own future use, depending on membership tier. In coming weeks, the company will introduce an option to give away unused tokens – the digital currency with which one books trips on the web app or iOS app – to others.

After booking a trip using a token, flyers can still get mileage credit retroactively added to their rewards accounts with the three airlines. Those wanting an upgrade into a higher cabin class than Wanderift’s standard economy fares can purchase that upgrade upon check-in, like any other electronic ticket.

So far, Wanderift’s model is working: founder and chief executive Zach Burau reports an average month-over-month subscriber growth of 52%.

Read the full article in Forbes

Hulu gained twice as many US subscribers as Netflix
Excerpts from an article by Lauren Feiner in CNBC. 

Hulu now has a total U.S. customer base exceeding 28 million subscribers, up from the 25 million it claimed in January, the company announced in a presentation to advertisers in New York on Wednesday. Of the 28 million, 26.8 million of those subscribers pay for the service, while 1.3 million hold promotional accounts, the company said.

While Hulu’s subscriber base remains much smaller compared with Netflix’s, which claims 60.2 million domestic subscribers, its U.S. growth is now outpacing the streaming giant’s. In 2018, Hulu had 23 million paid subscribers, according to data shared at Disney’s investor day. (Disney owns a 60% stake in Hulu). That marks a roughly 3.8 million increase in paid domestic subscribers alone this year. Netflix, by comparison, reported 1.74 million net domestic paid subscriber additions in its Q1 2019 earnings report last month.

Read the full article in CNBC. 

Why everything is a subscription
Excerpts from an article by Ashley Carman in The Verge

Sphero’s founders just wanted to make robots. In 2010, Adam Wilson and Ian Bernstein asked investors for money to build a business around their clever phone-controlled robotic ball. But in some cases, investors wanted to know what more the business could offer: after they sold one robot to a customer, what came next?

The answer was one that many hardware companies have turned to: a recurring revenue model that allows them to rely on customers paying every month or year. To find that model, Sphero experimented with turning the robot into a gaming device, but later, it decided to go all in on its developer tools and make the robots into coding toys that would appeal to schools. At that point, the team pivoted to education as a main focus, and with it, came customers that could pay year after year.

“We created a new product that was very tailored to that group [of educators],” Wilson says. “But then the business model changes a little bit because once you make a 30-pack [of robots], schools have a reoccurring budget, right?”

The team had to find a way to make sure their robots represented the best way for a school to spend money year after year. It made software for iOS, Android, and Chrome OS that walked teachers and students through the process of using a Sphero product. Teachers can use the product to teach concepts like perimeter, shape, and variables. Its product complies with state teaching standards, and right now, Sphero is in 40,000 schools around the world.

Read the full article in The Verge

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