SUBSCRIPTION ECONOMY
The Future of Subscriptions
The digital publishing sphere has undergone significant changes in recent years. Consumer behaviors, expectations, and the competitive landscape have adapted to a digitalized world, meaning the future of the sector is now intimately linked with the subscription economy.
Though publishers faced unprecedented adversity in recent times, the global events actually accelerated the growth of subscriptions, and this doesn’t appear to have been a simple quarantine trend. ‘Sticky coronavirus cohorts’, as Digiday calls them, have seen minimal rates of subscriber churn.
Far from being a transitional phase, subscriptions are set to define the digital publishing space, with The New York Times CEO predicting that at least 100 million people will pay for journalism over the next ten years.
And since publications that were ahead of the curve with digital subscriptions are already seeing substantial returns (the NYT gained 2.3 million net digital subscribers in 2020 alone), it’s clear that for digital publishers looking to future-proof their business, subscriptions must take centre stage.
But what’s next for subscriptions? And what will they look like in years to come? This article breaks down the current and projected state of the subscription economy and how it’s going to fundamentally change the digital publishing space.
How big is the subscription economy?
The subscription economy has grown over 435% in 9 years and is expected to continue on this upward trend. Digital subscriptions are already overtaking print revenue for some publishing giants, and Mather Economics anticipate digital-only subscriptions will overtake print by 2027 at the latest.
Big subscription revenue isn’t just reserved for big publishers. The proliferation of subscription solutions and software means that small and mid-size businesses (SMBs) are able to roll out a variety of subscription models, empowered by their access to powerful tech that’s designed specifically for publishers.
Major platforms such as Twitter and Facebook have recognised the potential and have launched their own subscription products in recent years. Meanwhile, newsletter platform Substack reached one million paid subscribers in November of last year. According to UBS, the subscription economy is set to grow to $1.5 trillion by 2025, double its current estimated value of $650 billion.
What is the value of subscriptions?
McKinsey predicts between $1.7 trillion to $3 trillion in opportunities across industries in subscription businesses. FTi consulting analysis projects that subscription revenue will scale up much faster than advertising revenue over the next five years.
Subscriber ARPV is already surpassing ad-based ARPV. The New York Times’ paid subscription revenue has seen seven times the revenue of a visitor that solely views ads. In addition, subscriptions are valuable because of the predictable and consistent revenue that they offer subscribers. This is particularly helpful for SMB publishers who will gain the ability to accurately ‘forecast and plan for growth’.
Subscriptions also offer publishers the opportunity to cultivate a genuine and long-term relationship with their audience. Subscribers are a rich source of first-party data that will not only help publishers improve the individual user experience through personalized content recommendations, but refine their content output moving forward to align better with their audience’s preferences.
The future of subscription: what’s in store?
Subscription-first, ad-revenue second
Moving forward, businesses not only need to incorporate digital subscriptions, but they need to follow the examples of The New York Times and the FT and proactively shift to a subscription-first approach. According to a report carried out by Oxford University and the Reuters Institute for the Study of Journalism, 50% of publishers believe that reader revenue will be their main income stream moving forward.
Ad-revenue, though it will still retain its importance, will be supplementary to subscription revenue. Only 14% of publishers are pinning their hopes on advertising alone. This lack of advertising priority is understandable considering global newspaper advertising revenue is expected to fall from $49.2bn in 2019 to $36bn in 2024!
In the future, it’s likely that ads will only be lucrative where publishers are able to partner with niche specific advertisers and offer them deep targeted understanding of their subscriber audience.
Shifting perspective on customer relationships
Rolling out a successful and future-proof subscription model relies on a shift of perspective. This means publishers should prioritise valuing customer relationships as a long-term relationship rather than a faceless one-time transaction. To maximise CLV moving forward, publishers should focus not only on customer acquisition, but subscriber retention too.
Though subscribers acquired during the pandemic have demonstrated fairly good sticking power, publishers should consider proactively and preemptively combating subscription fatigue to ensure they continue to retain those customers and remain competitive.
To do this, it’s beneficial to track metrics such as customer engagement levels and the types of content users consume. From there, digital publishers can put campaigns in place to counteract the risk of subscriber churn.
For example, Canada’s Globe and Mail identified subscribers with the highest propensity to churn by tracking these types of metrics, and then sent personalized re-engagement emails to these individuals, resulting in a churn reduction of 140 percent!
Enticing customers back with content they actually want results in a better customer experience, longer customer relationships, and ultimately, a more consistent and reliable revenue stream for publishers.
Increasing emphasis on personalization
A significant element of subscriber retention is abandoning notions of ‘one-size-fits-all’ product offerings and recognising expectations for subscription packages tailored to specific audience segments. Personalization is no longer the exception, but the expectation. Indeed, according to McKinsey, companies that strongly personalize their products already generate 40% more revenue than average players. Not surprising when you consider that 72% of consumers surveyed said they expect businesses to recognize them as individuals and to know their particular interests.
In order to meet desires for hyper-personalized product offerings, publishers should understand their audiences and leverage key first-party data insights.
Publishers are now turning towards subscription experience platforms to set up automatic customer journeys and personalized paywalls that adapt intelligently based on user information.
Automated Paywalls & Subscriptions
Two-thirds of publishers emphasize automation of both paywalls and subscriptions, indicating that AI will play an increasing role moving forward and may be pivotal in driving traffic to publishers’ sites and engagement with their content.
52% of publishers said that AI-driven initiatives would begin to form an important part of their business. Moving forward, digital publishers are likely to harness AI to personalize landing pages, content recommendations and ads to align with individual users’ profiles and preferences.
AI can be particularly helpful for real-time paywall optimization and personalization, using machine learning to discover the optimum parameters that result in the maximum chance of conversion.
For example, with enough data, machine learning can determine:
- What type of paywall to show users based on their demographics e.g. A hard paywall or soft paywall with a trial
- The best time to show a paywall to each individual based on visit frequency or number of page views etc.
- How much to charge these particular users (higher income individuals might be more likely to convert on bigger package offers)
- Whether a discount offer would entice them to convert
Catering to Gen-Z
A different approach to content
As with any new generation, we can expect changes in the ways Gen-Z interact online, and the types of content they feel most engaged with. Experts today largely agree that large social issues see some of the best engagement for Gen-Z:
“Inherently a publisher that talks to Gen Z is going to have positive things to say about climate change, and pushing innovation and progression. Brands generally are realizing that they have to get behind these larger social issues or they will quickly become irrelevant.”- Clair Bergam, Associate Media Director, Media Kitchen
But as well as the topics the content is focused around, there’s also a shift in the medium through which that content is shared. Short articles, video, and podcasts are all becoming more popular as time goes on, fuelling a need for publishers to consider new content sources if they’re to keep up with the changing preferences of online news readers.
We don’t need to look far to see the power of new content types in the digital news space. ‘In the Know’ was launched by Yahoo as a platform to produce short video content for younger audiences across Yahoo’s suite of sites. Since its launch, it became popular enough to get its standalone site in February 2020, gaining 25M monthly unique visitors by March!
Competition for attention
To appeal to Gen-Z and digital natives, digital publishers will need to develop new marketing strategies and continue to diversify their content output channels, expanding or prioritizing different mediums such as visual storytelling through social media stories, for example.
The need to adapt to Gen-Z’s favoured communication channels is clear, given that they are emphatically mobile-first and perceive email as outdated, and that 57% of Gen Zers’ first interaction with news is on social media.
With rapid digitalization and hyper-interconnectivity, loyalty has become even more fast and fickle, meaning publishers have to continue working hard to compete for attention in acquiring and retaining their subscribers.
Gen-Z’s short attention span – an average of 8 seconds – ties into a need for digital publishers to adapt their social strategies and content channels if they want to capture the scarce and scattered attention of the next generation.
In the near future it’s likely that digital publishers will rely more on video based content to keep up with the rising trends of popular social platforms. For example, platforms such as TikTok that are video-first are rapidly becoming the most popular news source for Gen-Z who are far more likely to consume news through video than text. The Washington Post recently embraced TikTok, and managed to gain 1M followers and 40M likes on the platform!
Individual-first subscriptions
Finally, as exemplified in the rise of platforms such as Patreon, Substack, and Twitch, individual-oriented subscriptions seem to be on the rise, signalling a shift in the way Gen-Z like to interact with and consume media. These platforms all allow audiences to directly support individuals and their content output, cutting out the middle-man. In particular, Substack’s success ‘underlin[es] the growing power of à la carte journalism by individual writers.’
The Athletic is yet another example: drawing on ‘specialist writers with big followings and obsessive fans willing to pay.’
But just because individual-oriented subscriptions with independent journalists have seen great success, that doesn’t mean corporate publishers will fall behind. Corporate publishers also have an opportunity to branch out into this type of offering, and attract new Gen-Z audiences by creating subscription packages that are specific to individual journalists on their teams.
How to future-proof your digital publishing business
If it’s not evident already, digital publishers who have yet to venture into subscriptions are at risk of falling to the way-side. All the evidence points to subscriptions becoming the fulcrum of digital publishing. However, soon enough, it will no longer be about simply ‘having a subscription’, but about the quality, value, access and level of personalization contained within subscription products. It behoves digital publishers to stay agile and open to rapid transformation, especially as the industry moves into uncharted territory.
For now, this means:
- Harnessing the power of AI and automation for more personalization. The subscriber journey should be hyper-personalized, propelled by automation and first-party data insights.
- Prioritizing subscriber retention. As the subscription economy grows, publishers should invest in their subscriber relationships for the long-term to maximise CLV and retention.
- Platform fluidity & diversification. Publishers should be prepared to continually innovate and diversify their content output and subscription packages to keep up with developing trends and consumer behaviours.
To get started with maximising your business’ digital subscription revenue, download our Publisher’s Revenue Playbook.
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