Does the subscription industry have a problem?

Does the subscription industry have a problem?
As more businesses adopt the subscription business model, it looks like the industry is in great shape. However, scratch the surface and it appears there may be an underlying problem which is affecting the sustainability of the subscription industry. What’s wrong, you ask? Shashank Venkat has the answers

Recently, I was watching a Brazilian Netflix show titled 3%. The series revolves around a dystopian plot where every year eligible candidates are given a chance to go to the better side of a world, which is divided between progress and poverty. The problem – only 3% of the candidates succeed every time! The latest reports suggest that the subscription industry is facing a similar problem.

The problem no one is talking about

According to a recent article on TechCrunch, the entire subscription industry is a 1% economy – meaning only a small subset of users are willing to subscribe to online services and drive the industry forward. The other 99% refuse to pay for online content and services and are willing to go to great lengths (downloading pirated content, streaming content on untrusted websites, setting up proxies) to get free content instead. As a result, industry conversion rates on a whole are extremely low.

For subscription-based businesses, low conversion rates translate to higher Customer Acquisition Cost (CAC), which in turn drives the subscription prices higher. This also keeps away those users who would have been perhaps willing to subscribe to affordable subscription plans. The companies then end up spending more money on sales and marketing to acquire newer customers, and this cycle goes on and on. Consequently, a $1 monthly subscription which could have been used by 20% of subscribers, becomes $20 for 1% of subscribers. That’s the sad reality for many subscription businesses today.

Of course, this doesn’t stand true for marquee subscription brands like Netflix, Amazon Prime or Spotify. These subscription-based services have shown that a compelling value proposition can indeed convert many free users and triallists into paying subscribers. However, these are more the exception rather than the rule. While it is easier said than done, new subscription companies can replicate some of the strategies and subscription billing tactics used by these businesses to gain more subscribers.

Subscribers, where art thou?

However, none of these strategies will work if customers are just not willing to subscribe to services. The TechCrunch article reveals the extreme lengths that some users are willing to go to for accessing gated content. Honestly, it is quite surprising to see this kind of user behaviour continuing. Anybody who has watched a show on Netflix will appreciate the immersive viewing experience which is the result of an ad-free platform. At a time when information overload is becoming a real problem, shelling out a few dollars for an ad-free experience should be a no-brainer. In addition, watching content on an ad-supported platform also opens the door for privacy-invasion features which can often lead to uninvited ads cropping up across your browsing timeline.

The root of the problem seems to be in the evolution of the internet, where users are quite used to consuming content for free. So, when a company such as Bloomberg suddenly introduces paywall controls, a user is simply not able to ascribe value to the content that they were used to accessing for free. Other online platforms such as YouTube have also perpetuated the free content mindset. Experiences like these have made users forget the fact that creating quality content and building high-performance software is indeed difficult, and creators are entitled to their due.

What should subscribers do?

Let’s face it – subscriptions have become an important aspect of the consumer buying experience. With a host of new subscription services from automobiles to video games entering the space, it is quite likely that we will be subscribing to services a lot more in the future. In such a scenario, it is important to stay away from impulse subscriptions and budget for it. Choose your favourite content providers and services and loosen your purse strings to subscribe to those services that align with your taste. Recurring billing makes revenues predictable and gives more content providers a chance to be sustainable. This, in turn, drives down the prices for the next generation of subscribers.

Subscriptions give us choice, flexibility and quality - let’s make sure the industry is given the full opportunity to develop and prosper.

Also read: Top Five Subscription Business Trends for 2018