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The global spread of COVID-19 has had a damaging effect on many publishing businesses. However, “subscription businesses are proving to be resilient,” according to an analysis of over 700 subscription-based companies by Zuora, the publisher of The Subscription Economy Index.
Subscription growth rate has accelerated for 22.5% companies
Zuora’s new COVID-19 Subscription Impact Report has found that 22.5% of companies are seeing their subscription growth rate accelerate. Among the rest, 53.3% have not seen any significant impact to their subscriber acquisition rates and 12.8% are seeing slowing growth, but they are still growing. Only 11.4% of companies are seeing subscriber churn outpace their subscriber acquisition rates.
The analysis focuses on the earliest trends of how COVID-19 has impacted subscriber acquisition rates from March 1-31, 2020 compared to the previous 12 months (February 2019-February 2020). And goes on to look at the inherent advantages of the subscription business model and how many businesses are playing to these strengths.
Subscriptions to Digital News and Media have grown 3x
The sectors seeing acceleration in subscriptions include OTT Video Streaming, Digital News & Media, E-Learning and Communications Software.
The subscription growth rate for Digital News and Media subscriptions grew 3x. “With news changing day-by-day, there is an increase in demand for up-to-date information, resulting in sign-ups for digital news subscriptions,” explains Tien Tzuo, Founder and CEO of Zuora.
E-Learning, which is a revenue generator for some publishers, also saw 2.9x growth in subscriptions. Streaming services saw the highest spike in subscription growth at 7x.
“As the COVID-19 crisis shifts consumer behavior and market demands, companies in the “accelerating” segment have had to quickly scale their systems to meet higher demands,” writes Tzuo. Many companies are offering free trials or testing new acquisition tactics to capture a wider audience, and draw the attention of new subscribers.
“Subscription businesses are inherently more flexible”
Subscription based businesses can tinker with their offerings as the business model allows them a greater level of flexibility.
Subscription businesses are inherently more flexible than traditional product centric business models that are dependent on new, one-time sales.
Tien Tzuo, Founder and CEO, Zuora
They can focus on optimizing for long-term customer lifetime value rather than on bringing in immediate cash to create a predictable revenue stream. For example, while there has been a spike in subscriptions, many companies are also having to deal with subscribers who cannot pay on time.
In such cases, subscription businesses can prioritize retaining their customers beyond the pandemic by making adjustments to accommodate such people. This maximizes customer lifetime value by building trust and loyalty among subscribers.
Providing the option to pause subscriptions is also an effective strategy to reduce overall churn. According to Zuora’s research, companies that offer customers the flexibility to change their subscriptions see a significantly lower churn rate (<20% churn rate) compared to companies that do not offer that option (>30% churn rate).
It was also found that companies that offer customers the option to suspend and resume their subscription services have a 5% lower annual churn rate compared to peers.
“Quickly capturing the time and attention of new subscribers”
Subscription companies are also creating new product bundles, pricing plans, and promotions to attract paying subscribers. “Because subscriptions are not tied to any single product, companies have the flexibility to quickly adjust pricing plans to do right by their customers,” comments Tzuo.
Many companies have announced pricing discounts, began offering content for free, or extended free trials as soon as COVID-19 led to increased social distancing and people isolating themselves indoors.
These strategies create goodwill as well as serve as a tool to reach broader audiences in a crowded market.
By offering such trials, or creating new pricing bundles during this time, these companies are also able to take advantage of the increase in demand by broadening the funnel and quickly capturing the time and attention of new subscribers.
Tien Tzuo, Founder and CEO, Zuora
For example, Wired is offering discounted subscriptions, including one year of print and digital access for $5. Its usual print and digital subscription has an introductory rate of $10 for the first year, which renews at $49.99 per year after that.
The title made its COVID-19 coverage free to readers in March. It led to significant increases in digital traffic with unique visitors to Wired.com up by 73% in March, compared to an average month. The magazine’s COVID-19 coverage drove 66% of visitors during this month, despite comprising only about half of all stories published on the site, according to Folio.
The publisher is also seeing a boost in its subscription business. While they have not shared specifics, a spokeswoman said that a March 19 interview with epidemiologist Larry Brilliant drove the most new subscriptions from any individual article since the implementation of a paywall in February 2018. This happened despite the article being freely accessible to both subscribers and non-subscribers.
Subscription revenues consistently growing 5x faster than S&P 500 Industry benchmarks
While the COVID-19 induced spike in subscriptions growth is likely temporary, the business model itself has shown significant growth in the past few years. Subscription revenue grew by more than 350% for the past seven and a half years according to the SEI. In fact, the SEI has consistently shown subscription revenues to be growing 5x faster than S&P 500 Industry benchmarks.
“Product ownership is now seen as a thing of the past. What we’re witnessing is The End of Ownership as industry after industry sees their unit sales go down, and consumption of digital services go up,” writes Tzuo.
Successful companies today are focused on adapting to this rapid pace of change, deciding to focus on growing and monetizing a loyal customer base versus shipping more products.
Tien Tzuo, Founder and CEO, Zuora
He adds, “for existing subscription businesses, the data shows that the recurring revenue built on the loyalty of their customers will help them weather this storm. For all other companies, there is more urgency than ever before to rediscover their customers, shift to subscriptions, and discover the power of the recurring revenue model.”
The full report from Zuora can be downloaded here:
COVID-19 Subscription Impact Report
