Businesses relying on subscription revenues continue to show resilience through the pandemic. 50% are growing as fast as they were before the pandemic, and 18% have shown accelerated growth (greater than 25%), according to Zuora’s latest edition of its Subscription Impact Report.
Subscription companies continue to outperform traditional business models even through this crisis.Subscription Impact Report, Zuora
4 out of 5 subscription companies are still growing
The report looks into how the rate of subscription growth has been impacted since the declaration of the pandemic to the present (March to May 2020). It compares the net subscription growth of over 700 companies, as well as average revenue per subscriber, before and after the onset of the pandemic.
The comparative metrics used include:
- The annual subscription growth rate for February 2019-February 2020.
- The implied annual growth rate from March-May 2020 data.
The key findings are:
- 4 out of 5 subscription companies are still growing.
- 50% of all subscription companies are growing just as fast as they were before the pandemic.
- 18% are seeing subscriber growth rates accelerate. These include Digital News & Media, OTT Video Streaming and E-Learning.
Subscriptions in the Digital News and Media category grew 110% between March to May 2020 compared to the previous 12 months. It was fuelled by high demand and free trials, according to the report.
The report notes a trend back to normalcy though. The fastest growing industries are accelerating less, and the segments that have slowed down are returning to growth rates they had last year.
Further, revenue per subscriber for media companies is still growing, but slowed down since the beginning of the pandemic.
One of the great things about a subscription business model is that customers will often buy more and use more of a service over time.Subscription Impact Report, Zuora
“Average Revenue Per Subscriber increases as more features are adopted, more seats are added, and more add-ons are purchased,” the report states. “A positive growth rate for Revenue Per Subscriber points to exactly that – customers are adopting more of a service and spending more on the subscription over time.”
That the revenue per subscriber is not growing as fast points to a slowdown in upsells and expansions, the report suggests.
“Minimize churn and retain the ‘COVID-19 cohort’”
Moving forward, the challenge for publishers is to pivot from subscriber acquisition to subscriber retention.
The question on everyone’s mind: how do we minimize churn and retain the “COVID-19 cohort” that signed-up over the past 3 months?Subscription Impact Report, Zuora
They “must leverage creative pricing strategies and rich customer data to create smarter content options and more tailored packages, especially as they adopt large recurring revenue streams and rely less on advertising revenue,” according to the report author(s).
This is important for publishers because despite seeing soaring traffic and an uptick in digital subscriptions, many have been forced to lay off employees. The report indicates that “the instability was partially due to the decline and unreliability of advertising revenue”.
The industry faces the existential question of whether digital subscriptions are the “new normal” that every publisher must embrace, and whether this is the end of advertising revenue streams.Subscription Impact Report, Zuora
It recommends the following measures for media companies over the next six months:
- Shift pricing strategy from free trials to more tailored content packages.
- Create more tailored content offerings to capture longer-term customer retention.
- Use pricing, packaging, and bundling as key levers because “one-size fits all may no longer apply and companies will need the flexibility to offer different packages for different customer segments.”
“More media companies will think like e-commerce companies”
Subscriber usage and analytics will need to be ramped up as data will play a key role in helping execute the above measures successfully.
More media companies will think like e-commerce companies – what are customers consuming? What are they interested in? How can we deepen our relationship with them?Subscription Impact Report, Zuora
As recurring revenue becomes a bigger part of the revenue pie, publishers would also need to build sustainable processes for recurring billing, payments, reporting and other subscription management practices.
The report recommends publishers to invest in solutions that let customers easily pause, resume, and change subscriptions. It’s based on Zuora’s research which shows that companies that allow customers to make changes to their subscription grow faster than peers.
Additionally, companies that allow consumers to suspend their subscription have a 5% lower annual churn rate compared to peers.
“Focus on the audience first and advertising second”
One of the economic fallouts of COVID-19 is that many subscribers are unable to pay on time. The report suggests that instead of focusing on maximizing cash during this crisis, companies should aim to retain subscribers. Many of them are doing so by:
- Offering credits to be used at a later time.
- Providing discounts for a period of time.
- Adjusting payment terms so that certain services can be paid for at a later time.
The report notes that subscription companies across different industries updated pricing, launched trials, or introduced new bundles in the past few weeks to help customers adapt to COVID-19.
Subscription companies can execute such changes quickly because they have the flexibility to adjust pricing plans, promotions, and packaging to accommodate their customers.
The key is doing what it takes to build loyalty and retain subscribers.
Businesses that focus on the audience first and advertising second will be better equipped to handle the consequences of the pandemic.Curtis Huber, Senior Director of Circulation and Audience Revenue, The Seattle Times
The full report is available at Zuora:
Subscription Impact Report: May Edition