The Paywalled Internet is Everywhere
The subscription economy seems to be taking over.
The subscription economy is starting to shape the internet. It is no longer a nifty fad. Subscriptions are driving new ecommerce models, digital media and even some of the old, die-hard social media platforms. Wikipedia has become the lone stand out of the once lauded free, open internet we once cherished. Now content and commerce on the open web is about as accessible as a free lunch at the Plaza.
Even the world of ecommerce is changing.
How much can you change this bastion of the traditional web? After all, it’s just retail for flogging a staple product by offering it on the cheap and delivering it in one piece! It’s not like sending a rocket to the moon. Oh wait…
Yet the evolution of technology and consumer behaviour has shifted the way businesses operate and compete. A big cause for this dramatic transformation is the growth of the subscription model—which isn’t just being embraced by startups and small shops. According to McKinsey giants like Walmart and Unilever are also cashing in, with Walmart's launch of Beauty Box and Unilever’s $1 billion acquisition of Dollar Shave Club.
Over the last decade, the subscription ecommerce market has experienced meteoric growth. According to Forbes, there’s been 890% expansion since 2014. Apparently consumers, millennials in particular, love the convenience, access, customisation and the raw, carnal pleasure of opening a package from some Deliveroo dude that you sent to yourself!
Studies have long shown us that receiving a new package and then unboxing it—even when it's a consumer ordering for themselves—triggers a dopamine rush, which creates a sense of joy and excitement. Over time, that becomes a hard habit to break. It makes taking ecstasy at the local rave look distinctly old hat!
Currently, there are 18.5 million subscription box shoppers in the U.S. and 35% of these active shoppers subscribe to three or more services, with a median number of subscriptions per active subscriber being two. Interestingly, these subscribers share many characteristics. Mostly millennial, at work all hours and in love with the screen. Sound familiar?
According to Hitwise, the average demographic of this consumer is a younger millennial with a college degree that lives in a college town or hipster hub with an income above $100,000 (£75,000). In other words any Google employee. They are also often an Amazon shopper, a regular reader of online news and more likely to buy online than in-store. Just not an Amazon employee - not at a $100,000 salary!
There are three broad types of ecommerce subscriptions:
Replenishment subscriptions (32% of subscriptions) - which allow consumers to automate the purchase of commodity items, such as razors or diapers or assault rifles (assuming they live in Texas).
Curation subscriptions (55% of subscriptions) - that attempt to surprise and delight by providing new items or highly personalised experiences in categories such as apparel, beauty, and food. Not sex…
Access subscriptions (13% of subscriptions) - pay a monthly fee to obtain lower prices or members-only perks, primarily in the apparel and food categories.
It is still early days for ecommerce subscriptions and we have yet to learn how this form of discretionary spending survives the imminent global downturn and energy price hikes. Early signs point to quite a fickle consumer and churn is a real challenge, with nearly 40% of ecommerce subscribers cancelling their subscriptions - perhaps not so much for those getting their hands on an AK-47.
But the future looks bright for the recurring revenue leaders.
And now subscription-based media is all the rage.
Subscription media has a longer history - starting with cable TV subscriptions followed by broadband tie-ins. Today it is almost impossible to read, watch or listen to anything of real value without paying for it. Web3 will likely extend this with NFT-based media taking micro-payments for one off media consumption.
Newspapers have been diving into digital once advertising revenues peaked around 2005. Since then there has been a steady decline in both ad revenues and circulation. Following an endless series of cost cutting and transformation plans the industry seems to be stabilising around paid subscriptions.
In a first, Pew Research notes newspapers in 2020, had generated more revenue from circulation than from advertising. In the future, the larger and more financially successful newspapers (New York Times, Washington Post, The Letts Journal etc.) will be more reliant on (digital) circulation for revenue rather than advertising. For smaller newspapers without a national brand, it will be more of a challenge. Indeed local papers seem to be hitting the wall faster than a Mar-a-Lago search warrant.
The New York Times is the leader in digital newspaper subscriptions. They have around 8 million subscribers, most from online news or cooking and games apps. The newspaper has a stated goal of having 10 million subscribers by 2025. The Wall Street Journal has over 3.5 million subscribers. The Letts Journal apparently has so many that they can no longer count them. Their calculators can’t keep up.
While newspaper staff numbers keep falling and print circulation declines digital media is growing. Based on publicly traded companies, in 2020, ad revenue for digital newspapers stood at 39%. Digital newspapers share of ad revenue has been steadily climbing, in 2011 it had accounted for just 17% of ad dollars. The trends are similar across the western world. Digital subscription media is here to stay.
TV and movie streaming subscription services are big business.
So much so that the UK’s major pay-TV companies Sky and Virgin Media are forecast to lose one-sixth of their combined subscriber base over the next five years as streaming becomes more popular across Western Europe. Move over Murdoch.
The region will lose 7 million pay TV subscriptions by 2027 to fall to 100 million, according to a new forecast by Digital TV Research. The numbers for streaming services seem to be going the other way.
Netflix and Disney+ both have over 220 million subscribers globally. Hulu and Peacock (who??) have around 60 million subscribers combined while HBOMax/Discovery+ have 92 million. The fast growing Paramount+ boasts 43 million subscribers while Amazon enjoys over 200 million subscribers with Prime. For once the media minnow is Apple with less than 20 million subscribers for Apple TV+. Humbling indeed.
The future will keep doubling down on digital.
Web2 and the dominant subscription economy will get tested as we head into its first major economic downturn. The effects are hard to predict, but while the upward trajectory is bound to continue, the likelihood is that short term pressures will dampen new sign ups. Ultimately the sector will probably consolidate around 2-3 leading players in each category. While this could be bad for consumers and content producers, there is an emerging category that could point to the future.
It seems that creators are taking the subscription economy into their own hands. A number of paywall based newsletter platforms have emerged for independent writers and media startups enabling them to charge subscriptions to niche audiences. Some, such as Bankless, have developed subscription audiences in the hundreds of thousands. Apparently they give crypto away!!??
Just as new platforms will drive the emerging creator economy, we can expect Web3, including crypto, NFT’s and the metaverse, to shape big media over the next decade. The drive to digital is likely to become pervasive and, if so, micro payments should finally take off. If they do, we could start paying per story/article/crap we read, or per tv programme we view. A few cents for a media snippet supported by ads could prove to be an attractive alternative to the limited number of subscriptions we might be willing to sustain.
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