- Alexander Puri
Revenue for streaming services soar throughout 2020, but questions remain about their sustainability
Though the number of people using subscription services continues to climb as more companies turn to a subscription based model, the future of subscription-based services faces varying levels of certainty across separate industries.
According to 2019 research from the Subscription Trade Association (SUBTA), the eCommerce subscription market has grown annually by 17.33% over the last five years. SUBTA’s research also predicted that 75% of direct-to-customer businesses will offer subscription services by 2023, with global eCommerce subscriptions making up 18% of the total market share.
In total, revenues from eCommerce subscriptions saw a 100% increase throughout each year between 2011 and 2016, a study from McKinsey found. The largest retailers earned more than $2.6 billion in subscription sales in 2016, a stark increase from just $57 million in 2011.
The majority of subscribers live in an urban setting, earn between $50,000 and $100,000 annually and are between 25-44 years of age, according to the study. Among this demographic, women have purchased 60% of all subscriptions. However, the study also reported that males are more than 14% likely to purchase 3 or more subscriptions concurrently.
As for the music industry, a 2018 analysis from the Recording Industry Association of America shows that streaming revenues grew from $2.3 billion to $7.4 billion, between 2015 and 2018 with the number of paid music subscriptions jumping from 9.1 million to 43.7 million during the same period. As recently as 2019, streaming services generated nearly 80% of all revenue in the U.S music industry, according to the analysis.
Meanwhile, the number of subscribers to film and television streaming services has skyrocketed with the release of services such as Disney+, Paramount+, NBC Peacock and HBO Max, which have respectively amassed 100 million, 19.2 million, 33 million and 17.2 million subscribers, The Verge reports.
Over the past year, spending on subscription services increased even further as many Americans remained stuck at home because of the COVID-19 pandemic. According to Scalefast, a digital commerce solution, 23% of subscription services saw a rise in subscribers and less than half reported losses. And a survey from financial advice website Comparecards found that 1 in 3 Americans bought a new subscription primarily to help keep themselves and their children entertained during the COVID lockdowns as well as to reduce trips outside the house to purchase necessities.
Among those surveyed, the 5 most popular subscriptions among parents of children under 18 were streaming services (such as Hulu or Netflix) at 35%, Amazon Prime at 33%, a food delivery service (such as Instacart) at 25%, a magazine or newspaper at 19% and a virtual exercise program at 18%.
However, it is worth questioning whether these services will continue to generate such large revenue once the pandemic subsides and more people receive the COVID-19 vaccination (over 63 million Americans have already been fully vaccinated). The demand for in house entertainment that these services offer may well decline as it becomes safer to resume activities outside the home. People are also likely to be more comfortable with shopping in person when the risk is reduced.
While the subscription based-approach appears to be the path forward with major media conglomerates, it's unclear whether food delivery services can sustain their subscription model.
Services like HomeChef reported an increase in subscription reactivations and meal orders each week while Blue Apron reached profitability as the pandemic forced people to remain inside. Meal kit services had appeared in decline prior to 2020.
According to Dirt Candy Chef Amanda Cohen in a New York Times op-ed, customers with little experience cooking before they subscribed would eventually cancel as they strengthened their cooking skills and gained familiarity with the combinations of various ingredients. This, among various additional issues, raises serious concerns regarding the sustainability of the subscription model for food services.
Customers have also found the services to be too expensive once their initial coupon or promotion expires, food analyst Darren Seifer told eater.com. This has sometimes led customers to repeatedly sign up and then cancel as soon as they’ve used up the benefits of the promotion. Additionally, the McKinsey study notes that over 60% of subscribers to meal-kit services cancel within six months.
There’s another hurdle for meal subscription service: people’s preference to purchase groceries in person. According to a gallup poll, 84% of adults said that they would rather shop for groceries at a store.
While meal kit subscription services did soar for a few years, their earrings took a significant dip before 2020. According to their quarterly earnings report in November 2018, Blue Apron lost over 200,000 customers, a quarter of its total subscribers, between September 2017 and September 2018.
However, these challenges are not limited to the food industry. The McKinsey analysis reports that over one-third of all subscription customers cancel subscriptions in less than just three months and that over half cancel in six.
And while the costs of streaming services initially offered a cheaper alternative to cable, 57% of respondents to a High Speed Internet poll in March 2020 said they’ve purchased 2 or more subscriptions. 14% claimed that they’re subscribed to four or more, which could amount to more than a monthly cable subscription in many cases.
Subscribers have found a way around this potential issue, though. 43% of respondents in the High Speed Internet survey admitted to using another person’s subscription to a service if they themselves are not subscribed, even if this violates the streaming service’s rules.