A new study by Juniper Research found that the global number of digital video subscriptions will grow by 14% over the next five years, rising from 3.1 billion in 2024. This slow growth can be attributed to subscription fatigue in developed markets. The research identified the opportunity in emerging markets as being key to sustaining growth, but that this would require investment in localized content and telecom partnerships to be in place to be effective.
Developed markets are saturated with digital video subscriptions, with most households paying for at least one. However, households are experiencing subscription fatigue and are unwilling to increase their streaming budget to add new services, forcing video streaming services to compete for market share by displacing existing subscriptions. The research found that subscription bundling is an effective option for relieving consumer subscription fatigue while maintaining revenue. For example, Spotify and Hulu offer a discounted bundle, appealing to price-sensitive consumers whilst expanding their audience.
Due to the expansion of high-speed and low-cost Internet, emerging markets represent a significant growth opportunity for video streaming platforms. This is being complemented by the increasing affordability of smartphones and the development of cheap, mobile-only video streaming subscriptions; lowering the financial barrier to entry for consumers in these regions.
Subscriptions automate the delivery or access to services, reducing the cognitive load on consumers. Services that replenish essential goods at regular intervals, like contact lenses or pet food, ensure consumers never run out of what they need. Programs like Amazon's “Subscribe and Save” offer discounts for recurring purchases, providing financial incentives for consumers to opt for subscriptions. Moreover, curated subscription services offer tailored product selections based on consumer preferences, enhancing the overall customer experience.
However, many consumers find it challenging to track and manage their subscriptions, leading to overspending. A survey by West Monroe found that 46% of U.S. adults underestimated their monthly subscription expenses by more than $200. To address these transparency issues, regulations like Germany's Fair Consumer Contracts Act have been introduced, which limit the duration of automatic renewals and mandate clearer terms for subscription services.
Recent advances in payment methods have streamlined the subscription process. Innovations such as network tokenization, which securely stores customer payment details, and the expansion of digital wallets and Open Banking have simplified the checkout process, making it easier for consumers to maintain their subscriptions without the hassle of re-entering payment information.
Open Banking and Variable Recurring Payments (VRPs) are revolutionizing how subscriptions are managed. VRPs allow customers to authorize recurring payments directly from their bank accounts with more control and transparency compared to traditional methods like Direct Debit and Continuous Payment Authority (CPA). VRPs enable consumers to view and modify their payment mandates easily, enhancing their ability to manage subscriptions. As a result, businesses may face higher churn rates due to increased consumer control but also have opportunities to attract more subscribers by offering flexible payment options.
The subscription economy continues to evolve, offering substantial benefits to both consumers and businesses. However, managing churn effectively remains a critical challenge. By understanding the dynamics of churn and implementing strategic measures to enhance customer retention, businesses can sustain and grow their subscriber base in an increasingly competitive market. The future of the subscription economy hinges on the ability to balance customer satisfaction with innovative payment and management solutions.
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