This April, for the first time in a decade, Netflix lost more subscribers than it gained. This shocked investors who went all in on the subscription model over the pandemic, and caused the video streaming company’s shares to plunge almost 40%.
But it’s not just Netflix. Data from Lloyds Bank found over 1.2m subscription payments have been cancelled since 2021, half a million of those due to consumers feeling the financial pinch.
“Now we’re post-pandemic, we’re seeing everybody’s scaling back,” says Erica Katsambis, VP of sales, partnerships and solutions at subscription management solution Minna Technologies. “There has been a surge of cancellations recently that’s really been triggered by a number of external factors, as well as the dominance of the streaming industry.”
You’d think that the subscription bubble has popped — but it’s not that simple.
“When we’re seeing those headlines in the mainstream, the important thing to call out is that the subscription economy is still booming — and consumers want flexibility in order to keep spending,” says Katsambis, adding that the industry is still worth $650bn — and projected to grow to $1.5tn by 2025.
So here’s what you need to know about the rise and fall — and rise again — of subscription models.
According to data from Motion Picture Association, worldwide streaming subscriptions surpassed 1bn (a 26% increase) during the pandemic, a trend attributed to people wanting at-home entertainment.
Similar hikes were seen across other subscription services, from productivity software to razor blades and meal kits. ING research found the average household in Europe spends €130 a month on subscription-based products and services.
“Over the last two years, everybody has been trying to function in an isolated space and there’s been a surge and rise of these emerging verticals where consumers want to be entertained,” says Katsambis. “They’ve had to find new ways for productivity as well, so there’s been a surge in security and software subscription services.”
Over the last two years, everybody has been trying to function in an isolated space and there’s been a surge and rise of these emerging verticals where consumers want to be entertained”
However, the cost of living has increased and Alexander Engels, general manager Nordics of fintech (and Minna partner) Anyfin, says this has caused consumers to evaluate how many subscriptions they’ve built up.
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“We’ve noticed our user base has accumulated a number of different subscriptions during the pandemic. For many it’s a wake-up call when they get to see what they're paying for each month without even noticing,” he tells Sifted.
Katsambis agrees, adding rising inflation and energy prices has impacted the nature of the cancellations. For instance, many have been cancelling what could be called “surplus subscriptions” or luxury entertainment.
“Consumers are far more savvy with how they’re managing their expenses,” she says. “I suspect 50% of people will limit themselves to one streaming subscription service, and anything over this is a surplus.”
But it’s not always easy to pull the plug. According to Minna, a fifth of customers are cancelling their subscriptions via their bank instead of through the merchant itself, which is causing additional stress.
“They’re going via their bank and that’s having an impact in a number of different ways,” says Katsambis. “Consumers are finding it difficult and time consuming, but it’s also impacting the banks in terms of dispute costs.”
Consumers are far more savvy with how they’re managing their expenses
As a result, Anyfin has partnered with Minna to make it easier to manage — and cancel — subscriptions in its app.
Allowing a frictionless cancellation process encourages customers to return easily, as Experian data found nearly 80% of people who try to return will do so within three months. This means they’ll remember their offboarding experience — positive or negative.
Surges in cancellations aren’t always what they seem, says Katsambis, who attributes Netflix’s sudden flip to price hikes as a result of trying to keep up with production costs. This, she says, likely caused spontaneous customer decisions.
“I call them the lost, the confused and the angry… I think the angry group have cancelled on Monday when they’ve seen the price hike. By Friday, they are calling back to re-subscribe to their service when they realise they want to watch the latest series release,” she says.
Engels says consumers are being more picky but he expects subscriptions to continue to boom.
“We expect the subscription business model to keep growing,” he says. “It provides reliable recurring revenue for the companies, while at the same time allowing customers to try out a new service or product taking less risk, compared to paying an up-front fee.”
Alexandre Louisy, cofounder and CEO of invoice management platform Upflow, tells Sifted subscriptions won’t stop being part of the future.
“There’s no doubt that subscriptions are the future,” says Louisy. “When you think you would probably buy a CD in the past to listen to some music and you would probably pay $20 for that. Now you’re paying a subscription to Spotify.”
But to help big and small subscription companies to survive, Katsambis says they need to make sure they are keeping a focus on customer retention, not only acquisition, in order to stay in the game.
“If you think about large streaming services, the likes of Netflix and Amazon, they’ve had a disproportionate focus on acquisition… It’s been working for them and they’ve been driven and incentivised by that. It’s what their stakeholders are looking for,” she says. “If you look to startups, they also have that mentality of acquisition. And rightly so, because they need to drive the market share, but equally they don’t tend to have retention teams due to limited resources.”
When you think you would probably buy a CD in the past to listen to some music and you would probably pay $20 for that. Now you’re paying a subscription to Spotify
Minna, for example, offers other opportunities and actions to users, like comparing offers, changing plans and cancelling subscriptions.
“We have a retention solution that’s been really well received by merchants,” she says. It changes the script from ''making cancellations as frictionless as possible” to “offering consumers choice and flexibility'' in managing their recurring spend.