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Subscription companies face new challenge post-pandemic
Paying a regular fee for a service is far from a new concept but over the last five years subscription services have mushroomed. Today you can sign up for pretty much everything from TV streaming to meal box deliveries, prescription refills, coffee bean fixes and gym classes.
The pandemic became boom time with people unable to make spontaneous decisions about their free time and shares in companies like Peloton, Disney and Netflix soared to record highs. But investors have been getting nervous and they’re looking at rising inflation figures and wondering how consumers will react.
COST OF LIVING CRUNCH
With inflation now over 7% in the US and expected to head the same way in the UK many people are having to take a long hard look at their outgoings. Do they really need two or even three different streaming services?
Would they rather hit the gym than cycle in their own home and are meal boxes necessary when you can easily pop to the supermarket and pick up fresh ingredients?
Cost pressures and competition have hit the market in tandem, and the latter has given subscription maestro Netflix a bloody nose when it released its latest figures. Netflix’s downbeat growth forecast resulted in its shares losing most of their pandemic gains.
Investors are now wondering if Western markets are simply too saturated, if everyone who wants Netflix already has it and whether some of those might be flirting with cancellation.
Lockdown darling Peloton had to slash the price of its flagship bike but even that wasn’t enough to win over consumers who hadn’t splashed out when gyms were shut. Slowing demand and a whole host of supply issues have resulted in a spectacular collapse in its market value with the company only worth marginally more than when it first floated in 2019.
But in Peloton’s case its subscribers could be its saviour. Those who have jumped on their bikes have remained loyal with very little subscriber churn, possibly because those who could afford the bikes in the first place are relatively cushioned from the current cost of living crunch and there is mounting speculation that the company and its data might prove a tasty acquisition for a third party like Amazon, Apple or Nike.
VALUE FOR MONEY
Because people want value for money, names like Peloton and Netflix could probably charge more without a significant drop off in demand.
Amazon demonstrated exactly this point when it announced it was going to hike the price for its Prime service by $2 a month for its US customers, and you can bet the rest of the world won’t escape either.
Disney’s boss Bob Chapek has confirmed Disney+ customers might see a price hike next year as the service inches its way to profitability while at the same time upping spend on content.
The mouse house has confirmed it will shell out $33 billion over the next year as it supercharges its subscriber base, aiming to double the number of eyes currently on the platform by September 2024, though $10 billion of that investment will be on sporting rights.
‘Content, content, content’ was the message from Disney’s CEO. The viewer will most certainly emerge the victor but with these promises locking providers into ever expanding circles what does it mean for shareholders?
THE BUNDLE STRATEGY
That’s where bundling might be the key, and not just in terms of the number of channels being tied up in a shiny bow.
Where Amazon combines its retail offer with Prime and Apple hands over free months of its TV offer with new hardware, Netflix is setting its cap towards gaming, and every man and his dog are being suggested as potential buyers of Peloton right now because the subscription space is getting tighter and tighter.
Snapping up a rival’s subscribers, even a rival in a different sphere, delivers an easy bounce. And 2022 is already gearing up to be a hotbed of takeover action in this arena with Amazon’s huge wallet being linked alongside Spotify as potential suitors for UK podcasting group Audioboom (BOOM:AIM).
The stage is set but there’s one more actor waiting in the wings. What will regulators make of such plans? While too much competition leaves the consumer in a quandary, not enough could leave them out of pocket.