The Future of Media & Entertainment: Part 2 – Subscription media services

Read Part 1 – Rapid Digital Transformation

Historically, media is monetized through paid advertising, television commercials, full-page magazine ads, sponsored columns in newspapers, radio commercials―the list goes on.

Thanks, in part, to the rise of the subscription economy, the M&E industry is slowly making the transition from ad-revenue to consumer-revenue models.

• For the past five years, the subscription e-commerce industry has grown by more than 100% per year. In 2011, the largest retailers generated $57 million in sales. By 2016, that number jumped to more than $2.5 billion.
• In 2018, 15% of online shoppers said they had subscribed to an e-commerce service in the last year. And 46% said they subscribed to an online media-streaming service, like Netflix.
• At 55%, curation-based subscriptions were the most dominant category in the 2018 subscription economy. Further emphasizing the importance of personalization.
• 28% of access and curation subscribers said having an excellent personalized experience is the single most important reason they continue their subscriptions.
• Still, only 55% of online shoppers who consider a subscription service actually subscribe. This shift in the industry is still young, still evolving.
• While women account for the majority of subscriptions, men are more likely to have a greater number of subscriptions.

While the subscription economy seems to have swept the industry, there remains plenty of room to grow. Companies are still experimenting with ways to acquire, convert and retain subscribers.

In 2017, Deloitte Global predicted that by the end of 2020, 50% of adults in developed countries would have at least four online-only media subscriptions. For those adults, aggregate spend on digital subscriptions they have access to, whether paid for by themselves or by someone else, was expected to average over $100 per month last year. That’s more than $1,200 annually on media subscriptions.

It’s not just Netflix and Spotify ruling the subscription economy, either. This shift can be seen industry-wide, including written media.

The New York Times reported $709 million in digital revenue for 2018. Their thriving subscription model, which grew 18% to $400 million contributed significantly to that impressive number. Digital advertising rose as well, but only 8.6% to $259 million. In the 4th quarter of 2018 alone, they added 265,000 new digital-only subscriptions. That boost brought their total subscriptions to more than 4 million, 3.3 million of which were digital-only. The publication aims to grow to 10 million subscriptions by as early as 2025.

In 2019, Conde Nast announced they would be moving all of their digital publications behind a paywall as well.

According to the FIPP Global Digital Subscription Snapshot, these media companies are not alone in their subscription success.

The more commonplace paywalls become, the more we can expect to see smarter and more dynamic ones. Artificial intelligence and propensity models can predict how likely a visitor is to become a paying subscriber. The amount of free media shown before the paywall can be determined by previous on-site behavior, for example.

As evidenced by the digital advertising growth at The New York Times, ad-revenue is far from dead. While Google and Facebook continue to dominate ad dollars because of their advanced targeting options, media advertising is still incredibly common. As with most digital transformations, expect a gradual shift.

The rising importance of user experience

According to Adobe’s Acquisition Evolved report, marketers are still rushing to get a grasp on this new landscape. Marketers are primarily focused on technology investment, though this investment is not without challenges. Data management and personalization and measurement and optimization are issues that also impact digital strategies.

While marketers in the M&E industry know data management and personalization are increasingly important, they’re struggling to quantify the impact and support those strategies with the right technology.

As companies begin to define proper key performance indicators (KPIs) and invest in their technology stacks, optimization, both online and offline, will become crucial for success.

Optimization at the conversion level, of course, but also optimization at the awareness level. The ability to attract the right audiences within the market at the right time via the right channels will become a competitive advantage—though data accuracy and literacy is still a big challenge.

Technology, data, and personalization are tools and tactics that should be in any media executive’s wheelhouse. But here’s the thing: At its core, this digital transformation is driven by increased user expectations and a (necessary) obsession with delivering the ideal user experience.

Personalization and curation are rapidly transforming the M&E industry. It’s no longer about optimizing one experience, it’s about optimizing millions of personalized experiences. That comes down to:

• Knowing your customers. What motivates them? What interests them? How do they like to consume media and entertainment?
• Staying nimble and flexible. How can you build your website to be more agile? How many other ways can you personalize the experience?
• Crafting compelling, intuitive and shareable media experiences. How can you balance the need to offer personalized experiences and mass appeal?

One can imagine a future where there are millions of personalized user experiences based on millions of pieces of data, with algorithms quietly at work to give people the media they want, how and when they want it. But before we get too far down the rabbit hole, it should be noted that this digital transformation is still in its early years.

So, let’s figure out how to crawl before we sprint. Namely, how to shift from “let’s get the most ad clicks we can” to “let’s create the best entertainment experience we can”, from “one and done” to “curated media hub”.

This largely comes down to behavioral science and journey mapping.

Matt Wright, our Director of Behavioral Science, explains:

“Applying behavioral science to business means implementing a process for problem-solving that accounts for how humans think. This approach focuses on:

• Generating behavioral insights around customer needs and desired outcomes using data from quantitative, qualitative, and existing academic literature.
• Applying the principles of behavioral design to build solutions that flow with, not against, the psychology of decision making and behavior.
• Using rigorous experimentation to validate whether or not these solutions are helping customers achieve their desired outcomes and to create feedback loops for further behavioral insights.”

Simply put, investing in behavioral science means investing in a deep understanding of your audience, their motivations, their desires, their pain points, and their actions.

Before you invest in an expensive technology stack and complex machine learning algorithms, make sure you’ve invested in identifying and understanding your user. Behavioral science allows you to design (online and offline) data-informed user journeys, which you can then consistently optimize through experimentation.

Marrying these two sciences together early on will set you up for success as the digital transformation in the M&E industry continues to evolve. While the end goal may, in fact, be those one million plus personalized journeys, A&E companies can start by laying a customer-driven foundation to position themselves better in the future.

In the next and final part of this series, we will share some examples of how major media publishers are doing this.