In 2016, Tien Tzuo, CEO of Zuora, one of the world’s leading subscription management companies, talked about how selling products has become a thing of the past as consumers increasingly opt for paying for services rather than physical products. He predicted that subscription-based services will become the business model of the future and thus coined the term “subscription economy.”
Fast forward to today and we can see how this vision has been propelled across the world with companies like Netflix and Spotify dramatically growing their subscriber base over the last few years. In India, while this growth has been slower, these two, along with other big players like Prime, Hotstar, Jio, Zee5 etc., have transformed the on-demand streaming landscape; something cable, broadcasting and Direct-to-Home (DTH) couldn’t do for 20-25 years. So, what is it that is working for them?
Building customer loyalty through on-demand and subscription-based service
The subscription-based model emphasizes the opportunity to build long-term relationships with customers. Since an unhappy customer can simply unsubscribe at any point, companies are increasingly investing in real customer service to get market feedback, which if they do right, results in profit from recurring revenue and a loyal customer base.
And this is not just limited to companies like Netflix, HBO, or Spotify, but more people are now opting for services like Uber these days, instead of making regular payments on a car, gas and auto insurance. The basic thought process is: “Why spend all the money upfront to buy a product when you can simply pay for a service to get what you need and then turn it off and on when you need to?”
Localized, differentiated, and engaging content
Other than this, the competitive differentiator that works for these streaming giants seems to be content, and more so – localized, differentiated, and engaging content. For example, Star and Disney India create approximately 200 hours of fresh content each week, while the average for other players is 70-80 hours. Netflix faces the stiffest challenge since these entities already have the infrastructure and knowhow to create local content on a large scale and targeted to a mass audience.
In the past few years, Netflix has invested $399M on content in India. In March 2021, it announced a slate of 41 titles and is ready to acquire the best content from India. The goal is simple: get the consumer to appreciate great and strong storytelling and pay for it.
Using data and analytics to sharpen content recommendations
In terms of creating customer value, data and analytics play an important role: Airbnb commoditises trust for travellers, Uber commoditises dispatch and modularises cars for commuters and Netflix commoditises time and distribution for content-seekers. The core job of analytics is to help these companies gain insight into their customers, optimize their marketing strategy, make more informed decisions, and deliver better services.
For instance, Netflix currently has somewhere around 200 million worldwide streaming subscribers- a large user base which allows it to gather a tremendous amount of data like:
- What days people are watching content (most watch TV shows during the week and movies during the weekend)
- What times people are watching content and where they are watching (zip code)
- What device people are using to watch, plus their search, browsing and scrolling behaviour
- Completion rate: How many users who started a series (from season 1) finished it to the end of season X, giving a good idea of overall engagement level of the show
- The ratings given (about 4 million per day)
Through these insights, companies can understand consumer behaviour and use their own personalization algorithms (like how Spotify tracks the music taste of a listener based on what language, genre, artist etc. they like and provides recommended playlists) to enhance the user experience.
Viable partnerships and pricing options for targeting mass reach
The biggest convenience factor that on-demand subscription-led platforms provide is flexibility: it can be used whenever you want to, and people will pay for good content. Pricing, however, plays an important role since every country has its own set of market dynamics.
In India, a large chunk of the market is still driven by advertising-fuelled free viewing, which makes it difficult for a subscription-based product, premium or otherwise, to be mass-adopted. For this reason, a brand like Netflix is still seen as premium and out-of-reach by many, as compared to rivals like Disney+ and Hotstar which offer much more affordable plans. There are also plausible partnerships being played out such as the Youth Plan of Amazon Prime which gives Vodafone users (between the ages of 18-24) a discount of 50% on its annual subscription of £10 a year. Faced with these challenges, the £2 plan was just what Netflix needed to make a cut in the Indian landscape.
Future Outlook: A new Netflix or Spotify of Education perhaps?
Keeping the above facts in mind, e-books or e-learning might seem like the next obvious choice for subscription-based unlimited access model. It worked for Netflix and it’s starting to work for Spotify. So why not education then? With the growing focus on tech and how it is being used around the globe to digitize the delivery of learning content, especially during the pandemic, this is definitely a wake-up call for education legacy companies. As the market in India grows, more 4G is deployed and the migration to 5G happens, there is much opportunity for change in the exciting interplay of media, telecom, content and technology - IP monetisation, distribution, storytelling and more.
Pearson recently launched a subscription service in the US called Pearson+, learn more.
Siddarth Banerjee is Managing Director for Pearson India and SVP for Pearson Southeast Asia.