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Goods and services used to be paid for in person, but the digital era has transformed how we consume. The subscription economy has been consistently growing over the last few years and will keep doing so.
“We can borrow instead of buying, lease long-term without the burden of ownership, and the media that was once stored on physical mediums (cassette tapes to game cartridges) arrives via high-speed internet. As a result, many things once purchased outright can be conveniently streamed to our devices, updated when needed, and often paid for via a subscription”, says Philippe Rousseau, Head of Benelux & France at Brite Payments, a payment solutions business.
Subscription has expanded throughout the whole economy, from coffee to designer clothes, electronics to automotive. In this new model, consumers get regularly charged for a service instead of buying products occasionally. However, subscription is also a true paradigm shift, where consumers are not only buying a product, but also an experience.
Take the media industry, where recurring revenues have been the norm since the 19th century. Streaming surpassed cable TV three years ago, opening up a new era where TV channels have to go from securing a handful of strategic deals with cable and satellite providers to catering to the preferences of individual consumers.
This is also true for newspapers and other types of print media. Gone are the days when newspapers were distributing a single issue for everybody. Online subscribers now expect targeted content that will cater to their personal areas of interest.
“The New York Times is now so much more than the home of the nation’s newspaper of record. It’s transformed into a digital powerhouse, with its bundling and unbundling strategy driving subscription revenue past $1 billion in 2023. The Times reached this milestone by pairing its core news offerings with products like Games (The Crossword, Wordle), Wirecutter (product recommendations), Cooking, and The Athletic (sports news),” Tien Tzuo, CEO of Zuora, recently wrote on a blog post.
Why adopting a subscription model can prove challenging
Subscription is particularly strong among young consumers. In the US, 70% of 18-44s now use subscription services, versus 63% for those aged 45-64 and 55% for those aged 65 and older. Young people also use more subscription services on average. Those aged 18-44 cumulate an average of 8.4 subscriptions, compared to 7.9 for the 65+ age group.
However, one doesn’t simply decide to add a subscription model to its offer. Businesses adopting these new revenue models need software solutions to set up their new revenue streams and keep them growing. “Subscription models are profoundly different from traditional models and require a different set of business capabilities and processes across the enterprise. They can be monetized in multiple ways – flat-subscription, tiered pricing, pay-per-use, commit + overage, freemium, and outcome-based. This has increased complexity in billing and revenue recognition processes.” explains Jagjeet Giil, an expert at consulting firm Deloitte.
“Traditional billing and revenue systems couldn’t support new processes (e.g., subscription billing, consolidated invoices, flexible billing terms, new revenue accounting standards, etc.), and this provided an opportunity for new vendors to launch subscription management solutions.”
The rise of subscription vendors
In this context, subscription management platforms, such as Stripe, Zuora, Chargee, Plenigo or Brite Payments, have been on the rise for a few years now. The global subscription billing management market is thus quickly growing. Its size was valued at USD 4.77 billion in 2021 and is anticipated to grow at a CAGR of 16.1% from 2022 to 2030. By 2025, the subscription economy should reach a market size of $1.5 trillion. According to another recent research, companies that have utilized a subscription-based payment offering in the last 12 years have grown 3.4 times faster than their counterparts in the S&P 500.
This will naturally benefit companies who manage to make a name for themselves in the field of subscription management. The average subscription billing vendor is already growing at a staggering rate of 30% to 50% annually. These companies will emerge as essential actors in the upcoming economy.
Stripe started as a payment processing software as a service (SaaS) business in 2010. The company’s ambition to become a one-stop shop for businesses trying to optimize their payment process led them to venture into subscription payments. They did so in 2018, with the launch of Stripe Billing, a solution for subscription management, which has been designated as the leader solution of Gartner’s 2024 Magic Quadrant for recurring billing applications.
“Stripe has always been specialized in online payments, so moving to subscriptions, i.e., dealing with fluid and reliable transactions, was quite a natural move for us. Our resilient infrastructure, which can tackle all kinds of international payments and payment methods, allows us to be a key actor in the subscription field”, says Arielle Le Bail, Product Lead France at Stripe.
“We always emphasized automation. Our goal was first and foremost to help businesses extract complexity from payments so they can focus on their core business. Subscription follows the same logic.”
Reducing churn rates in the media industry
The subscription model provides businesses with new ways to improve customer experience and thus customer fidelity. This is all the more important in times of economic uncertainty, when customers tend to rationalize their spending and cut down on less satisfying services. According to a recent survey, almost seven in ten (68%) of leading subscription businesses say that retention is their top strategic priority.
This particularly matters in the media industry, where online subscriptions have become both central to the business model and challenging to grow in a highly competitive environment. In the past five years, overall churn rates for these businesses have nearly tripled. According to research from Stripe, 73% of leaders in the media and entertainment industry agree that customers have become pickier than ever.
Stripe has worked with several media companies to reduce churn rates, with a certain success. Studies show that one big factor of churn is payment failure.
As an example, FOX Sports Mexico used various features from Stripe Billing, such as automated failed payment emails and Smart Retries, to increase the likelihood of a transaction going through. Smart Retries uses machine learning to intelligently retry failed payment attempts at the best possible times. “We constantly observe customers behaviors, which allow us to offer a better targeting approach compared to traditional retry payment rules,” says Arielle Le Bail. Together, these features reduced FOX Sports Mexico’s involuntary churn, increased retention by 54%, and subscription revenue by 20%.
ITVX, a streaming service in the UK, also relied on Stripe’s Smart Retries and card account updater to drive a 10.6% increase in authorization rate, resulting in hundreds of thousands of pounds in profit that would have otherwise been lost.
Offering highly personalized experiences
As previously mentioned, providing readers with multiple, highly customized offers has become a key element of success in the media industry. Earlier this year, Stripe introduced usage-based billing to better cater to customers' needs. The company is thereby following the market. Between 2018 and 2022, the number of software-as-a-service (SaaS) companies adopting the usage-based pricing model grew from 27% to 46%.
“More and more consumers want a model in which they are only charged for what they consume. It is thus becoming difficult to offer a five-star customer experience without doing usage-based billing. Our goal is to allow businesses who don’t necessarily know how to tackle that kind of business model to succeed in this environment,” says Arielle Le Bail.
Another way for media companies to provide customers with this bespoke experience is to partner and form new streaming ventures. As an example, Disney, Fox and Warner Bros Discovery just launched a sports streaming service, Venu Sports, giving consumers a new way to access their favorite live sports. This type of partnership introduces new challenges for media companies, who often lack the financial infrastructure needed to manage the intricate fund flows involved in such joint ventures. A feature like Stripe Connect has been specifically conceived to remove these barriers by enabling complex, multiparty money movement, such as collecting payments across properties and automatically distributing funds.
Enabling the switch to streaming
On-demand streaming is another tool that media companies can use to offer a bespoke user experience. However, for TV channels that aren’t familiar with this kind of revenue model, the switch can prove quite challenging. It implies building a payment and billing solution from scratch, which will be fast, reliable, and capable of scaling to support millions of viewers in a matter of minutes. Imagine millions of Americans signing up for a paid TV subscription on the day of the Super Ball. If the onboarding isn’t seamless and efficient, they will likely be frustrated and more eager to cancel their subscription.
This is where a subscription company like Stripe can position itself as a key partner to help media companies start their new streaming service. Stripe has recently been involved in such a project with a major French TV company. “TF1 launched a new streaming offer called TF1+. They wanted a two-tier service, offering a free version with advertisements, as well as a paid, ad-free subscription to access TF1’s entire library. By using Stripe Billing, they were able to outsource the challenge to offer customizable subscription capabilities, to focus on what they know best. As an example, they used Billing to seamlessly create 1-month and 12-month self-service subscription options as well as a 7-day trial period,” explains Arielle Le Bail.
Catering to local payment methods
Finally, gone are the days when media companies only operated in their home country. Last June, The New York Times passed two million international subscribers, out of a total of 10.55 million. As they go international, media companies have to make payment infrastructure a key element of their growth plan.
Payment method preferences can indeed vary from one region to another. Whilst customers from one country may prefer one-click checkout, others may be more eager to use “buy now, pay later” methods. One must also account for preferred local payment methods, such as Interac in Canada. Not only do payment preferences vary greatly based on local habits and customs, but they also evolve very quickly. We’ve seen it recently with the quick rise of Apple Pay and Google Pay, or the quick rise of mobile payment in China. Media companies who fail to cater to payment preferences risk losing customers altogether. A Stripe study found that 85% of online shoppers would abandon a purchase if their preferred payment method was not offered.
AI can be a powerful tool to figure out what payment method is best for which market, according to Arielle Le Bail. “AI allows us to determine which payment method is best based on where the customer is based, whether he’s using a mobile or laptop, and so forth.” Le Monde, a French newspaper that recently launched an English version of its website, needed to offer adapted payment methods to attract and retain new subscribers, particularly in regions like the U.S. and Africa. They partnered with Stripe to do so. Le Monde also uses a feature called Stripe Radar to fight fraud.
Stripe Radar is a deep neural network trained on billions of past transactions to identify whether a transaction is fraudulent in real-time. It also uses NVIDIA's AI platform to help improve the speed and accuracy of fraud detection.
In the future, we predict that the strategic importance of fighting online fraud will keep growing in the media subscription landscape. Online fraud has risen by 11 % this year alone. Whilst Stripe is already positioned in this market, it isn’t alone in that fight, and its competitors have also reacted swiftly. As an example, Zuora partnered with Microsoft, a leading investor in OpenAI, to boost its fraud protection solution.
Fraudsters aren’t going anywhere and fraud attempts will only keep rising. The subscription management platform that will prove the most efficient at fighting them will thus gain a precious competitive advantage over the coming years.
Overall, Stripe seems well-positioned to keep increasing its domination over the media subscription landscape. Its intuitive interface, its experience working with the media industry, as well as its ability to cater to different local payment methods and preferences make it a reliable partner for media companies looking to explore a subscription model. In return, these companies will be able to drive personalization further and fidelize audiences in a highly competitive landscape. If the subscription model interests you, do not hesitate to reach out to our team of experts, who will be more than happy to answer your questions.
