Consumer behaviour is changing as a result of the subscription economy, with the direct relationship between brands and consumers becoming ever more important. This was the broad topic of two consecutive sessions at FIPP World Congress last week, in which Reid DeRamus, Head of Growth, Substack, was followed by Kerin O’Connor, CEO, Atlas and former CEO of The Week and The Week Jr at Dennis.
Speaking with Alan Hunter, Co-founder, HBM Advisory, DeRamus – whose company was acquired by Substack, where he now works – described three trends in the wider industry that relate to subscriptions.
1. Individuals as media brands
“There’s a shift from institutions to individuals,” he began. “This is probably the longest-term trend in media. You know, there used to only be a few movie studios. And then there were three broadcast channels. And then there was one local newspaper per region, for example. And then the internet just totally wiped out distribution as a competitive advantage.”
He went on to describe his earlier experiences working at Hulu. “Parts of the tech stack for any media business are becoming increasingly commoditised. When I was first at Hulu, we had a team of people just focused on payments. It was massively difficult to get people to give you a credit card online and to process those transactions – there were tonnes of failures. Consumers were really timid for good reason.
“Not so now – I can go to Stripe and in two minutes set up an account and start collecting payments as an individual and have my own subscription business. If you’re a big media company, payments used to be one of those things you could lean on and say hey, you can’t really build or develop a subscription revenue stream on your own. But now there’s a tonne of open source tech out there.
“It’s never been easier to pick up your iPhone and start your own media business – and I think that’s a really, really meaningful trend.”
On the other hand, going it alone is hard. It involves foregoing salary, team members, stability, brand recognition and other benefits.
“It’s pretty intimidating. You’re not just responsible for the editorial or creative aspect of it now, the champagne problem, is that if you are successful, you have all these business opportunities and challenges that you have to think about. And so at Substack, we spend a lot of time working with individuals thinking about like what should my pricing be? What should my value proposition be like? What should I give free subscribers versus paid subscribers? What should I write about?”
On the institutional side, DeRamus thinks that publishing businesses should respond by leaning into the advantages people are seeking at work.
“If you have really talented people, really talented creative people – make sure they’re motivated and make sure they have some creative freedom, some editorial freedom. A lot of people that come to Substack are doing it because they felt like they couldn’t be themselves, that they couldn’t say what they really wanted to say. And maybe maybe even include ownership in the business to make sure they have a seat at the table.”
O’Connor had a similar recommendation. “Encourage your talent to be talented!” he said. “It’s easier than ever for talented people to leave and make their own media brand and go it alone, like on Substack. I think it’s really important if you hire good people, give them the chance to prove it. Give them some budget, give them some capability, give them some ideas.”
2. Moving away from ‘renting’ audiences
DeRamus’ second trend is the move away from ‘renting’ audiences. “YouTube, Spotify, Twitter, Instagram – all these big tech tech platforms allow you to build a big audience, and that’s really important if you’re trying to build a media business today. But so far you haven’t been able to communicate with people directly on those platforms, and for that reason you’re kind of vulnerable to whimsical policy changes or moderation or algorithm changes.”
Platforms like Substack allow people to take an audience with them if they leave, via a list of emails and a personal Stripe account. Similarly, Elon Musk recently said that people leaving Twitter can take the email addresses of subscribers with them.
“So it’s very portable. It may not seem like a huge change, but it’s pretty radical because now you are able to communicate with people directly. And the reason that is important is because it’s pretty hard to develop like a sustainable, viable business when you’re just renting your audience.
“I think part of the reason newsletters are so important is because you’re unimpacted by big tech platforms or outside forces. It’s all about trying to directly communicate with your audience.”
From a consumer perspective, Atlas’ O’Connor highlighted the need for strong direct relationships so that people prioritise your content.
“The model that we all kind of know is from products, to channels, to customers – and we understand it and we make it work. But that’s really outdated actually, because now, your customers don’t have very much time – so you’ve gotta get into this relationship model instead,” he said. “You’ve got to try and understand who they are. You’ve got to make the customer sit at the middle of your business model.”
3. From ads to subs
DeRamus’ third trend is what he perceives as a small but significant move away from the dominant ad-based model of the internet.
“This is probably where I’m drinking the kool-aid the most,” he said. “So I would take it with some skepticism. But while tech platforms have mostly been ad-centric, there’s a growing ecosystem of Substack, of Patreon. Of course it’s small compared to the revenue of Meta or Google. But there’s other platforms too, like online courses, teachable and get that there’s, there’s a lot of different platforms that help people kind of think much from their audience directly.
“It ties pretty directly with the rise of niche media. Niches lead to more niches. Growing up, I was playing competitive golf. We had the Golf Channel where you got all your information. But now there’s all these new media companies that are podcasts or YouTube channels or newsletters. For example, one of one of my favorite writers on Substack just covers the majors in the Ryder Cup. So you have all these different flavours of media companies that have emerged instead of just one.”
Encourage your talent to be talented! It’s easier than ever for talented people to leave and make their own media brand and go it alone.Kerin O’Connor
Consumer behaviour in the subscription economy
In his talk that followed, O’Connor recalled how The Week had had 745,000 subscribers when its publisher, Dennis, was sold to Future plc for GBP £300m in September 2021. “Part of the reason was because they valued hugely the subscription expertise that Dennis was able to bring. They valued the recurring revenues and they understood the power of these brands,” he said.
This is a sign of subscription ascendancy as a wider trend. “We all benefit from the subscription economy trend worldwide. Subscriptions gain from consumer behaviour change – the relationship a brand has with customers is more important than the product itself, in contrast to the 70s, when things were more product-focused. It’s accelerated the shift from products to relationships.”
On that basis, added O’Connor, “the subscription monetisation shift favours magazine and content publishers if we can turn it into a long-term relationship. It can provide a more stable source of income.
“Digital products are beginning to carry more value. One upshot is that if you’re trying to sell someone something digitally, it’d better be good. Publishers benefit now from anonymous and light-touch digital monetisation, and high value, long term relationships.”
At Atlas, O’Connor has noticed the filter-down effect of the rise in subscriptions and the refocusing on the customer. “When we talk to our clients, you can see that there are these changes that are taking place in the way that people work. Revenues are becoming more predictable and secure. CFOs are beginning to understand the benefits, they’re beginning to understand cash flows, they know how it works. People are actually looking at NPS scores, they’re starting to talk about research, they’re beginning to talk about how their customers behave. And we’re also seeing the rise of the strong brand. If you are a strong brand, you’re getting loads of conversion opportunities.”
For Substack’s DeRamus, the flurry in subscriptions shouldn’t mean it is taken as a common behaviour, however. “At Substack our challenge right now is getting people to subscribe actually. Think about your friends, think about your own personal behaviour: how many people have Substack or Patreon subscriptions? Not many. It’s still an uncommon purchase behaviour,” he said.
There has been some consolidation, however, with Netflix’s 232m paid subscribers. “Those are enormous businesses – that number is just mind-boggling,” he added. “I do think there is an element of peak subscription that we saw with the streaming wars, so I think we saw that play out in streaming video. But within the the ecosystem I’m referring to, that’s not really a thing yet because it’s so early and the bigger challenge is just getting people to sign up in the first place to these types of subscriptions.”
More from the FIPP Congress:
- Lessons from MIT Technology Review’s digital transformation
- How TMB is combining innovation with 100-year-old values for success in the media landscape
- “We are the original storytellers of what is newsworthy”: Juan Señor calls on media companies to have confidence in an AI-driven landscape
- Part of History: How National Geographic Historia is bucking print trends across continents
- Shirish Kulkarni on the power of diversity and inclusion and how D&I drives innovation in media
- The art of creating a compelling political podcast: lessons from Zeit Online’s “Das Politikteil”