November 11, 2023
Everything from entertainment media to home decor is increasingly becoming subscription-based. As this trend continues, it’s important to understand how subscriptions can impact your finances.
Subscriptions are agreements where you pay on a scheduled basis to continue receiving a benefit. It could be a weekly, monthly or annual payment, and you might receive a physical or virtual product or service. But it’s an ongoing relationship between vendor and consumer, sometimes called a membership or continuity program.
Paying a recurring fee for access to something you want has continued to become more popular lately. And this shift to subscription services offers both benefits and challenges, especially when it comes to finances.
Believe it or not, subscriptions have been around for more than 400 years — starting with newspapers and magazines. The famous Book-of-the-Month Club was launched in 1926, eventually leading to countless monthly book subscriptions. Next came cable TV in 1948. Then record and CD memberships, the precursor to online music services and satellite radio. And Netflix was a DVD mail-order subscription a decade before it became one of the first streaming video platforms.
The number of streaming service subscriptions alone passed 1 billion worldwide in 2020, according to the Los Angeles Times. Many analysts credit this boost in at-home viewing (and also product delivery) to the COVID-19 pandemic, when being in quarantine left us without normal entertainment and shopping options.
Even when public venues started reopening with restrictions, streaming providers like Disney+ and the former HBO Max (now just Max) were changing viewing habits forever. They began releasing blockbuster movies for home viewing at the same time as they hit the theaters. While post-pandemic movie releases are mostly back to the old theater-first pattern, people aren’t willing to give up their streaming services.
But it’s not just media and entertainment … now you can get subscriptions for nearly anything you can think of. Options include beauty products, razors, pet supplies, pre-packaged dinners, wines and gourmet coffees. “Subscription boxes” are curated selections from a range of brands in a specific category, usually at a discounted price. Software programs are often offered as subscriptions as well.
Over time, many factors have contributed to this growth.
While subscription services are likely to continue evolving, there’s no reason to expect their demise. In fact, many subscription models are likely to become even more common. They’re convenient for customers, and provide reliable ongoing income to businesses. The sweet spot occurs when customers feel valued by the brands through perks like discounts, subscriber exclusives, and customization options.
Artificial intelligence (AI) can make subscriptions easier for companies to administer, provide analytical insights based on subscriber trends and other data, and automatically create retention offers based on customer behavior. It can also offer predictive personalization options for customers, and recommend customized products and services.
Let’s not forget that AI platforms themselves — like ChatGPT, Midjourney, and other text and art applications — also use a premium subscription model.
Subscriptions can be for digital products, physical products, services and more. Here are some of the newer subscription models that could become even more popular as their segments grow.
Subscription bundling means taking more than one subscription and paying them together as a package deal. Sometimes you’ll see them referred to as an “add-on” at a discounted price — which might be free for a period of time, and then just a few bucks. Think Hulu and Disney+ … if you bundle these subscriptions, you save money over buying both individually, pay for them in one transaction, and use one login for both platforms.
These arrangements have been rising in popularity for their convenience and savings to consumers, and additional revenue for companies. So they’re not likely to go away. However, bundling practices could shift to allow even more varied options and customization, including a range of categories to choose from.
Savings are nice, but nobody wants to pay for things they don’t use, even at a discount. So the ability for customers to personalize their subscription options is going to be key for continued growth.
People want to feel like the brands they interact with know and value them. AI can help with this, but people like interacting with other humans instead of bots. They’re also concerned with how their data will be handled when AI is collecting and analyzing it. Companies want more access to customer information, and consumers want to give less — while still enjoying opportunities for personalization.
That can include personal recommendations based on surveys, quizzes or past behavior, the ability to pick product color combinations, or personalized deals and rewards that correlate with their purchases. These options benefit the consumer, but also the brands because customers stick around longer.
Companies have challenges with keeping subscribers active and finding ways to engage them. Customers have challenges with handling too many recurring charges that automatically hit their cards or come out of their bank accounts.
Be aware of these issues:
If you’re not careful, too many subscription payments can result in financial loss or credit card debt, which can lead to a poor credit score. That in turn could put you in a position where you need to rebuild your credit.
The best way to avoid facing subscription-related financial challenges is to follow a few best practices.
If you’re paying for your subscriptions with credit, make sure to compare credit cards and choose one that has high rewards for that specific category. For example, some cards give you additional cash back rewards for purchases like mobile phone services, satellite or cable TV, streaming platforms, and other subscription-related categories.
Profitable subscription services need to be a long-term symbiotic relationship between brand and customer. But when we experience economic uncertainty, including inflation and recessions, people re-examine what they’re spending each month. So if the economic future looks less than bright, subscription service challenges are expected.
Consumers need to support services they like if they want to keep them around. But companies need to provide value if they want to be successful. With that in mind, there are many ways you can prepare for some of the future challenges in the subscription world.
Subscription services can be good for both businesses and consumers. They can also present challenges to both. Understanding the big picture and avoiding financial traps will allow you to skillfully navigate your subscription landscape.
For over a quarter of a century, Heather has been working as a journalist in all media: TV, radio, print, and online. After establishing her career in Toronto, she has been living, working, and playing in Las Vegas for the past decade. She loves pulling apart complicated topics to make them simple, fun, and easy to understand, especially in the business and financial niches. But she also enjoys writing about the personal side of life, including success, relationships, families, and pets. She approaches everything from a yin-yang perspective, so her passion for wordplay and entertaining metaphors is always balanced with an intense (and some would say annoying) focus on facts and accuracy.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
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