Slowing mobile device cycle, consumer demand drive subscription revenue models

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As the smartphone sales cycle continues to slow down and consumers increasingly demand control over where and when they watch and listen to their digital content, subscription payments have become an increasingly important payment model.

In everything from streaming video and on-demand movies and music to new sales models for food, fashion and even car sales, both payment providers and businesses are embracing subscriptions as a way to directly reach consumers and maintain a steady, reliable revenue stream that has a direct relationship in which the subscriber’s personal desires and habits provide a rich set of consumer preference information.

“The biggest drive for subscription revenue will come from the supply side, as it allows for more predictable revenue cycles,” James Moar, a senior analyst at Juniper Research, said via email. “This is particularly the case for industries like video games.”

He said that subscription models allow companies to develop more original content, which encourages customers to invest more time in the content, which creates a cycle that reinforces the subscriber relationship.

Apple, which has seen customers hold onto its core iPhone mobile devices for longer periods of time between upgrades, has made a major push into subscription-based content — including streaming video, music and other services — as a hedge against slowing device revenue.

“Subscriptions are a powerful driver of our services business,” Apple CEO Tim Cook said during the company’s second quarter conference call, according to a transcript of the presentation. “We reached a new high of over 390 million paid subscriptions at the end of March, an increase of over 30 million in the last quarter alone.”

The introduction of Apple’s new services was not announced until March, the final month of the fiscal quarter, so the impact of Apple’s expanded services business has yet to be fully realized. The company announced the launch of Apple News Plus,  a platform that offers a combination of 30 popular magazines, leading newspapers and digital content sites into a curated news app.

Apple made its long-awaited leap into the streaming video game with a new Apple TV app that provides a range of formats — including news, sports, documentaries, movies and original series — across multiple devices, including iPhone, iPad, smart televisions, Apple TV and other devices. As part of that effort, Apple is allowing users to pay à la carte for certain programming on demand, a tactic that the company hopes will drive additional distance between cord-cutters and cable providers.

Lastly, Apple is rolling out Apple Arcade, a subscription gaming service with more than 100 different titles for iPhone, iPad, desktop Mac computers and Apple TV. Apple has a massive base of gamers, estimated at approximately 1 billion in number, who purchase through the App Store. When Arcade launches in the fall, Apple could completely rewrite the subscription gaming and eSports business.

Karol Severin, senior analyst at Midia Research, told Mobile Payments Today that subscription payment models hold a number of “special powers” in an environment he refers to as “the attention economy,” in which companies are essentially competing for the limited — and in most cases already committed — hours of a busy and in-demand consumer who must juggle work, family and leisure, while also trying to find space in his or her schedule to watch television or play video games.

“Making a commitment in terms of a paid subscription is thus some of the most valuable types of billing relationship companies can achieve in the attention economy,” Severin said.

Earlier this week, Wirecard entered an agreement to provide payment services for  BluTV, the world’s top platform for Turkish content, with 4 million subscribers. The agreement calls for Wirecard to provide payment services for BluTV’s expansion across Europe.

The companies cited data from the Motion Picture Association of America showing that subscriptions to streaming services rose 27% last year to 613 million and recently surpassed the total number of paid cable subscriptions for the first time ever.



Slowing mobile device cycle, consumer demand drive subscription revenue models