Editor’s Note: FT Strategies recently posted a follow-up to their article, “Are Monthly Subscribers Practically Worthless?” The Mather team is currently reviewing the approach and conclusions in Part II and will soon respond with data-driven insights drawn from our years of experience and robust benchmarking data. Stay tuned for our perspective as we continue this important discussion.
A recent article by FT Strategies (FTS) (June ‘24), “Are Monthly Subscribers Practically Worthless?” suggested that annual subscriptions, with their higher lifetime value (LTV), are more beneficial for publishers. But are annual subscriptions truly more valuable?
Let’s explore a different perspective: the potential and value of monthly subscriptions. There are four key considerations for publishers in managing their subscription portfolio:
Ease of acquisition
A key challenge for publishers in acquiring new digital subscribers is determining the appropriate subscription term length. Evidence shows a strong consumer preference for monthly over annual subscriptions. As depicted in the chart below, new monthly digital subscriptions outpace annual subscriptions by a factor of 5:1.
Source: Mather Economics Client Data
71% of new digital subscriptions are monthly, compared to 14% for annual subscriptions. This is particularly relevant given that monthly subscriptions tend to increase with higher subscription prices.
Pricing power and flexibility
For smaller media companies like local news publishers, increasing prices is crucial to achieving a sustainable business model. Monthly subscriptions are advantageous as they allow for flexible and scalable pricing strategies, while annual subscriptions usually require a discount to encourage readers to pay for a full year upfront. Among Mather’s publishing clients, monthly digital subscribers generate a significantly higher average revenue per user (ARPU) of $12.64 per month, compared to $7.36 per month for annual subscribers. This means that over time, monthly subscribers contribute a greater share of subscription revenue, as illustrated in the chart below.
Source: Mather Client Data
Consider The Boston Globe, a regional news publisher, as an excellent example of the power of monthly subscriptions. In 2023, they boasted a staggering 245,000 digital-only subscribers. The Globe's strategy involved offering extended introductory periods with substantial discounts ($1 for six months) and then a significant increase to around $30 per month. According to Ryan McVeigh, senior director of consumer revenue at the Globe, this approach has proven to be a revenue-maximizing tactic with high conversion rates and strong long-term value. McVeigh noted that “the monthly conversion rate is considerably higher than the annual” and stressed the importance of engaging subscribers during their introductory period to demonstrate the value of continuing their subscription. He also mentioned that this approach was developed through rigorous testing, highlighting the importance of customer engagement in the subscription model.
Subscriber retention
In the FTS article, an extreme case of subscriber churn is presented, with retention insights limited to just the first year. According to Mather benchmarks, subscribers on annual terms exhibit better retention in the first year relative to those who opt for monthly subscriptions. However, by year two, Mather finds that the retention difference shrinks dramatically to just 5%. This insight suggests that the initial advantages of annual subscriptions ultimately normalize over time.
Source: Mather Economics
Subscription revenue | volume growth
In addition to driving greater volume growth, the average revenue per user (ARPU) from monthly subscribers is 1.7 times higher than that of annual subscribers. This suggests that publishers must offer substantial discounts to encourage customers to choose annual subscriptions. Although annual subscribers are relatively less price sensitive, they contribute less to overall ARPU, and there are fewer of them, reducing the potential revenue gain from solely focusing on annual subscriptions.
When asked about the ideal mix of subscription plans, subscriptions expert, Nikhil Hunshikatti suggests that a mix of 50% of monthly subscribers paying the full rate, 25% subscribers on introductory offers, and 25% subscribers on annual terms is optimal. There is no one-size-fits-all model for subscription terms, but publishers should aim for a balanced approach in managing their subscription portfolio.
So … are monthly subscriptions practically worthless?
We empirically say no. Based on Mather's experience working with more than 800 global news publishers, monthly subscribers may be the most valuable subscribers a publisher can have.
About Mather Economics:
With over 20 years of experience, Mather Economics stands as the global leader in pricing and subscription strategy. Our expertise and data-driven solutions have empowered hundreds of publishers to maximize revenue and drive long-term sustainability.
Peter Doucette is senior managing director of Mather Economics and can be reached at pdoucette@mathereconomics.com.
