Coronavirus and subscriptions: It's not all good news

The coronavirus pandemic has changed how consumers work, live and relax, as well as how they move money and ultimately what they buy.

Some industries such as travel and hospitality have been devastated as companies have imposed corporate travel bans, state and local governments have closed casinos and sports leagues have postponed or cancelled games. Other spending categories, such as grocery, have benefited as consumers are cooking more meals from home instead of eating out at restaurants.

However, there is one area of commerce that has experienced an uneven consumer response to the coronavirus crisis: subscriptions. Some companies have benefited greatly while others have not.

Netflix added almost 16 million net new subscribers in its first quarter ending March 31, an incremental boost of 7 million subscribers over the 8.8 million it added in the fourth quarter of 2019. According to Netflix’s first-quarter earnings release, the company was forced to add over 2,000 customer service agents just to support the sudden rush of consumer demand.

In addition to higher levels of membership, Netflix reported that consumers are streaming more content and have had higher levels of viewership than ever before.

However, not all of the news is good from Netflix. Even for a streaming service with no physical product to ship, Netflix may not be able to keep up with the demand. “When it comes to production, almost all filming has now been stopped globally, with the exception of a few countries like Korea and Iceland,” Netflix stated in a letter to shareholders.

On the post-production side, Netflix has been able to get over 200 projects going remotely and most of its TV/movie series writers are working remotely on new scripts and screenplays. However, some snafus have still crept in, as Netflix has been unable to create dubbed versions for Italian films and some other languages due to home confinement of its voice talent for a handful of titles that were expected to launch in April and May.
According to Disney’s earnings, the Disney+ streaming service had 26.5 million subscribers at the end of December 28, 2019, which is its first fiscal quarter of 2020. In early April, Disney issued a press release stating that Disney+ subscriptions had broken the 50 million barrier.

In the past three weeks, Disney+ rolled out in eight West European countries including the U.K., Ireland, France, Germany, Italy, Spain, Austria, and Switzerland. Additionally, Disney+ became available in April in India, where it is offered in conjunction with the existing Hotstar service, and already accounts for approximately eight million of Disney+’s 50 million paid subscribers.

But even this success was not enough to offset the massive decline in revenue from closing Disney theme parks, retail stores and other properties — as well as halting movie production. Disney's profit plummeted by 90% in its second quarter, or a $1 billion decline.

Payments technology provider dLocal has observed significant changes in how consumers are spending based on the transactions it has been processing during the crisis. “We’ve also seen increased demand for online commerce across various industries such as food delivery, entertainment, SaaS, and productivity tools. In particular, we’re seeing an increase in new subscriptions for entertainment, productivity tools, online education, and gaming,” said Michael Golffed, vice president of growth at dLocal.
Given that many businesses moved to remote operations (if they could) after President Donald Trump declared a national emergency in mid-March, any technology that could enable some sense of normal operations was quickly adopted en masse. One solution that benefited the most was the subscription video conferencing service Zoom.

Zoom’s daily user base was 10 million in December 2019 according to Bloomberg interview with CEO Eric Yuan. It rose to 200 million as of April 1, 2020 and then 300 million by April 21, 2020, the company revealed in a webinar. This has doubled Zoom's stock price during the same period, sending it from $68.04 on December 31, 2019 to $146.48 on April 29, 2020, according to Google Finance.

The company offers both free and paid services. This dual offering has appeal to both consumers and businesses as it addresses the different levels of need.

But this influx of users has also cast a strong spotlight on Zoom's limitations — particularly its security.

"In our urgency to come to the aid of people around the world during this unprecedented pandemic, we added server capacity and deployed it quickly — starting in China, where the outbreak began. In that process, we failed to fully implement our usual geo-fencing best practices," Zoom CEO Eric Yuan explained in a blog post.

Encryption also came under scrutiny. "We recognize that we can do better with our encryption design," Yuan wrote.
Just as the streaming video service Netflix has benefited from increased consumer free time, so has the streaming music service Spotify. According to Spotify’s Q1 2020 earnings release, in the first three months of 2020 Spotify added six million new paid subscribers and 15 million monthly active users (consumers who are accessing a paid subscriber’s account for listening to music, podcasts and other media). Overall, Spotify reported that it had experienced faster year-over-year growth across all four of its global regions.

As a measure of content demand, in the fourth quarter of 2019, Spotify had about 700,000 podcast titles for its subscribers to access. By the end of March 2020, Spotify added more than 300,000 new podcasts to its library, bringing its total podcast portfolio to over one million titles. It also created a new podcast API for developers to facilitate faster content creation and acquired Bill Simmons’ The Ringer podcast portfolio.

In a move to address a new audience of children distance learning from homes it launched Spotify Kids in 12 different countries including the U.S., Canada and France.
As could likely be expected, with more consumers spending time at home with family and not going out to bars, restaurants and sporting events, one product category has shifted in how it is being purchased: alcohol.

Nielsen data reported in the industry trade journal showed that in the first few weeks of the coronavirus pandemic, online alcohol sales surged, giving alcohol subscription services such as wine clubs and cocktail creation services a host of new customers and growth from existing customers.

Esquire magazine reported that one of the reasons behind the growth in alcohol subscription services is that they curate a catalog specifically for a consumer based on his or her tastes, something that normally would happen when visiting a wine or liquor store and getting advice from the staff or in a restaurant getting guidance from the sommelier.

An example of this curation by subscription service Flaviar is that it sends a consumer tasting samples of spirits plus one full bottle. Taster’s Club follows a similar approach but is solely designed around Bourbon.

In addition to alcohol subscription services, on-demand delivery and standard e-commerce merchants have also experienced a rapid increase in business. In an effort to stand out from the many companies selling adult beverages online, recently added virtual wine tasting with its wine experts to continue to educate consumers about different types and styles of wine.