D2C Subscription Firms Pivot Amid Margin Pressure

Facing ongoing macroeconomic pressure, many direct-to-consumer subscription companies are being forced to adjust.

Consumers are tightening their belts, cutting down their subscriptions. According to this month’s edition of the Subscription Commerce Conversion Index study, “The Subscription Commerce Conversion Index: Subscribers Seek Affordability and Convenience,” a PYMNTS and sticky.io collaboration, the average number of subscriptions per retail subscriber has dropped to the lowest level since early 2021.

Get the study: The Subscription Commerce Conversion Index: Subscribers Seek Affordability and Convenience

Additionally, the study, which drew from a survey of more than 2,100 U.S. adults, found that consumers’ desire to reduce their expenses was the most common reason for canceling a subscription. Similarly, the second most common reason was that the product cost increases made the subscription too expensive.

Food and beverage giant Nestlé, for one, noted disappointing results from its Freshly meal delivery business. The company announced earlier this month that it is forming a partnership with private equity firm L Catterton whereby the latter takes a majority stake in the company.

Even businesses for which demand is on the rise are still being challenged to boost their prices to make the margins of the model work. The same Subscription Commerce Conversion Index study found that of all subscription categories examined, only streaming is on the rise, with the share of consumers currently subscribed to such services up 6.5 percentage points quarter over quarter to 69%.

Yet, even these businesses continue to face macroeconomic pressures, with the rise in total streaming subscribers not necessarily corresponding to subscriber base increases for each service, given the proliferation of players in the space. In the September edition of the Subscription Commerce Conversion Index study, PYMNTS found that streaming services lost 10% of their subscriber base on average between May and July.

Plus, with the cost of content rights and of producing original content, and with stiff competition from comparable streaming services, major players are forced to raise their prices to make the economics of the model work. 

For instance, on an earnings call last month, streaming giant Netflix noted that churn has been “slightly elevated,” highlighting “macro strain” from economic factors.

Last month, Apple announced its first-ever price increases for its Apple Music and Apple TV+ subscription services. An Apple spokesperson said that the company is raising its music prices due to an increase in the cost of licensing songs and its TV prices because of its expanded selection of series, movies and documentaries.

Similarly, Disney announced earlier this month that it is raising the price of its Disney+ streaming subscription in early December. The company expects the service to achieve profitability in 2024.

Of course, the cost is only one factor that affects acquisition and retention. If the product or service is of a high enough quality, many consumers will continue to pay for it.

As Justin Shoolery, head of data science and analytics at sticky.io, told PYMNTS in a recent interview, “Retention is directly correlated to the quality of the customer experience, which stems from quality products, timely service and good user experiences on the website.”