© Netflix

The fast-spreading COVID-19 virus is changing the daily lives of people in Korea. Schools have postponed the start of the spring semester and many people refrain from going outside, with more and more office workers working from home. Some industries are happy about these changes, while others are not. For example, providers of “subscription economy” services are benefiting from the virus outbreak, which has unfortunately dealt a direct blow to those of more traditional sharing services.

Here is Lee In-chul, director of the Real Good Economic Institute, to discuss the subscription economy, which has permeated deeply into everyday life.

The COVID-19 situation is changing consumer trends. While the sharing economy has lost steam, the subscription economy is gaining momentum. In subscription economy, customers pay subscription fees on a regular basis to use or access goods and services, instead of walking into a store and buying them. Many people are reluctant to go outside because the virus is spreading rapidly. 

As a result, a growing number of people stay at home and enjoy video streaming services like Netflix. 

The Global Big Data Research analyzed 12 channels including YouTube from February 15^th to the 28^th and found that the use of Netflix streaming services sharply increased during that period. The growing interest in the world’s top video content service provider led to a 6 percent rise in its stock prices in February, when COVID-19 kept spreading.

Sales of local cinemas as well as the number of moviegoers in Korea fell 40 percent year-on-year between January 1 and March 2 this year. In contrast, the use of online streaming services known as OTT, which stands for “over the top,” has surged. The situation remains similar in other parts of the world, as an increasing number of people are choosing to stay at home amid virus fears. A typical example of the subscription economy is Netflix, the world’s largest OTT video-on-demand service. 

According to global investment bank Credit Suisse, the market size of the subscription economy in 2015 was 420 billion US dollars but it will expand to 530 billion dollars in 2020. The Harvard Business Review says business-to-consumer subscription businesses attracted more than 11 million subscribers in the U.S. in 2017. Industry researcher Gartner also predicted that 75 percent of companies selling things directly to consumers will offer subscription services in 2023. Zuora’s Subscription Economic Index shows that subscription businesses have grown revenues more than 9 times faster than S&P500 company revenues and 4 times faster than U.S. retail sales.

In a traditional economy, consumers could experience something only after they purchased it. But in today’s subscription economy, they only pay for what they have used without possessing it. However, this is not a new concept. An example of a subscription-based economic activity that has been use for years is the daily delivery of milk or newspapers.

Subscription economy is drawing greater attention these days, as consumers prefer more products and services in a shorter period of time, rather than physically possess them. Cost-effectiveness is another merit of a subscription economy. 

For example, Netflix allows users to enjoy a variety of content as long as they pay a certain amount of fees on a monthly basis.

The development of information technology has also contributed to the evolution of the subscription economy.

The key of the subscription economy is the provision of personalized options. That requires the combination of artificial intelligence and big data. For instance, KT, one of Korea’s major telecom companies, has introduced a new mobile video content service using AI technology. 

It analyzes the facial expressions of service subscribers. It then measures expressions that show happiness, sadness or distress, as well as personal history to recommend optimal content tailored to individual users. Korea’s top portal operator, Naver, has also launched an AI-based music recommendation service called VIBE. Using deep learning technology, it analyzes the user’s preferences when listening to songs and proposes personalized music recommendations. 

Modern-day people are awfully busy with work, family care, self-development and the like. So, time could be more important than money. This could be why many are looking for goods or services that can save their time. For consumers who shun things that are onerous, complicated and time-consuming, subscription-based businesses are offering quality services using AI and big data.

Indeed, subscription services are evolving in a way to meet the needs of consumers. For instance, Market Kurly, a food delivery service, paid attention to fresh products that consumers tend to order more frequently. But they may feel pressured about rising costs of ordering fresh food too often. 

In consideration of this, Market Kurly provides a free delivery service to consumers who purchase products worth 15-thousand won or more. Consumers are given unlimited access to this service if they pay 4,500 won of subscription fees a month.

Clean, neatly ironed business shirts can be delivered to the customer’s home on a designated day of the week, and fresh blankets can also be delivered on a regular basis. These are some of the examples of new, convenient subscription services. The evolution of the subscription economy enriches consumers’ experience. American startup Universal Yums sends customers a box of snacks from a different country each month. Of course, the subscription economy does have problems as well.

There are problems about this new type of consumption. Users of multiple subscription services may wonder when they signed up for a particular service. Subscribing is an act of borrowing goods or services temporarily, not buying them. So, it may look inexpensive, compared to purchasing, and could prompt consumers to sign up for too many services and promote excessive consumption. In the case of online subscription, in particular, payment is made automatically once users subscribe and they don’t have to pay for it each time. It is convenient, of course, but consumers may become numb to spending.

Calls are rising over the need to control and supplement subscription economy. The government needs to devise more accurate and diverse support measures to expand the market for the subscription economy and increase its business potential.

For businesses, the subscription economy is an effective means of holding customers for a long time and producing revenue in a consistent way. The subscription economy has now become a major trend. If Korea makes the most of its advantages and remedies shortcomings, this new type of business model will serve as the nation’s new growth engine.