As part of our new “Best of Subscription Show” members-only series, we’ll look back at some of our most popular speakers and sessions and share key takeaways that show why this information remains relevant and how you can use it to grow your subscription business or inform your decision making. In our first article of the series, Ron Insana, an award-winning journalist, financial analyst, commentator and author known for his work for CNBC, MSNBC and the Market Score Board Report, shared his insights into current subscription megatrends and how they will impact subscription businesses and the subscription economy in 2022 and beyond.

Ron’s key takeaways and subscription megatrends

1. Despite the dramatic twists and turns of the stock market, inflation, and other challenges throughout the pandemic, the U.S. is moving toward economic recovery.
2. Subscription businesses are well-positioned to be successful in a post-pandemic world. Many of them already use a hybrid model for work, satisfying the needs of companies and their employees, and allowing them to pivot quickly as circumstances change.
3. Companies wanting to try the subscription model have low barriers to entry and scaling their businesses to meet subscriber demand.
4. Subscription companies are often using the latest technologies, so they can keep up with consumer expectations while supporting a remote work environment.
5. Subscription companies have multiple revenue streams, providing a more sustainable business model long term. Also, recurring revenue makes them more attractive to potential investors because there is some predictability in their revenue.
6. Subscriptions are sticky when they provide convenience, value and/or exclusive products and services. Amazon Prime, streaming audio and video services, and home delivery services (e.g., groceries, prepared food, prescriptions, essentials) are particularly popular right now. Why go to the store when you have items delivered digitally or right to your door?

TL;DR

The stock market in the midst of a pandemic

“In the first four to five months of the pandemic/recession, we absorbed new technologies quickly,” said Insana. “We became immediately comfortable with technologies that we probably were not going to use for four or five years. The acceleration of technology change, which crossed a wide variety of boundaries, was profound.”

It started on March 23, 2020 when the stock market bottomed out after a 34% percent peak-to-trough in 21 business days, the fastest bear market in history. By November 2021, the market doubled in 21 months, breaking the record for the fastest doubling in the stock market history.

Wall Street reflected this right away. Big technology mega-cap stocks like Amazon, Microsoft, Walmart and Target benefitted big time. Their robust internet presence that allowed for contactless delivery or interaction were all richly priced as a consequence of the changing technologies. While many retailers were hunkering down or shuttering altogether, these mega-caps were the only functional businesses in the economy at the depths of the pandemic.

Moving toward recovery

Moving toward recovery, the stock market has been uneven across the board, despite the government trying to stimulate the economy. The GDP is now above pre-pandemic levels in the U.S. Yet countries, including the U.S., are fighting inflation as the Federal Reserve and other nations struggle to lessen the negative impact of inflation.

“We’ve seen a wildly uneven economic rebound,” Insana said. “Retail continues to struggle in a partially unvaccinated population as workers contend with local, state, and federal requirements around vaccinations, social distancing, and mask-wearing. There are fewer workers returning to the jobs they had in 2019.”

Business challenges

“A shortage of goods is also compounding the issues during this rebound. Nearly every company from the mom-and-pop shops to the mega-retailers has talked about this lack of available goods. These pockets of weakness are preventing the U.S. from hitting the top-end growth range that many were hoping would carry the economy through to 2022,” Insana added

There are also oddities around the workforce. In 2021, 3 million Americans retired early, a number unheard of until this point.

“Many of them are baby boomers who enjoyed a stock market run up…Some of them have rethought their lives as a consequence of a profound event that took place that, in my mind, is the functional equivalent to a wartime economy,” said Insana.

Demand outpaces supply

“I have radically changed my view on where we are today because of the disruptions we’ve seen. I looked at post-war experiences from World War I, World War II, and the Korean War, and [at the time there was] depressed demand and depressed supply for a period of time, which effectively happened to us over the last 18 months. Then all of the sudden, because of the replacement income offered by the government and low interest rates offered by the federal reserve, demand bounced back fairly quickly against reduced available supply,” Insana shared in his keynote.

Prices spiked in a variety of industries like housing. The increase in demand for houses from Millennials who moved out of their parents’ homes and the decrease in supply caused a sharp spike in housing prices. For the first time in history, the median price of a home is $400,000, and people are moving to other cities like Austin, Spokane and Nashville to take advantage of lower housing prices without giving up access to the amenities of a large city.

Pricing for airfare and cars

The airline industry is also rebounding, but prices for tickets have spiked as well because they’re not being subsidized by business travel. This is causing disruptions in the overall pricing scheme. And there’s reduced capacity in the airline industry as a consequence of the pandemic. Workers aren’t returning, they have to quarantine during their travels or when someone tests positive for COVID-19, or they’re boycotting as a result of vaccine mandates.

Used car prices also increased because there’s a shortage of computer chips. Since new cars cannot be built without them, people are buying what’s available: preowned cars.

Inflation and liquidity

Last November, the inflation rate was at 5% even though growth slowed. The same could be seen during post-war environments; demand bounced back while supply was restrained. The difference in the pandemic was a healthcare war, not a military war. Supply has yet to return to normal functioning, so disruptions will continue.

“Economists are beginning to look for an acceleration of growth ‒ which is good for everyone’s business ‒ and it also reflects incoming stimulus that we’ll receive on the fiscal side, even if monetary policy starts to get just a tad tighter than it is today,” shared Insana.

For business owners, liquidity is flush with over $18 billion in the U.S. at the end of the third quarter of 2021. Many private investors are now looking at ways to take private businesses public, either through SPACs or other types of intermediary devices. This created upward valuation pressure on companies. Small businesses are starting at a faster pace as well. This could have an effect on the labor market, with people deciding to work for themselves instead of returning to traditional jobs. Given the technologies available to the average person, it’s become very easy, and there are very few barriers to entry to starting a subscription-based business.

Good news for subscription businesses

Insana spoke of his own experience in the subscription industry with his media companies and subscription megatrends to watch for.

“When you’re turning out $450 million a year in free cash flow because your subscription business is robust, it’s a great place to be, particularly when you have a triple revenue stream for your business,” he said.

Regardless of the type of business you want to start, Insana emphasized the importance of having multiple revenue streams to attract potential partners and investors.

The subscription industry is changing in a variety of ways that allow for greater flexibility. There’s a lot of disintermediation and disruption to current subscription models. Traditional cable packages, for example, are now being broken out into individual subscription streams like Netflix and Hulu.

At the same time, the subscription-based relationships between consumers and businesses are increasing. Amazon Prime serves as a “prime” example. The reason they offer content along with their Prime membership is to encourage consumers to buy more in the Prime space. This will continue to occur on an ongoing basis in a wide variety of industries. Subscriptions are sticky, and subscribers tend not to back away once they sign up.

Keeping pace with technology

The rapid pace of technological change has become extremely important. The pandemic accelerated technology at such a fast pace, making it incumbent upon businesses to look at technology and ensure they’re keeping pace with their competitors. Consumers are moving more quickly with how they utilize technology, and they expect the companies they buy from to do the same.

“There is no substitute for moving forward without technological assistance because you will get hammered,” says Insana.

Part of this technological shift is due to the pandemic, but the other part is the unwillingness of people to return to their old jobs at a particular price. The power dynamic has shifted in favor of the labor force, because money alone isn’t going to win moving forward.

An increase of stakeholder capitalism over shareholder capitalism is likely to continue. This is a result of people radically changing what they want to do, how they want to do it, and how much they’re willing to do it for. It’s a consideration that any business owner needs to include in their business model because labor will be more expensive, workers will demand more pay and more flexibility with how much input they get to provide for conducting business.

Looking to 2022 and beyond

“Everyone has an idea about how they want to work coming out of the pandemic. This will affect business models going forward,” Insana pointed out. Subscription businesses, fortunately, have the flexibility that other industries do not, in this case. The technologies and processes are already there to meet the labor force with these demands because they’re already operating in a hybrid working environment.

Despite this concern, the U.S. has, in the past, come out stronger after events like the pandemic. The pace of technological change will quicken moving forward and it’s crucial to pay attention. Not doing so is a major risk.

“From my perspective going forward, I love the subscription business model because it gives you a lot more flexibility and that recurrent revenue stream doesn’t necessarily show up in other businesses. And there are lower barriers to entry and expansion as you move forward in this economic cycle,” says Insana.

The bottom line: this is a good time to own or be a part of a subscription business as long as you are customer-centric, anticipate change, and work proactively to address it.