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Are Subscriptions the Future of Social Media?

1 min read · 104 views Bong-Geun Choi Dec 22, 2022

In December, 2022, Twitter instituted an $8 per month subscription fee ($11 for Apple users) on certain types of accounts, joining a growing list of social media companies embracing subscription-based pricing models.[1]  What is behind this trend?  Are subscriptions the future of social media?

 

Advertising Revenue Under Pressure

Social media platforms are turning to subscriptions to boost their revenue. Online advertising, historically the predominant way social media companies have made money, has been pressured by a weakening economy and changes to Apple’s ad tracking system which makes it more difficult for platforms to demonstrate a return on advertiser’s dollars.[2] 

 

Subscriptions to Boost Revenue

To make up for lost advertising revenue, social media companies are turning to subscription plans.  For example, they may charge a monthly fee for exclusive content.  Such is the case for Snapchat, which charges a subscription fee for exclusive experimental and pre-release features. [2] 

 

Ad-Free Experience

Subscriptions may allow social media companies to sell ad-free experiences. While a free account on a social media platform may subject users to ads, a premium subscription account removes all advertising.    Twitter is considering adding users the ability to read select articles from major news outlets free of solicitations on its Twitter Blue subscription platform. [2] 

 

Why Will People Pay?

When cable television first popped on the scene, no one thought that people would pay for something that had previously been free.  Social media may follow the same pattern. 

 

Given that individuals may spend almost seven hours a day on their ten favorite social media apps, they may be willing to pay for a premium experience. [2] 

 

Back to Twitter

Shortly after his announcement that he was buying Twitter, Elon Musk said that he was considering an $8 monthly subscription platform to lessen the company’s reliance on advertising revenue.  This may be particularly urgent for Twitter as some large firms have pulled back advertising dollars as they await to see Mr. Musk’s plans for the social media platform.

 

Twitter’s plan may include charging the fee for verified accounts, which adds the blue checkmark on the accounts of those who are verified.  Twitter currently has over 423,000 verified accounts, according to the Wall Street Journal.[3]

 

In December, the $8 fee was instituted, with a higher cost for Apple users.1

 

Are Subscriptions the Future of Social Media

Subscription-based pricing may allow social media companies the ability to lessen their dependence on advertising revenue. One additional potential benefit is that as social media companies are less reliant on big companies for advertising revenue, they are less beholden to their politics, which can make for a freer exchange of ideas, particularly dissenting views.

 

The Fount Subscription Economy ETF (SUBS)

The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees

and expenses, generally correspond to the total return performance of the Fount Subscription

Economy Index.  The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.

 

SUBS may present an attractive vehicle for individuals to gain exposure to companies offering subscription-based pricing models.

 

For a full list of holdings, please click here.

   

 

 

 

 

 


 


[1] Twitter to Relaunch Twitter Blue at Higher Price for Apple Users, Reuters, 12/19/22

[2] Forman, Laura, Subscriptions Could Be Key to Social-Media Companies’ Futures, The Wall Street Journal, 10/31/22

[3] Bobrowsky, Meghan, Elon Musk Wants More Paying Twitter Users, Hinting at $8 a Month for Verified Accounts, The Wall Street Journal, 11/1/22


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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