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How Subscription Companies May Navigate Economic Uncertainty

1 min read · 124 views Bong-Geun Choi Oct 31, 2022

Economic strains on consumers are putting pressure on nonessential expenditures. Is the news all bad?  What may help subscription-based consumer companies navigate this challenging environment? 

 

Payments and commerce consulting group PYMNTS published their September 2022 Subscription Conversion Index commentary summarizing the current state of the consumer economy and strategies subscription companies may employ to navigate this environment.[1]

 

Consumers Are Anxious About Economic Conditions

Consumers are anxious about current economic conditions, especially inflation. 85% of consumers are concerned about inflation, with 58% believing that the cost of living will be higher next year.

 

Consumers, on average, are paying between $101 and $500 more per month on groceries and $101 to $250 more per month on gasoline.

 

Cutting Nonessential Spending

As a result of economic concerns, consumers are changing their spending habits. 11% of consumers have eliminated all nonessential purchases.  76% of consumers have changed the way they buy groceries, with 43% only buying the essentials.

 

Subscriptions Are Not Immune from Inflation’s Effects

Consumers are paying more for their subscriptions and indicate that price is a major driver in the decision to either initiate or terminate a subscription.

 

How Subscription Companies May Navigate Economic Uncertainty

In conversations with subscription companies, the report indicated that flexibility is key to navigating economic uncertainty.  Specifically, subscription companies must be flexible with their payment and cancellation policies.

 

Flexibility with Cancellation Policies

Subscription companies need to be flexible with their cancellation policies, recognizing that a consumer’s financial situation can change suddenly. First and foremost, subscription companies need to be completely open about cancellation and payment options.  Then, they need to be flexible with cancellation policies, allowing consumers to pause or cancel subscriptions as their financial situation changes. 

 

Flexibility with Payment Policies

Subscription companies need to offer more flexibility with payment options.[2]  This includes allowing customers to pay using their preferred payment method, e.g., digital wallets, credit, or debit cards.  It also means allowing them some flexibility to set up a payment schedule, even the flexibility to decide what day of the month to make their payments.

 

Still More Companies Entering the Subscription Economy

Despite challenges, more companies are recognizing the potential benefits of subscription-based models and are offering new products.

 

The NFL unveiled a $5 per month product that gives subscribers live game access on their mobile devices and additional on-demand content.  This is in addition to their NFL+ and NFL+ Premium packages. 

 

Tripadvisor, USA Today, and The Weather Channel are bundling their offerings into a subscription-based product.

 

Car manufacturers are increasing their subscription-based options with BMW offering an $18 per month heated seats subscription, Toyota offering a remote start service, and GM aiming for $25 billion in revenue annually from subscription-based software and services by 2030.

 

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] Unless otherwise noted, all data sourced from: Economic Strains Put Nonessential Subscriptions Under Fire: Subscription Commerce Tracker Series, PYMNTS, September 2022

[2] Please see our blog Are Payments the Key to Subscription Success?


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 855-425-7426 or visit our website at www.fountetfs.com. Read the prospectus or summary prospectus carefully before investing.

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Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. 

 

The Funds’ concentration in an industry or sector can increase the impact of, and potential losses associated with, the risks from investing in those industries/sectors. For MTVR, the Fund may be concentrated in the entertainment and interactive media & services industries. The entertainment industry is highly competitive and relies on consumer spending and the availability of disposable income for success, which may cause the prices of the securities of companies to fluctuate widely. The prices of the securities of companies in the interactive media & services industry are closely tied to the overall economy's performance. Changes in general economic growth, consumer confidence, and consumer spending may affect them. MTVR may also be subject to the specific risks associated with metaverse companies. These risks include but are not limited to small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Smaller, start-up companies tend to be more volatile than securities of companies that do not rely heavily on technology. Metaverse Companies may rely on a combination of patents, copyrights, trademarks, and trade secret laws to establish and protect their proprietary rights. There can be no assurance that these steps will be adequate to prevent the misappropriation of their technology or that competitors will not develop technologies that are equivalent or superior to such companies’ technology.

 

For SUBS, the Fund may be concentrated in the software industry. Technological changes, pricing, retaining skilled employees, changes in demand, research & development, and product obsolescence can affect the profitability of software companies causing fluctuations in the market price of company securities. 

 

Both Funds are subject to communication services sector risk, which can involve the same risks as being concentrated in the software industry. Network security breaches, potential proprietary or consumer information theft, or service disruption can negatively affect companies’ stock prices.

 

The Funds are non-diversified. The Funds are new and have limited operating histories for investors to evaluate. New and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility. 

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MTVR · SUBS