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Subscription based services see spike in new accounts amid COVID-19

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Dan Burkhart, CEO of subscription management platform Recurly, joined Yahoo Finance's Jen Rogers, Myles Udland, Dan Roberts, and Melody Hahm to discuss the trends subscription based services are seeing as more people stay home due to the COVID-19 outbreak.

Video Transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live. Myles Udland here in New York. Well, during the time of coronavirus, I think everybody's taking a look at what they're paying for, what they're not, what subscriptions they had they perhaps forgot about, and what new subscriptions they might want to add to their respective bundles.

Let's talk to Dan Burkhart. He's the CEO of Recurly, a company that powers companies' subscription services. So, Dan, I guess start with a little bit of an outline, maybe for our viewers, of where you guys sit in the stack in terms of acquiring customers, processing payments, that kind of stuff, and then just preliminarily, what you guys are seeing in terms of trends on, you know, what areas are growing, what areas are people shying away from, and what's been unchanged.

DAN BURKHART: Sure. So Recurly is a 10-year-old company, so we have some track record and history of looking at observable patterns. We power subscription commerce, billing operations for about 2,000 plus companies, from publicly traded companies, household names, on down to many, many SMBs.

And it spans the gamut, from everything from digital media, entertainment, streaming, a lot of the names that likely most of us subscribe to to get through this period, as well as box of the month-- we call subscription commerce category-- on down to distance learning education, and a number of other categories, SaaS, business services, consumer services, et cetera.

MYLES UDLAND: And just going to take an overview here of, you know, some of the numbers you guys sent over in terms of the different categories you're touching, it seems like pretty much everyone has seen, you know, growth. We're looking at consumer goods up almost 20%. Publishing, as you would, imagine is up pretty sharply. That's including streaming, other things like that. Education obviously higher.

I guess as this matures, this period, as it were, you know, do you have any sense of what kind of subscribers are adding these things, you know, to their repertoire? Is this really going to be changing how people go about their consumption patterns for, you know, an extended period, and thus putting the subscription economy maybe more in the center of people's minds than it was before? And it had already been a huge trend over the last five, six years.

DAN BURKHART: Yeah, it's been on its way. And I think, you know, marketers refer to this, the early stage period of going into a free trial, as the purchase consideration period. And we've certainly seen broad acceleration in new free trials.

We saw a 36% increase over a two-week period for OTT, streaming, media on demand, and education. And that's from mid-March to the prior two weeks in March. And we're seeing a significant amount of those free trials actually converting into-- what we'd call rolling-- to pay and to paid subscriptions, which bodes well for those in that category. Those vendors are certainly seeing acceleration.

I think it's intuitive that OTT, media streaming-- OTT is an acronym for Over The Top. It's just media streaming that you would find on any of your number of devices.

Education is interesting. So Udemy and Code Academy and the kinds of companies that-- Kahoot. Certainly, you've seen the rise in Zoom's share price. Those kind of companies, that are being forced to be adopted just by the way that we are reconsidering our patterns of engagement with our friends, family, and perhaps schools, is really driving a new set of norms.

And so I think some of those norms will likely stick over some half life. Interesting commentary prior about [? gyms, ?] and there is always concern that some of those businesses might see that half-life prove to be a little bit of a challenge. Hopefully we'll get back to normalcy soon.

DAN ROBERTS: Hey, Dan. Dan Roberts here. Thanks for joining us.

You know, obviously, screen time is up. We all know that, and people are watching things at home. Now the question is, on balance, based on what you've seen, weather, then, it's the right time to be launching a new streaming service or if it's actually tougher than it would have been without coronavirus.

Because obviously, you know, something like Disney+ got in before all this, launched in December, and has done quite well. Obviously, Netflix doing quite well. I imagine Hulu's watchtime is way up because they just added the whole FX library.

But both Quibi and Peacock, which is from NBC, are launching at the height of this thing. And so on one hand, you might think, well, that's great, because people want to watch things. But as these subscriptions pile up, maybe it's a time when people are actually reluctant to add more and pay for more.

DAN BURKHART: Yes. And that is an interesting-- Quibi is, by the way, not a customer of ours. I will say Quibi did see some headwinds.

They have a different format, for one. They're taking the short form format, which may prove to be-- you know, we all have ample time on our hands, so perhaps we have more of an attention span to put into our media consumption habits. That's one theory.

But by and large, when companies launch, Disney+ included, there's a learning curve, and it's an operational learning curve. These kinds of businesses aren't easy to provide a high quality of service. And so customers will come in to engage in a free trial. Everybody likes something for free.

And that first user experience is extremely critical. So if companies can't get that incredibly right, those consumers may tend to vote for their feet-- or with their feet.

And so there has been a land grab going on, particularly in this category. We've seen a number of players increase the duration of their free trials, trying to set the hook, effectively, to get those customers hooked onto a show or some serial format that makes them want to come back for more and apply their credit card and roll to pay, as they say.

JEN ROGERS: Early adopters of this, clothes, jewelry, think Stitch Fix. I do not need any clothes right now, or jewelry really. I mean, I've got what I need. Are you seeing people getting hit in that area?

DAN BURKHART: You know, box of the month, e-commerce, there are those that are, I think, at home with a nervous tic and are somewhat entertaining themselves with the e-commerce clicking. We have seen evidence of some box of the month clubs actually accelerate. So I think the answer is, it depends.

It depends on what you're selling. It's not unanimous across the board. I think I would agree about clothes.

My 14-year-old daughter, as a sample of one, has continued to buy clothes. But by and large, the businesses that have been seeing the greatest headwinds, unfortunately, are the businesses that are dependent on foot traffic.

So you think of theme parks. The big massive theme parks, most of them have subscriptions and membership programs to bring your family back for as many times as you would like. And they provide perks.

Movie theater chains. We power several of the movie theater chains, and of course, they, unfortunately, have had to shut down. And interestingly, what-- I can name Cinemark, because they were very public about this early decision.

They sent a note out to all of their subscribers, paying subscribers, saying, hey, we're in this together. We're pausing your subscription. We will not be asking you to pay during this period, and we will resume when activities resume to normal, which I thought was a very honorable decision.

So consumables, to your question, are in that middle zone. And we, of course, look at this by category and by cohort, so over time periods. Consumables are one of those categories that are under re-evaluation. And I think it really comes down to that marginal utility and whether you're getting value at a certain price point as everyone's kind of tightening the belt and then rethinking what they're spending money on.

MYLES UDLAND: All right. Dan Burkhart is the CEO of Recurly. Thanks so much for joining us today, Dan.

DAN BURKHART: Thank you. My pleasure.