I’m a big fan of the subscription model for businesses that offer content and services. I’ve always been more comfortable with the subscription approach, so it’s been interesting to see the supposed “Digital Revolution” do more to legitimize the model than anyone imagined or possibly has realized.

This led me to ponder: Why do I like the subscription model so much?

Part of the reason has to do with John Oliver, whose new show, Last Week Tonight, is taking the world by storm. Oliver has brought a new level of ferocious comic genius to us with his show, overseeing long segments on topics network and basic cable shows only scratch the surface of — Net neutrality, the elections in India, Dr. Oz’s pitchman status, and so forth. Recently interviewed on NPR’s Fresh Air, Oliver talked about the independence his new workplace gives him:

The exciting thing is that [HBO] let[s] you do whatever you want. They don’t say anything. They’re amazing. It’s almost a confusing amount of freedom.

Within the context of the interview and with reference to the business of cable television, it’s clear that the freedom Oliver has achieved is largely the result of the subscription model. HBO is a premium channel, and his show has no advertisers. His only paying customers are subscribers to HBO. He can take General Motors to task for 15 minutes without fear of backlash from advertisers or sponsors. His relationship is with the viewer, the subscriber. As long as they are happy, his show is a success.

This is, to me, one clear benefit of the subscription model — it has an unparalleled amount of integrity for content publishers, whether those are newspaper, magazine, journal, television, or music publishers.

Scholarly publishing has for a long period drifted away from the subscription model, and we’re paying the price. The site license model has interfered with direct subscriptions for many publishers, but since the financial bargain has been acceptable, the strategic issues have been grudgingly tabled. The last decade of fixation on site licenses and OA has led to a general neglect of subscription marketing and e-commerce infrastructure. At the strategic level, direct subscriptions and group subscription offshoots are often overlooked or simply not considered viable anymore.

The integrity enjoyed by John Oliver extends to subscription customers. Outside of the subscription model, privacy erodes quickly — demographic databases for advertisers, data analytics and data aggregations for free online services, and so forth. The constant churn of privacy policies centers around non-subscription business models. Most subscription businesses make a point of protecting their subscribers’ details. Users benefit from more privacy within the subscription model.

Another benefit is that the subscription model drives innovation because content publishers have to continue to earn business by engaging with subscribers.

Surprisingly, the subscription model is arguably more popular than ever. Your cable bill, your cell phone bill, your Netflix account, your Amazon Prime account, your car’s GPS data plan, your Sirius channels, your Pandora account, your FitBit account, your Kindle subscriptions, your ZipCar account — all of these are driven by the subscription model.

The subscription model creates incentives to innovate. In our world, when you compare subscriptions to models like Gold OA, which have innovation limits hinted at by the basis for payment — the article processing charge (APC), which defines the business precisely — the subscription model is flexible and rewards innovation. Whether it’s Pandora improving its algorithm or Amazon improving its delivery times or UPS improving its tracking information, subscription innovation is everywhere, and it is increasing.

Even though it’s known generally for selling individual items, Amazon is perhaps the quintessential subscription company. Amazon Prime is a popular subscription offering — so popular, in fact, that Amazon is implementing a 30% price increase for it in 2015, and nobody is shocked. They are loading it with value, from streaming video to streaming music to faster shipping.

But the innovation in subscriptions is only beginning. Now, Amazon offers subscriptions to products. I have two product subscriptions, so that I receive two food staples via Amazon every few months. Subscriptions to food? That’s innovative. Target recently began a big push along the same lines, with television advertisements outlining the benefits of subscribing to pet food, cosmetics, baby supplies, and more. The new drinkable foodstuff, Soylent, came out of the gate with a one-time offer and a lower-priced subscription offer. The list of innovative companies using the subscription model goes on and on.

In fact, the puzzling acquisition of the Washington Post by Amazon’s CEO Jeff Bezos only makes in the frame of the subscription model, as revealed in a recent article from the Columbia Journalism Review. In the article, Bezos is quoted as mentioning the “gifts the Internet gave us” as driving his strategy, while linking financial success with engagement with readers:

Throughout two days of meetings, Bezos worked to reassure journalists that “the values of the Post don’t need changing,” while at the same time indicating that this would be a very different era at the paper—one focused on the kind of growth and obsession with the customer that have defined Amazon. The unstated purpose of Bezos’ visit was to convince the Post newsroom, its readers, and the wider media world that these two cultures were compatible.

That last sentence captures the virtuous cycle of the subscription model quite well. But the Bezos-era Washington Post’s strategic ties to the subscription model become even clearer later in the same article:

Beginning in March, [the Washington Post] announced a partner program that now gives free access to the Post’s website and mobile apps to the subscribers of nearly 100 newspapers around the country, including The Dallas Morning News, the Minneapolis Star-Tribune, and The Denver Post. Not only does this program give the Post huge potential market penetration at very little cost, but it turns audience that might otherwise be fly-by users into logged-in, data-rich subscribers. The Post now talks of expanding the program to any type of subscription service that consumers may have, making the newspaper that was once “For and about Washington” into the high-quality, paywall-free national newspaper of every subscriber to services like Netflix or Spotify or, yes, Amazon Prime.

Essentially, Bezos appears to be attempting to leverage the new subscription-based infrastructure of the Digital Age for his revamped newspaper.

It’s worth noting that I found this article through The Browser, a subscription-based online curation site for excellent writing. I gladly paid its annual subscription price when asked because they do such a good job, and because they have implemented Readability in a manner that allows me to send selected articles to my Kindle at no extra charge. I can find great essays and timeshift them to my nightstand with a click. That’s worth $2/month to me.

Why does the subscription model work so well?

For readers, it works well because it gives them a stake in the content creation process. Readers and users are the customers, and satisfying them becomes a major issue for content publishers. Editors become more focused on reader needs, and for good reasons. In fact, paying directly gives readers viable claims on editors’ time. This is important. The subscription model also gives users and readers legitimate position to complain about intrusions from other revenue streams — if advertising is inappropriate or too intrusive; if sponsored content becomes obnoxious and confusing.

The subscription model lowers costs for each subscriber, as well. By spreading the costs over the largest-available audience, each member pays less.

For content publishing businesses, the subscription model works well because it has long-term viability — and because when it fails, it fails quickly (or “fails fast” to use the jargon of the day). Every business works better when the vicissitudes of supply and demand are smoothed out, and when risk is spread across many sources of variability. The subscription model does both of these things well.

By amortizing the cost of acquisition over a multi-year period, the subscription model cements a relationship between producers and consumers. It also incentivizes long-term value creation and a focus on end-user needs. It provides publishers with stable revenues from a diverse set of customers, reducing the risk posed by single points of failure, which can occur with issues like customer concentration (a few big contracts) or low barriers to competition (as may be occurring among various OA outlets). It also provides the largest purchasing pool possible, as consuming information is much more common than producing it.

The benefits of the subscription model have even proven irresistible to OA businesses. PeerJ‘s model has as much in common with the subscription model as it does with the APC model. Additionally, OA business approaches that tie institutional subscription or membership (which is a form of subscription) to OA discounts also rely on the subscription model. The two are often tied together in some way, mainly to mitigate the risk associated with the ad hoc revenues associated with OA publishing.

Non-profit and professional societies also use the subscription model implicitly in their membership model. Membership is a subscription, pure and simple — long-term relationship, high cost of acquisition, long-term value creation, conversions and renewals, and so forth. It’s no surprise that publication subscriptions and memberships are nearly always bundled, as they spring from a common business model.

In the midst of constant chatter about disruption and the Internet changing everything, traditional publishers have become much less confident with the subscription model. It took years for major newspapers to revert to the model after attempting ad-based and other models — with the prominent exception of the Wall Street Journal, which never really strayed.

A lack of confidence in the model poses real problems for traditional publishers. Our local paper exhibited these symptoms recently, trying to cut its way to profitability rather than leveraging its subscription model. A truly local paper, we cherished it for its in-depth coverage of events in our town, from high school sports to local fundraisers to our town meeting to the moderately scandalous police log. At $23/year, it was a bargain for 52 issues delivered through the mail. However, in January of this year, rather than raising rates, the publisher combined coverage from four nearby towns into one paper, plastering local mastheads on the same coverage in order to save money and keep going.

This watered down the value proposition, and was clearly an act of someone who had no confidence in raising subscription rates. Yet, we live in a community and state with high standards of living. The publisher could have easily doubled or even quadrupled the subscription rate, and the loss of readers would have been slight. After all, what’s $2/week for a paper with a sizzling local police log? But the lack of confidence in the model led to the sad and slippery slope of cost-cutting and consolidation. We ended up canceling when the renewal notice came, when we would gladly have paid more for the product we once received.

Publishers shouldn’t run from or forget to build for the subscription model, especially when it’s proven so successful for new digital businesses. It is especially valuable now that hard goods (e.g., printed books, printed journals, record albums, CDs, and DVDs) are becoming purely digital products, making purchase more of a license than actual acquisition. The challenge is to tune the subscription model for the modern age, with attributes like auto-renewal, planned price increases, enticing product bundles, and confident marketing. But we also have some work to do, as the infrastructure for subscriptions has languished at most publishers — in personnel with the expertise to execute, management with experience to lead, and technology that paves the way.

Last summer, my organization spent many months exploring the options around e-commerce systems for publishers. There were few good options. Most e-commerce storefronts are based on shipping hard goods and not on taking subscription orders and earning revenues over time. We ended up building our own. Its full capabilities went live at the end of May, just a few weeks ago. So far, orders are up 30%, and our online-only sales for one product have matched, in one month, approximately what we’d sold for the same product in the prior two years. Not only is the new e-commerce system easier to use, but it allows single sign-on for most of our products and has provided us with ways to sell bundled offerings we couldn’t consider before. By the time its full capabilities are functioning smoothly, we anticipate having many more happy subscribers.

The subscription model is allowing music publishers to compete with iTunes. It is allowing Amazon and Target to compete with grocery stores. It is allowing the Washington Post to reimagine itself. It is allowing editors to make a living selecting the best from the rest. It is your cell phone, your wearable, your streaming service.

The subscription model isn’t a relic. It just may be the hottest and best business model around.

Kent Anderson

Kent Anderson

Kent Anderson is the CEO of RedLink and RedLink Network, a past-President of SSP, and the founder of the Scholarly Kitchen. He has worked as Publisher at AAAS/Science, CEO/Publisher of JBJS, Inc., a publishing executive at the Massachusetts Medical Society, Publishing Director of the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics. Opinions on social media or blogs are his own.

View All Posts by Kent Anderson

Discussion

27 Thoughts on "Hiding in Plain Sight — Is the Subscription Model the Optimal Business Model for the Digital Age?"

“Subscriptions to food? That’s innovative”

It’s a re-invention. When I was younger (in the UK) we used to pay weekly to have regular daily supplies of milk (and cream, and juice) delivered to the door before we woke up. That’s a subscription for food. It bolsters your point about subscriptions, but it’s not an innovation.

These deliveries went of course when cost of bulk purchasing by supermarkets, combined with easy access to cars and home refrigeration. led to price falls at outlets that trumped for most the convenience of delivery.

Good point. In the US, the milkman was a subscription service. It still runs in some localities. That’s another example along the same lines. Thanks for the addition/correction.

It stil runs in my neighborhood, and I run the risk of being run over by it while I’m running in the early-morning hours. (If any of you scholcomm types out there are moonlighting as milkmen, please have a care for us early-morning runners!)

It can also be used imaginatively to provide new upsell growth opportunities from a static market.

A great example is, of all things, Blenheim Palace – Winston Churchill’s birthplace. Until a few years ago his followed the standard ‘pay as you go’ entrance fee for the palace and gardens (the estate was free). The cafes, giftshop etc were behind this, quite real, pay wall. So they had access only to people who paid full whack – not many locals do this more than once a year, so tourists were the main market.

Then about four years ago they converted the entrance fee into ‘pay once have 12 months access’. An annual subscription, though never sold as this. Now that annual payment gives you regular access to the wonders of Blenheim, with the temptations of cakes, coffees, sarnies, gifts etc each time you enter.

I’d love to see the figures on the numbers of Oxford families that go there many more times a year than they used to. and the spend now compared with the introduction of this. If the investment in facilities is any guide then it’s going pretty well.

This practice is increasingly widespread in the UK cultural heritage sector. However, I’m pretty sure that this is primarily driven by HM Revenue and Customs rules around Gift Aid rather than being a genuine attempt to persuade local people to make repeat visits (although that could be a very useful by-product). To simplify, charities are able to reclaim tax on donations that allow a minimum 12-month access period, while they cannot do so on a normal admission fee. Gift Aid also gives charities a reason to collect your name and contact details, which some will then use for marketing (although you should be able to opt out).

Exactly right. Annual membership fees – to a local museum, NPR, or Amazon Prime – are based on the same principle as the subscription.

I’ve been anxious to see the subscription model for e-books take hold as a viable business model. As someone working in the book publishing industry and working directly with services like Oyster and Scribd, I’ve seen first hand how removing the barrier of per-book-purchase can greatly influence consumer reading habits, allowing backlist titles to surface and “dead” titles to have a second (albeit small) life.

The services are proliferating (Entitle and Blloon coming on) and establishing verticals (Epic for children’s books; Librify for Book Clubs). It offers a non-traditional approach to consumer engagement that smart publishers are noticing.

Another interesting initiative in the book space — not exactly the subscription model, but related — is unglue.it. Publishers, and authors, are often reluctant to risk far less income on a new book by making it available with 1000s of others in a subscription service where they might get only a small incremental payment for each use. Unglue.it is based on a type of “subscription” to an individual book, with three approaches: crowdfunding the initial publication, and then making it open access; buying a book with the knowledge that when X number of sales are made the book will be made open access; or making a backlist book open access when the publisher or author has already made income from the frontlist sales of the book, and can attract $X more from folks who want to make the book open access. This takes a lot of the risk out. I realize this isn’t exactly the subscription model that Kent was originally writing about, but I thought it would be an interesting variant to point out in this context because it is another mechanism for aggregating small payments from a bunch of people to make something happen that might otherwise not happen.

Sure, long-term subscription is a great way to charge for services (hence monopolies force it whenever they can).

But Kent, do you also prefer to buy services via long-term subscriptions when you are buying them for your organization? In contrast to a private consumer, an organization has much more leverage on the terms of the trade, and it is probably more concerned of the exact end margins than someone purchasing opportunity to enjoy John Oliver’s satire. Would you still prefer to make an annual deal paid upfront? In B2B situations, questions on unit price, avoidance of vendor lock-in and such things may cause many organizational buyers to avoid long-term subscription model?

We often do this. Annual licenses to software are one form of subscription I didn’t cover, and they are common throughout the business world. They also lower costs for each subscriber because they spread the money around. We pay some information services the same way.

Termination is always possible with the subscription model. That’s part of why it works. The provider always has the threat of termination hanging over its head. This increases focus on the customer.

It’s pretty rare that a business like ours buys services on an a la carte basis. There are tremendous economies of scale in buying in bulk, and signing a multi-year deal with a supplier will lead to better terms than negotiating a price for each instance of service. It’s also important for these to be long term relationships–there’s an enormous amount of complexity in many processes, so it often takes months, if not years, to work out all of the kinks. One doesn’t want to invest all that time and effort (on either side) only to see the other partner disappear.

I live a couple of miles from Blenheim and can confirm this has worked at least in part! We haven’t yet made our first visit this year, but when we do we will get an annual pass. It creates quite a different feeling, one of relationship (maybe even partly ownership) rather than transactional pay-and-go. I haven’t considered my relationship with content in this way before, but there are clearly parallels. I subscribe to The Guardian and feel part of its community. There must be a psychological contract underpinning some subscriptions. Mind you, I don’t feel that about the milkman or Elsevier, despite good service, so let’s not overstate this!

Inspired by this post, and because I am a big fan of Oliver’s mentor Stewart (evidently, comic genius is contagious!), I wanted to see how I could subscribe to something that would let me pay John Oliver for watching his new show, which I hear is taking the world by storm.

Now, despite a common misconception, there is some “world” beyond US and UK. I happen to live in that little slice of the planet. Could I purchase access from hbo.com, even for past episodes? No way.

I was not surprised. Even for the freely available full episodes of Stewart at Comedy Central’s website, I already have to resort to a few (probably legal) workarounds around their naive location-based digital walls.

Ok, so (legal) online is out of the question, how about my TV?

There is a thing called HBO Nordic based in Stockholm, but I stopped reading when I found out they are being investigated by Finnish Competition and Consumer Protection Bureau for unethical or possibly fraudulent practices to trick people without notice into long-term over-priced subscriptions, and for unethical use of user data. Besides, to get HBO Nordic, I would first have to sign to another long-term expensive subscription with cable provider Sonera who has monopoly in this postal code area, and only then could I buy the channel. Oh, and of course this version of HBO does not even carry Oliver’s show at all.

So, I can’t watch “The Last Week Tonight” at all then?

Of course I can, it’s not even difficult. It is just a few (probably illegal) clicks away. Handy how-to instructions are available to anyone. At the same place where the show itself is. The Internet.

What is difficult is to find a convenient, reasonable way to give your money to the content providers, without being spied on, without your data being sold, without having to have half a dozen ancillary subscriptions, without being tricked by some middleman to pay more than is fair, without being required to buy a bundle when you just wanted to pay John Oliver and his production team. Yeah, I do understand that the “production team” must encompass many people from sales reps to lawyers to janitors to CEO of HBO, but nonetheless, it should be doable.

It is crazy that paying the jester is so difficult in this age of internet and decentralized virtual currencies.

For an end-user concerned about variable costs for products/service with ongoing and relatively predictable need subscriptions can make a lot of sense. I can predict with a fair degree of certainty how much cat food I will need to buy on a monthly basis and may choose to subscribe for the convenience factor. In the case of scholarly journals it’s an entirely different situation. The end-user is generally unaware of the cost of the subscription and may not even be aware of the title of the journal–they care about a specific article they came across during a database search, a citation or recommendation from a colleague. More significantly the end-user is not the one paying for it. The library pays for ongoing access and, until relatively recently, had only the most crude tools for measuring the demand. Now that we have more precise tools we are understandably questioning the value proposition of subscription over purchase of single articles.

But your cat is the end user of your cat food subscription, I trust! 🙂

So we can all still haz subscriptions, yes?

One of the unique new features of the subscription model in the digital age is that it can be used for both ownership or access. When you use it for the electronic version of some journals you’re using it for access only, but when you use it for the print version of the same journal, you keep the journal and access to previously published content doesn’t disappear when the subscription expires.

I’d really like to see subscriptions added to the Patron Driven Acquisitions model of scholarly ebook content. The model is really problematic in that it offers a crazy amount of access to a huge volume of content for free, but content creators are only compensated if significant use triggers a purchase or a rental. The revenue content creators receive in this model doesn’t fairly compensate them for their costs, and favors popular content over important or quality content in less popular or glamourous disciplines. If we added a subscription cost for access, ownership triggered by use has a less negative impact on both scholarship and publishers, and the model becomes much more balanced for all constituents. Like for John Oliver, publishers can then be less concerned about publishing in challenging or unpopular areas. I truly hope we can fix this model, and subscriptions may be the way to do it.

When you use it for the electronic version of some journals you’re using it for access only, but when you use it for the print version of the same journal, you keep the journal and access to previously published content doesn’t disappear when the subscription expires.

All of our subscription agreements include perpetual access to content. Basically, if you pay to subscribe to a journal for 2014, then drop your subscription in 2015, you will always have online access to the articles you paid for in 2014. It’s a pretty standard part of subscription agreements as far as I know, so perhaps not a big difference between print and electronic.

Okay, then let’s use the New York Times as an example. I’ll admit I don’t subscribe to any digital journals so was not aware that had become standard.

That is not true for the journals I work on. You have access to both current and past issues as long as you have an active subscription. When the subscription lapses you do not have access to any content.

As someone who has been a collections manager in libraries for many years, I can tell you that both the model you describe and the one David describes are common.

I also am a big fan of the subscription model, having spent the last 30 years in that business. However, I have to take exception to a small part of your post. You are engaging in what we call “mother-in-law research”: because I am willing to pay more for my local newspaper it is obvious that everyone in my community must also be willing to do so. I’ve had the privilege of seeing the results of paywall price testing for a number of newspapers around the country. The sad reality is that people are not willing to pay very much for access to online news. Small increases in price can lead to large declines in response rates.

Unlike most scholarly publishers, the Washington Post is engaged in a brutal fight to become one of a handful of papers that exist on a national/international stage. What Bezos has figured out is that “free” is the best price available to consumers. Unlike most companies, he is able to afford this; neither his partners nor the ultimate consumer pays the WP a dime. As you point out, what the WP gets is access to data and builds brand loyalty. I don’t think this will work for your local newspaper for very long.

The subscription model is great! It works for content as well as hard goods. But you need to carefully measure the return on everything you do and not fool yourself into thinking that something is good just because you like it.

And let’s not forget the cloud, which is in a sense a subscription to infrastructure. . . .

What’s interesting is the thinking behind some technology-service providers’ approach to bundling content in with subscriptions. In some cases this could be seen as moving from content to technology subscriptions putting the service provider at an advantage, particularly if they have sufficient scale and market share. It seems a challenge here then is to know your core audiences and build in the services they need, otherwise, relying only on the technology nous of others could lead to solution lock-in / know-how lock-out on the publisher side. Knowing how to use the technology best and to this end – as you note, Kent – would therefore seem essential.

Ken’s blog post this morning on “Hiding in Plain Sight — Is the Subscription Model the Optimal Business Model for the Digital Age?” is spot on as he sites several companies and industries that thrive successfully on the subscription model. However the scholarly publishing industry has experienced significant growing pains and struggles going back to the eighties with the subscription model as the publishers increased their prices significantly due to changes in currencies, subscription cancellations, additional pages, etc.

These developments prompted the library community to put in place their annual journal cancellation renewal program to balance the needs of their user community with their budget. Prior to the launch of the digital initiatives like the one I launched for Elsevier, “ScienceDirect” in the Americas, librarians really did not have great usage stats to assist them in their annual review program.

One of the key factors that I stressed to our customers was the significantly increased utility value they would receive with Elsevier’s subscription model for ScienceDirect. In the print world they would have to buy multiple subscriptions of a popular journal. In the digital world the limitations of print access are eliminated the utility value of a journal and or articles are greatly expanded. Some time later we increased our digital offering with the introduction of the “Freedom” collection. This allowed an institution to gain access to additional journals at a fraction of the cost. The Freedom Collection the researcher to search across wider collections of journals/articles. These plans allowed the librarian community to leverage their investment in scholarly journals and provide more content and value to their community.

Consortia’s grew consistently over the ten-year period 1996 – 2006 and each participating institution was able to further leverage their access to additional scholarly content at cents on the dollar

Unfortunately, as the recessions (2001 and 2008) hit our economy, the budget pressures on the library were further exacerbated and the “Big Deal” became the “Big Villain”. The Big Deal in my opinion was a very easy target as the librarians discounted the publisher’s arguments that it provided the consortium members access to a “huge” amount of content, some of which that was cancelled due to their previous budget constraints.

As the Counter statistics indicate, the utility value of the subscribed content has exploded over the last 10 – 15 years. The library community has benefited from the “Big Deal”, in the face of their budget cuts however the serial crisis is still a serious problem for the entire scholarly publishing industry. The scholarly publishing community (Publishers, academic institutions, researchers, etc., must come together to solve this puzzle. I say puzzle as the pieces to solve the puzzle are there in front us, but the community must decide what pieces will comprise the new puzzle.

I would suggest that advertising will play a role in the new model to alleviate some of the financial burden and challenges facing the scholarly industry. The role for advertising will need to be defined and will require experimentation.

Subscriptions are very good for the scholarly publishing industry but there must be a balance between cost and the utility value received by the academic community. As I said the pieces to the puzzle are in front of us and collectively we must work together to put the new puzzle together.

The Dallas Morning News took the opposite approach from your local paper, Kent. Several years ago it increased its subscription price by 30%, and though it lost some subscribers, overall it retained enough to make the economics work out better.

Another example of a business using a subscription model is the time-share industry, which has had its ups and downs, however.

As for looking to advertising for scholarly publishing, remember that books used to contain ads back in the day. It is one of the older models I suggest might be resurrected in my article “Back to the Future”: https://scholarsphere.psu.ed/files/9880vr79q

Comments are closed.