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.