The subscription model has a number of virtues, including spreading costs across more entities in the market, thereby lowering the cost for each in relative terms, while creating a relationship between the provider and the consumer that tends to align their interests. Other models — advertising, sponsorships, APCs — presume the consumer relationship at some level, but don’t reinforce it, or necessarily align closely with the interests of the consumer. Rather, they use that relationship to generate secondary revenues by leveraging the consumer relationship in some way. Without the primary consumer relationship, the value of the secondary revenue streams decreases — advertising isn’t seen, sponsors don’t get the recognition they seek, and authors don’t receive attention and citations. The subscription model not only expresses value in and of itself, but it drives secondary value by creating an audience that is viewed as more engaged and sustainable.

But does the subscription model alone make companies more valuable?

LEGO figure heads

More people in formerly subscription-neutral to subscription-antagonistic business areas are beginning to believe so. With technology businesses maturing and the advertising market dominated by Google and Facebook, it’s not a surprise that the hot trend for many companies — or, shall we call it, the “remembering math” trend, or the “not wanting to get burned” trend — involves recurring revenues, which is code for subscriptions. Even Facebook is weighing the possibility of an ad-free subscription offering, partly to deal with its “crisis of public trust.” They see subscriptions as aligning themselves with their users, a shift from their current model where their users are the coal they burn to power their ad business.

With subscriptions, revenues switch from the fickle and consolidated producer-side (advertisers, corporate marketing departments, authors, and funders) to the more diverse and stable consumer side of the equation.

Like advertisers and marketers, funders aren’t forever. They typically have a time horizon before they shift priorities and approach, often a few years at most. The recent announcement that Wellcome Trust is re-evaluating its OA funding approach must have sent a chill through some APC-based publishers, perhaps manifesting as the word “RISK” in neon lights. If there are new approaches proffered by this leading light in APC spend, approaches others likely would follow, the market for contract review and publication services could change drastically. Similar things have happened around reprints, sponsorships, and advertising again and again.

From podcasts to e-newsletters to niche news and opinion sites, content startups these days are more boutique and less like unicorns — those magical startups expecting money to materialize out of thin air simply because they are unique. So it’s no surprise that recurring revenues are suddenly all the rage for sites catering to smaller and more focused audiences with specialized interests. Recurring revenues are harder to monopolize, are more robust, more reliable, and speak to a sturdier relationship with the sources of revenue (consumers).

This everything-old-is-new-again way of thinking about commercializing a content business is leading to some notable changes, with Google launching its new Subscription Tools and making these available to some large newspapers. It is also leading to more investment in content, with Amazon expected to spend $5 billion this year in original content in order to better support its Prime offering and deepen this subscription aspect of its business. Amazon recently raised the price of Prime, and because of the incredible value it offers and how Amazon keeps increasing this with content streaming of various sorts, most experts expect the price increase to work. (Amazon has more than 100 million Prime subscribers.)

The resurgence of the content subscription is well underway.

Scott Galloway, in a witty and provocative post, recently described the change in attitudes as pervasive, affecting where private equity, angel investors, and others are choosing to put their money. Rather than going to the bar to meet some hot new startup:

. . . the markets are telling firms if they don’t put a ring on it, and move to a recurring revenue model, they are going to end up alone living with cats. . . . once the markets realize you’re in a long-term, recurring revenue relationship with the consumer, the markets treat you differently. Similar to auto insurance firms that provide discounts to married people, the markets value recurring revenue firms at a multiple of revenues vs. EBITDA.

Galloway shares this handy little chart to show the price-to-sales ratios for firms that realize recurring revenues vs. those that have to live hand-to-mouth with non-recurring revenues:

SpringerNature’s prospectus for their imminent IPO contains numerous mentions of the strength of their subscription business. One strength is that their renewal rates are a healthy 97% for journals and 87% for e-books, nothing to sneeze at when it comes to solid, risk-limited recurring revenues. According to the prospectus, subscription revenues constitute 63% of the revenues in their research publications area, with the rest coming from advertising, reprints, and APCs (non-recurring revenue sources). They also note how non-recurring revenues could be a threat to their recurring revenues at multiple points in the prospectus, including this:

A trend towards “gold” open access models could decrease the quality and the depth of content available for our traditional Academic Research subscription publications and may negatively impact our revenues generated from traditional subscriptions. While a decline in traditional subscription-based revenues may be offset in part by APCs earned under “gold” open access, such APCs may not be sufficient to compensate for the loss in traditional Academic Research subscription revenues.

These potential trade-offs may be pivotal, as they would increase the overall risk profile of the business by shifting toward less reliable revenues while also undercutting the most reliable revenues.

The ultimate share price for the SpringerNature IPO will help calibrate the value of subscriptions in our market, as well as the market’s opinion of the threat posed by APCs as non-recurring revenue trade-offs. Given the 97% renewal rates for SpringerNature subscriptions currently, it’s hard to see APC revenues as much of a threat, even with recent dust-ups over licenses in Germany and elsewhere. We shall soon see if a business in our space built mainly on recurring revenues packs the kind of punch Galloway sees elsewhere.

Some APC-based publishers have made efforts to find recurring revenues, from PeerJ with its membership model and institutional model to PLOS with its years-long effort to create software it could sell as a service. Again, the benefits of recurring revenues are clear, but the path for some businesses to realize them may be blocked or out of reach because the businesses are fundamentally structured for non-recurring revenues. The failure of multiple print advertising-based publishers in the early 2000s are worth contemplating in this regard.

There’s more than math to suggest that the scholarly communication industry will have a thriving future with recurring revenues at the center of how we think about properly designed business models. There are diversity and community-based reasons, as well, captured nicely by the founder of Talking Points Memo, Josh Marshall, in a recent interview with DigiDay:

It’s unwise and extremely difficult for an independent publication to stay in existence without heavy reliance on subscription revenues that are based on a direct relationship with readers who have a commitment to the publication.

If there’s one thing most stakeholders agree upon in scholarly communications, it’s that having more participants in the publications space — from societies to university presses to boutique commercial presses — would be a good thing. (The debate of this idea is worthy; however, this is not the post for that particular exploration.) Marshall’s comments square with logic and history — the proliferation of small, thriving publishers coincided with the halcyon days of the subscription model. In our space, as the model of individual subscriptions gave way first to institutional subscriptions (which respond better to scale, so feed Big Deals and consolidation), and then to APCs (which work better in large-scale operations, which also feeds consolidation), these changes have left the short end of the stick in the hands of societies, university presses, and smaller commercial operations.

The proliferation of small, thriving publishers coincided with the halcyon days of the subscription model.

Yet from 2015 forward, subscriptions have thrived in the information space in general, from newspapers to podcasts to streaming services, as I wrote about recently. The trade publication, Associations Now, recently published an article speculating that now might be the time to move into subscriptions. Subscriptions reflect and work well within communities.

Broadly, we have a philosophical disconnect with the subscription model — we say we want more diversity in the market, to support society publishers and university presses, yet the high-profile business models we’re pursuing (APCs, in particular) only seem primed to shorten their longevity and limit their options. We talk the talk, then walk a completely different walk.

There is no such thing as “just another business model.” Business model choices summarize a lot of thinking, represent a lot of choices, and define a set of options. Facebook with a subscription model would be a completely different business from the one based on a targeted-advertising model. Business models are a form of governance, as I like to say. When you choose a business model, you choose what your company values, how it behaves, and what its incentives are. Given this evidence, business model choice may also determine how valuable your company appears to others.

(HT to Roger Schonfeld, for his very interesting Twitter thread on the SpringerNature IPO and other assistance with this post.)

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.


15 Thoughts on "Recurring Dream — Organizations with Subscriptions Are More Valuable"

One understands the “society” rationale for subscriptions. Where does the trend for end users interests that lie behind such emergent tools as Kopernio, Mendeley, Dimensions, etc. These seem to point back to the music industry model where researchers search for the relevant articles and “rip” them to assemble in a private space in the cloud. Does that impact on changing interest in the “bundles” as a subscription model? Or will there be more considered decisions such as with cable options?

According to some collected data there are supposedly close to 28,000 journals and somewhere around 150-200 search engines of various stripes across the academic spectrum which seems to argue that subscriptions may be selective for journals and revenue from individual articles via some subscription model may be an unexplored arena?

Analogies to the music industry aren’t very enlightening, I’ve found. Music has qualities that are very different from scholarly and scientific research articles. I don’t need an advanced degree in musicology to enjoy a popular song, for example. Also, scientific articles don’t behave as “blockbusters” or “hits” when it comes to sales or downloads. As for the idea that there is an “iTunes for articles,” that idea has been explored plenty of times, with no or limited commercial success. According to recent data, pay-per-view articles account for <1% of usage across 1,700 journals analyzed. The e-commerce and discovery capabilities are there, but for a variety of reasons (high price-points to protect subscription business, low user interest in ala carte purchasing at the article level, lack of scale for most content sources, many alternatives for sporadic article access, abstracts satisfying much demand, etc.), it doesn't seem to apply to this market.

I read somewhere and can’t remember where that there are some 15 million total PhD scientists in the world. That is about .205 percent of the world’s population. Now talk about a small market! Also, I recall that a scientist spends just a few minutes when looking at an article.
Additionally, scientists tend to read specific papers and as pointed out in SK fewer than in the past.
Thus, it seems to me that the subscription model assures the continued publication of a journal that is dedicated to a specific topic because the revenue stream can be relied upon. On the other hand, OA provides the mega journal which becomes a repository but not a very good consistent revenue stream for the publisher. Additionally, one of the pitfalls of OA is that an OA publishers needs a consistent and growing flow of papers, and funding sources which are becoming unreliable in order to support infrastructure and show profit or as non-profits like to call it excess revenue.
How does one evaluate the worth of a publishing entity in the current world of uncertainty?
Or as was said by Heraclitus — ‘The Only Thing That Is Constant Is Change

Hi Kent
If your analysis is spot on then
why the recent or increasing interest in developing such vehicles as Kopernio and Mendeley and a couple of others?

It seems that, currently the publishers are using a subscription model with their primary clients, libraries whose clients are the researchers. Kopernio etc seem aimed at the researchers who will go beyond their institutional libraries which was the reason for Garfield’s success with ISI and the apparent success with SciHub and Research Gate both of which are more than carbuncles on the anatomy of the publishers.

If David’s “continental vision becomes real, much like airlines willing to do code and price sharing along with hub “lounge sharing” and the big “if” of the devaluation of impact factors, what then? Can the increase in alternative distributions such as preprints etc see a shift back to the original idea of scholarly communication sans Maxwell’s “realization”?

Right now, these things work because the subscription model is strong, so there are strong content-driven communities and healthy editorial, review, and publishing organizations. There will always be a sideshow of illicit or free access to just about any content source, print included (pass-along readers, shared copies, photocopies). The exceptions prove the rule.

When content subscriptions were overwhelmed by free access (via Google, Facebook, and others for news, in this case), outlets failed, journalism suffered, reporting went away, and the societal damage of these losses have been steep and probably are incalculable. For example, who is reporting on local malfeasance at the town meeting when there is no journalist there? Who is investigating backdoor deals in dozens of mid-sized cities now?

The popularity of some of the services you name may be overblown or temporary. You didn’t mention, which was viewed as a fearsome trendsetter years ago and now seems a feeble and toothless tiger. Some services seem destined to be consolidated up into infrastructure, and some are already negotiating because their big ideas haven’t given them the financial independence they expected. Time will tell. The subscription model helps smaller communities and niche offerings thrive. If that’s what we want, then despite the noise, we should behave accordingly.

It seems to me that Springer sums things up nicely by stating OA will act as a scavenger and the revenue it creates will not replace the revenue lost from our subscription business. Thus, the worth of our business will decline. So buyer beware!

On the other hand, if funding sources dry up or change as Welfare Trust is doing, then it is possible that authors will return to subscription based journals and the value could go up!

Excellent explanation by John Micklethwait of Bloomberg’s decision announced last week to move to a metered paywall for its website: Lots of lessons from the world of media. He writes:

“The quality press has staged a remarkable resurrection, thanks to the introduction of metered paywalls that charge regular readers but still leave their websites open to much larger audiences of occasional visitors who can see advertisements. The New York Times, which already has almost 2 million digital subscribers, is aiming for 10 million; about 100 million people still visit its website each month. The Wall Street Journal, the Washington Post, the Financial Times, and the Economist all make most of their money by charging people for their content; old advertising-first fiefdoms, like Condé Nast and the Los Angeles Times, are also now building paid circulation quickly. Even Le Monde—hardly most people’s idea of capitalism—is now apparently profitable, thanks to a paywall.”

Thank you for adding this. I had a mention of this in the post in one draft, but eliminated it to keep things tidy, but it truly bears mentioning.

Another wrinkle Micklethwait reveals is that every technological change in publishing — from printing press to powered printing to digital — has seen a timespan of unreliable information as people seek to exploit the new technology, and then things settle down into more normal and controlled commercial and social lanes, largely because people start paying for information from trusted sources, and untrustworthy sources fall away.

Kent, thanks for another great post. While I agree in principle that a publishing model based on recurring, predictable revenue streams from paid subscriptions is preferable to unstable revenue from advertising, reprints, APCs, etc., I remain skeptical that the shift to and success of metered paywalls in the magazine and newspaper industries, which have potential audiences that are magnitudes larger and can offer much lower annual subscription rates, can be successfully applied to most scholarly journals. (Sorry, I know I am rehashing a previous comment on TSK.) This model might work for the highest impact (factor) and more popular journals/journal-magazines that can attract a large enough paying audience.

I think we can all agree that we are not going to see future annual increases in library subscription budgets. For clinical journals outside the major general medical titles, the “subscriber” base is society members who receive the journal as a member benefit. While I have seen some small surveys and heard anecdotally that access to journal content can be a challenge for primary care physicians, there are enough ways to get access (UN and PW sharing, colleagues) and stay current (literature summaries and news publications) to disincentivize paid subscriptions to journals that cost hundreds of dollars a year. In addition, I am not aware of a Sci-hub analog for magazines and newspapers unless you include UN and PW sharing by paid subscribers.

So while I would like to think that societies and publishers can convince customers to pay for must-have, compelling content, the reality is that most journals need to look beyond the subscription model because the individual subscriber market size is too small for many scholarly publications.

Hi David,

The individual subscription market worked for a long time, even for small markets. In fact, that’s where it seems to work best. There are some newspapers and other content outlets that are working well with a subscription model. Talking Points Memo has 26,000 subscribers at $50/year. That’s pretty niche, yet their subscriptions are growing. Whether a metered paypoint or a hard paypoint or some variant makes sense, the temperature of the water is changing, you are correct. It would be a shame to stay out of subscriptions, however, on the assumption that the market is too small, etc. Subscriptions work best precisely in these markets. My fear is that the last 10-20 years have convinced us that the possible is impossible, while others who don’t hold these biases are proving that building a $1.3 million subscription base that is growing in a niche market is not only possible, but increasingly feasible and desirable.

Apologies for coming late to this discussion. Just one point from someone who worked for Thomson Reuters for 20 years running subscription businesses. As a commercial business model subscriptions have the obvious attraction of repeat revenues and somewhat predictable cash flows. And as the post points out business model is a choice and it helps define priorities. In my experience the subscription business model means you prioritise renewals and in so doing you spend a lot of time and energy looking to improve the service you offer. So with Westlaw there will always be a pipeline of new features and functions and the decision is which to include within existing subscriptions to support renewals, which to monetise as a separate or add on offer etc. The focus on making your service better and to offer better value to subscribers is a positive but it is difficult to have this focus and a focus on innovation or a focus on “is there a better way to do this”. My experience was that subscription businesses were really good at incremental product value proposition improvement but less good at innovation. Acquisitions therefore would often be targeted at more innovative businesses but again often with the focus of how can these sit alongside and support my core subscription offer. I think it is difficult to blend the how do we do this better and the how do we do this differently mind sets of subscription businesses and more innovative businesses (as has been commented – one of the challenges for SpringerNature) but I hope that the academic publishing sector makes a success of it.

Hi Peter

1) Given the service of Westlaw and other such information services, were you able to measure the impact on retention or new acquisitions by the “improvements” or additional “features” were added
2) After the availability, was there a measure of the use of these new features either to the current and future subscriptions or as separate services

Westlaw’s critical service was its search so the “added” value would seem to lie in that arena which is where the scientific journals seem to be heading but remains problematic in that the publishers don’t have the same lock on the subject database.

My experience was that usage was looked at in great detail (some might argue obsessively) as it was the best proxy for value that was fairly straightforward to measure, compare and understand. As Westlaw was introduced into markets targets for usage were set and those targets were broken down into broad buckets – the increase in usage from new customers, more users and increased usage at existing customers and the impact of new content or functionality. Product development teams were incentivised on these targets. If the new content or functionality was a separate service then it too would have usage, financial and market share targets. If the improvements and additional features increased usage in aggregate and at the customer level this was seen as a positive and would be reflected in either the ability to accelerate new sale or to increase price or, more precisely, to increase share of customer wallet as often Westlaw was competing with LexisNexis and others for that customer’s budget.
In both new and mature markets, usage was looked at one three broad fronts:
– How much is each customer using the service. Low levels compared to the peer group could mean a preference for a competitor, a low number of users within the organisation that could be addressed by training or a customer getting low value from the service and at risk of non-renewal (and therefore a price/service offer could be appropriate). And, of course, customers with high levels of usage compared to the average would be key prospects for new offerings.
– what are patterns if usage telling us about the user and how can that inform better results for other users; predictive analytics.
– lets test a new feature or functionality against the current service to see if it makes it quicker and simpler to perform routine tasks or to find the information required.
Agree search was a focus in the context of the relevance of the results and the other driver was enriching metadata both to drive usage and to differentiate these paid for services from the free legal database available in many jurisdictions.

Peter, thanks for the explanation
As you clearly note, Westlaw was in competition with Lexis Nexis to basically mine the same data. In the case of academic journals, the objective is to capture as much of the data by creating more journals and pushing the “value” of that exclusivity by adding the “impact factor” to drive publications of and search of exclusive knowledge. It’s like opiates- get a supply and increase availability and a demand, raise the price. It’s a version of today’s advertisement driven platform model-think Facebook. The problem with FB was that they didn’t pay attention to the content. As one commenter on the list noted, why an Impact Factor- just read the material. It is doubtful that many of the line “managers” of the actual publications know what is in the journals, themselves, as someone up the chain saw a hot topic and said that this is the market, go get it, hence the recent dust up over the computer journal, or the more mundane capturing of assets such as real estate, stocks or mineral rights

There has been a constant effort on SK to promote “value” and “service” of publishers, yet the recent flap about Nature’s IPO had little to do with that in the promoted analysis which is “bottom line”. One of the arguments here and elsewhere is the cost of the value provided to the academic community, yet that service, subsidized by the academics themselves, is provided by other publishers at substantively lower costs. As Kent notes, I usually cite Maxwell’s insights, yet it is those very insights which have created the pricing model which continues to drive academic publishers; other arguments ring hollow.

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