Subscription Model Redux: Loadsa Money for Uncertain Returns

Subscription Model

Last week I wrote about subscription fatigue particularly as it applies to video. Ampere Analysis (I don’t yet have a link to the press release) have just released some data that looks at another angle of this.

Global spend on TV, film and sports content “expanded from $100 billion to $165 bln between 2008 and 2018 – a 65% increase. Nearly $50 billion of this growth was in the last five years alone.” But what’s interesting about this is that while Netflix and others have sunk a significant chunk into this — from $2 bln to $19 bln last year, the vast majority of spending is still done by the traditional networks and broadcasters, accounting for $111 billion in 2018. “It is their reaction to the entrance of the new OTT players,” Ampere concludes, “which has fuelled the global content boom.

This means that these broadcasters are having to dig deep to fend off these new players: in 2013, a typical broadcaster or network spent roughly 41% of its revenue on content rights. Ampere expects that by the end of 2019, this will have increased to 50%. Disney’s spending rose from $10 bln in 2013 to $13 bln in 2018. NBCUniversal’s content expenditure has risen by over $4 bln between 2013 and 2018.

Ampere sees this as a rising tide lifting all boats. As networks shift to what its calls a Direct to Consumer model (and I would call a subscription model) OTT platforms like Netflix will have to spend more on original content, as I mentioned in my blog. But Ampere argues it also represents an opportunity for producers and rights holders (read indie producers) that don’t have any interest in building their own subscription services to replace the content the likes of Disney withhold from Netflix.

I’m not so sure. For one thing the likes of Disney are going to face shrinking margins as they funnel more money into content, and a subscription model isn’t going to bridge the gap, at least for now. And are Netflix users going to be drawn to more indie content on Netflix, and are they going to be willing to pay the same fees as they did for the Hollywood stuff? The good thing, generally speaking, about Netflix-commissioned stuff is that the viewer feels a certain bar has been reached — not always true, but you’re willing to give it a few minutes based on the Netflix logo. Wading through lots of indie content looking for gems might not be quite the experience existing users are looking for.

Which brings me to another problem with video subscription services. It’s not like music, where if you’re a U2 fan you might be up for listening to something the algorithm reckons is similar. But you can only watch so many murder-set-in-rustbelt-town documentaries. The contradiction is simple: Quantity does not equal quality. But quantity is what brings the punter back to the service. Netflix and other streaming services are going to find it hard to maintain their position if their app starts slipping down the list of priorities the user reaches for when they want to watch something. Pretty soon they’re hitting the unsubscribe button.

Subscription Fatigue: A New Economy, or a Bubble?

At what point do we tire of the subscription model — or at least pare back that chunk of our income we set aside for subscriptions?

I’m of course not the first person to ask this, and the term ‘subscription fatigue’ is already a common one. But with the launches of HBO Max, Apple TV+, Disney+ and Peacock in the next few days and months, it’s likely to be the video streaming world that gets hit first. At what point do we end up back at the point where we have to effectively subscribe to a lot of stuff we don’t want, paying more than we want, just to get the stuff we do?

I already feel I’m in that place, taking Amazon Prime in Singapore (which is rubbish, useful only for the Amazon-created content), Netflix (also a pale imitation of its US, Australian and UK cousins), Apple TV (UK edition) and things like Curiosity Stream, which posts to its Facebook page programs which often aren’t available in my neighbourhood. I’m already taking more subscriptions than I’d like.

So it seems the most likely winners from the launch of these new services are going to be those that bundle other services with them — Jeff Baumgartner of Light Reading quotes a report by MoffetNathanson and HarrisX that Hulu could get a bump in subscriptions (this is in the US, of course) thanks to Disney’s plan to bundle Hulu’s ad-supported service with ESPN+ and Disney+.

But there’s likely to be some pushback. There are some 300 video streaming services available in the US, according to Deloitte, while GlobalWebIndex found that expense of subscribing to multiple services was the biggest (36%) frustration of users in the UK and US. Their second frustration — content being pulled from their services (as Disney is about to do with Netflix.)

There’s a school of thought that says folk will suck it up. a Harris poll found that that there may be some short-term pushback, but people will get used to it so long as they get high quality content. (That the poll was conducted on behalf of Zuora, which er, lets companies “in any industry to successfully launch, manage, and transform into a subscription business” probably should give you pause. See graphic above; the industry is expanding rapidly; and I’m guessing in part it’s because people haven’t yet figured out how to budget for all the subscriptions, and realised that all these nickels and dimes add up.)

My take? I don’t buy the idea that there’s no limit to what people will subscribe to. The point about these subscription OTT models is that they can be easily subscribed to and, at least in theory, just as easy to unsubscribe to. Gone are the days when you’d sign up to a long-term contract. So expect people to shuffle between subscriptions if they feel something’s not worth it. (It’s called cancel culture, apparently.)

The Deloite survey found that “with three subscriptions services as the average, many say having to piece together a variety of services is a source of frustration. What bothers them? The total number of subscriptions, the time spent searching for shows they want to watch, and when shows on streaming networks expire.”

And expect this fragmentation of the industry to get worse. If there’s even a sniff that Disney and HBO’s bids pays off, it’s not hard to imagine aggregators like Netflix and Amazon quickly hollow out. (And Spotify and Apple might go the same way with music.) People will subscribe to these services only for the original content, and they’ll expect to pay less for it. Quartz reckons that this content will veer towards the ‘product-based’ — think Marvel over Mrs Maisel. In other words, these services will become studios.

The bigger problem: none of this takes into account how we perceive content. We don’t think “I want to watch an HBO movie or a Netflix documentary tonight.” We don’t think in terms of who created the content, we think in terms of the content. We want everything within easy reach, and nowadays, though our forebears who had to get in a car and go to Blockbuster to rent their analog equivalents, we don’t want to have to cycle through lots of apps on our screen to find something. It’s hard enough to find what you’re looking for on Netflix; imagine 300 apps on your screen — it’s like channel surfing again, dumping us back where we started.

My longer view: the subscription model will eventually be replaced by a pay as you go model. We’ll get smarter as consumers, and either by default subscribe and cancel each time we watch a show, or services will pop up that do it for us. Eventually companies will get wise and offer us, effectively, VOD, but at a price that makes sense. That impressive graph Zuora came up with will disappear. You heard it here first: the subscription model is a bubble, that will eventually burst.