Oversubscribed? Peak Subscription? -- No, Peak Unlimited, Flat-Rate!

Amanda Mull wrote "This Is Peak Subscription: Forking over another $5 a month is getting pretty old" in The Atlantic (3/3/22), identifying the pricing problem: "trying to divine what constitutes an acceptable return on, say for or 10 bucks a month." Buying a new smart TV and loading all her streaming apps, she asked, 

Why am I paying for these things? How much of this stuff do I even enjoy? ...the kind of light-bulb moment that has stuck with me as I peruse my credit-card statements or shuffle through apps looking for something to watch on TV, trying to divine what constitutes an acceptable return on, say, five or 10 bucks a month. ...No one is sure how many subscriptions the average household will bear before it snaps and starts canceling things, but we might be about to find out. 

To which Tien Tzo (CEO of subscription management company Zuora) said: "Nonsense. Hogwash. Poppycock. Balderdash." in his well-reasoned rebuttal, "Is The World Oversubscribed?" (3/19/22).

As those familiar with FairPay strategies can see, both are right. This is peak unlimited, flat-rate subscription! That is because for most services the acceptable return actually realized will vary from month to month, depending on many variables not known until the month has ended. That means the acceptable price must vary with that month's need.

I expect a shakeout that will gradually kill many subscription businesses, but two kinds will thrive and grow.

1. The biggest players, with the richest value propositions have the market power to survive even their bad pricing models.
2. The others will find ways to make their pricing more flexible, able to track to varying levels of value, but still simple. (as Zuora's Subscribed Institute suggests).

Few yet understand how they can do that -- here is how...

My previous post, The Great (Streaming) War of Stupid Value Propositions -- Continued!, explains how more flexible strategies might operate as "risk free subscriptions" in which the consumer does not risk paying for a subscription they get little or no value from in a given month:

The essence of the risk-free subscription is to be flexible, in order to be value-based -- cheap or free at low or zero usage, and rising at a reasonable rate as usage and other aspects of value received increase in that month, up to a set monthly cap. Think of it as a pay-ramp instead of a pay-wall. This kind of flexibly affordable model that is based on the value that each individual viewer actually receives (and that ramps up less prohibitively than pay-per-view) will get more viewers to buy more subscriptions. That will generate more profit from more viewers for every provider who has content that viewers want.

Such a pricing model also offers sensible economics across a mix of providers and aggregators. Disney could leave most of its content on Netflix for those who are only occasional viewers, while attracting its more regular fans to direct relationships on Disney+ with added features (such as its newest and hottest shows, and extra perks).

Instead of the all-or-nothing battle for AYCE subscriptions, providers can build relationships with all or most of their potential viewers. Think of this as agile pricing for a good customer value experience (CVX) -- and for a fair revenue share to platforms, content providers, and creators.

More on this theme:

• "Risk-Free" Subscriptions to The Celestial Jukebox? (A Working Draft)
• Post-Bundling -- Packaging Better TV/Video Value Propositions with 20-20 Hindsight
• "The Case Against Micropayments" versus "Subscription Hell" -- Finding Flexibility

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More about FairPay

A brief introduction is in Techonomy, "Information Wants to be Free; Consumers May Want to Pay"

• More in the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). 
• There is also Selected items (including links to videos and decks). 
• And these journal articles, A Novel Architecture to Monetize Digital Offerings and Pricing in Consumer Digital Markets: A Dynamic Framework. 
• Or, my highly praised book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

 

The Great (Streaming) War of Stupid Value Propositions -- Continued!

The Streaming War to End All-You-Can-Eat Streaming Wars

I first posted The Streaming War to End All-You-Can-Eat Streaming Wars (below) in 2019. Now, well over $100 billion of content spending later (for just the top four streamers), the costly no-man's land of all-you-can-eat (AYCE) subscription models continues to suck up huge deadweight losses -- as nicely reported in today's Wall Street Journal: Disney+, HBO Max and Other Streamers Get Waves of Subscribers From Must-See Content. Keeping Them Is Hard. (Updates are shown here in red, the original text is in black.) 

My message is reinforced -- the value proposition for flat-rate all-you-can-eat streaming sucks -- it costs the streamers a fortune, as they fight over a no-man's land of costly subscriber acquisition and poor retention. They continue making an offer that is quickly refused or cancelled, to a finite number of streamers who want a full range of viewing, but with limited wallet to share among competing offerings -- thus satisfying few. 

This is not a problem of user behavior, or of competition, but of collective industry blindness to a failed pricing model. Few want all they can eat! We can't eat that much! We want only what we want, and don't want to pay for more. 

Instead, all streamers and consumers could share a much larger pie, with much higher shared value all around. Experiment with more win-win value propositions -- set a fair, bundled (volume discounted) price -- for however much or little we want each month. Offer a fair value proposition so we can subscribe, stay, and watch as we like -- not pay a flat rate every month even when we get no value at all.

(Image: Wall Street Journal)

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Do you hear the giant sucking sound of tens of billions of dollars of content production cost and corporate debt going down the drain? ...of tens of millions of consumers missing out on content they want to watch? 

Much like World War I, great powers are massing armies and entrenching content libraries for a Great War that may have no real winners. And once again those great powers (and other contenders) are relying on inflexible strategies that will drain resources, and get mired in a long and costly war of attrition. This time the inflexible trenches that will suck up armies of content dollars are not in the ground, but in the deadweight loss of all-you-can-eat (AYCE) subscription models.

News of this streaming war is everywhere. The Wall Street Journal provided a good summary of the order of battle, and of the collateral damage that consumers will face. Axios notes the huge debt being incurred to create these arsenals of content.

As reported in the new WSJ article, just the top four streamers spent well over $100B in content costs since this article was first published. Many consumers subscribe then cancel within months, and many others forego viewing that they would gladly pay a fair price for.

The nimbleness of the German Blitzkrieg ("lightning warfare") demonstrated how WWI strategies of trench warfare could be overcome quickly, and with far less carnage. The players in this streaming war should be looking for a similar Blitzkrieg business model. But I predict it will be the smaller players, less able to throw money at this, who will be driven to experiment with less familiar, but more agile, strategies.

We wanted a "Celestial Jukebox" -- instead we got "subscription hell" and "subscription fatigue." This is the era of "peak content," but only a fraction of it is within any one person's reach -- its costs and its price are unsustainable. Can't we find an ecosystem business model that can sustain a celestial jukebox for the video industry?

Earlier this year I suggested how more agile strategies might operate, in "Risk-Free" Subscriptions to The Celestial Jukebox. The essence of the risk-free subscription is to be flexible, in order to be value-based -- cheap or free at low or zero usage, and rising at a reasonable rate as usage and other aspects of value received increase in that month, up to a set monthly cap. Think of it as a pay-ramp instead of a pay-wall. This kind of flexibly affordable model that is based on the value that each individual viewer actually receives (and that ramps up less prohibitively than pay-per-view) will get more viewers to buy more subscriptions. That will generate more profit from more viewers for every provider who has content that viewers want.

Such a pricing model also offers sensible economics across a mix of providers and aggregators. Disney could leave most of its content on Netflix for those who are only occasional viewers, while attracting its more regular fans to direct relationships on Disney+ with added features (such as its newest and hottest shows, and extra perks).

Instead of the all-or-nothing battle for AYCE subscriptions, providers can build relationships with all or most of their potential viewers. Think of this as agile pricing for a good customer value experience (CVX) -- and for a fair revenue share to platforms, content providers, and creators.

Disney is apparently ignoring such options, presumably thinking its Magic Kingdom will enthrall enough users to take the risk that they will not view (and enjoy) $7 worth every month. All of the great powers may similarly be too entrenched in their thinking to want to experiment.

But less dominant providers -- and entrepreneurial upstart aggregators of many providers -- may come to embrace agility and Blitzkrieg asymmetry, seeing that the biggest risk for them is not to take the risk that a risk-free model will empower them to fight a win-win battle -- one based on desirability of their content, not just overwhelming scale.

More on this theme:

• "Risk-Free" Subscriptions to The Celestial Jukebox? (A Working Draft)
• Post-Bundling -- Packaging Better TV/Video Value Propositions with 20-20 Hindsight
• "The Case Against Micropayments" versus "Subscription Hell" -- Finding Flexibility (added 11/13/19)

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I commented further in 2017 in an Open Letter to Robert Iger on "Designing" the ESPN Fan's Experience about what I saw as a hopeful sign, when Iger had said "You'll be able to pick and choose over time what it is you want, it won't necessarily be a one-size fits all." What I did not say then is that I had presented my suggestions for better pricing models in 2016 to senior executives at Disney (who have since moved on). I was given the feedback that, after kicking it around across business units, people were "intrigued," but they did not currently have the bandwidth to pursue any real world testing of my "thoughtful" approach.

When will a current player or new entrant try this kind of innovative and nimble strategy?   

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More about FairPay

A brief introduction is in Techonomy, "Information Wants to be Free; Consumers May Want to Pay"

• More in the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). 
• There is also Selected items (including links to videos and decks). 
• And these journal articles, A Novel Architecture to Monetize Digital Offerings and Pricing in Consumer Digital Markets: A Dynamic Framework. 
• Or, my highly praised book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)