Subscribing to a subscription-based world

Sweeping the interwebs last week was the announcement of YouTube Red — the monthly subscription service that will complement the video company’s ad-supported offering. Starting soon in the US, users will be able to purchase for $9.99 a month access to an ad-free YouTube. Avid fans of digital short-form content will have access to countless hours of entertainment without interruption. Besides the ads being removed, YouTube Red also offers users the ability to save videos offline and for background enjoyment, lending an opportunity to consume more YouTube while multitasking elsewhere. To further increase the value of their offering, YouTube suggested a series of Original Content providers will be exclusive to Red customers.



While there are many outlying questions on YouTube’s move with respect to the digital short-form video competitive landscape, it’s important to note that YouTube is just another product (albeit a giant one) that is moving its focus to a subscription-based offering for consumers. We’re seeing this happen in many other media outlets already, and this form of product offering is becoming much more prevalent as digital media consumption continues to grow. Why is this the case? Below are a few different forms of media that are moving to this monthly-subscription model.

Movies

When I think about movie monthly subscription offerings, Netflix is strongly plastered in my mind. I believe it’s safe to say the former DVD rental-only company is now the pioneer in Over The Top subscription entertainment for movies. Netflix has done a tremendous job of acquiring a library spanning a wide breadth of genres to deliver value to all different demos of customers. From there, they’ve leveraged library television content, created original series content, and are focusing on being the one-stop-shop to unlock your favorite episodes and movies.

Music

The music landscape may be a bit more competitive, and given the economics surrounding all of the players within the music industry, companies continue to struggle to generate sustainable profits even after having gained steady user growth over the past years. Spotify, Google Play Music, and Pandora all have monthly subscription services vying to deliver to the listener a combination of curated and discoverable, new music. With music interests so unique from person to person, and music libraries being nearly limitless, the ability for these companies to harness algorithm over human instinct is becoming more important. And, I think it’s starting to work. They’re combing extensive music libraries with a smooth, multi-device experience that can allow users to search, discover, and enjoy relatively easily. Think about how the prevalence of music piracy has decreased in the past few years. Much of this, I believe, is attributable to these companies coming up with a valuable product offering (and not necessarily just content) for their listeners.

Traditional Television

Nearly a decade ago, Hulu challenged the Hollywood studio distribution status quo. Moving traditionally broadcast content to a digital medium, the company was focused on giving users specific windows to watch available ABC, NBC, and FOX content through an ad-supported offering. From there, Hulu Plus, the subscription-based counterpart, was born. Hulu combined both new and old episodic content, to give a complete library to specific shows that were prime time favorites. The product was not only to entice users who missed this week’s episode, but also superfans that wanted to go back and rewatch earlier episodes from this season or from seasons past.

And Finally…Short-form Television

Now, we’re replicating the subscription model for non-traditional short-form television. YouTube’s next generation cable entertainment mindset has put them at the forefront of digital video, and it will be interesting to see if they are able to successfully maintain an ad-supported and build an ad-free experience that caters to both types of users. With this comes many, many questions and challenges — What content will sit ad-supported? What content will sit behind the subscription paywall? What content is available offline? What content will be exclusive to YouTube? The list goes on.


So why do all of these companies continue to move into the on-demand subscription world? With the focus of the new age internet being to acquire as many users as possible, companies are successfully putting paywalls in front of content, as evidenced by the continuing push by large tech giants. So why is this happening?

  1. Monetization / Economics. Monetization on the ad-supported web, particularly around audio or video content, continues to be very poor. While usage from traditional media (broadcast and cable television, radio) has shifted to the digital sphere, advertising dollars have lagged. Brand companies have begun to embrace the consumer digital revolution with advertising and promotion dollars across internet-based properties, but the shift pales in comparison of the sweeping trend in usage. This phenomenon is partly likely due to the complicated dynamics around companies allocating advertising budget across digital channels, but the gist is, it’s failing to happen on the digital front. Thus, demand for advertising dollars on these products is still relatively weak (but growing), keeping monetization rates down. With ad-supported products, companies are making their revenue through large quantities and low price. A subscription-based product helps solve this price issue. Companies are able to receive more revenue per user, and while the user base might be smaller, the opportunity to grow their unique user base bodes well for upside on revenue, and ultimately, profitability.
  2. Product Experience. We all love free content, but there’s no doubt that advertising pre-video or mid-audio stream is never welcomed with great excitement. We’re all busy people, and advertising seems to get in our way. And although companies are becoming better at choosing ads that better suit our interests, the general sentiment amongst advertising (maybe outside of the Super Bowl) seems to still be pretty low. Subscription products allow us to eliminate advertising, which potentially helps remove friction between user and product. Companies can refocus efforts (e.g. money, people) on connecting users to content, without having to overlay advertising needs. These efforts can be redirected to better deliver a high-quality product experience — which can include better desktop and mobile device parity, better features added (a la offline and background enjoyment), better geographical parity, etc. We’ve seen this happen most notably in the music space, where a nearly limitless library and curated playlists waiting for you for just $10 a month seems to be “worth it” compared to cherry-picking songs here and there through any means possible. The product itself adds value as well, not just the content inside.

So why are some digital media better at supporting the subscription product over others? A few topics and questions that companies should be asking themselves—

Relative pricing. Compared to the linear competition, how does you stack up price-wise? Innovating the digital entertainment product and offering at a price point below what consumers are used to is a slam dunk. It’s probably best displayed by the cord-cutter generation with regards to cable vs. Netflix.

User demographics. Who’s using your product? Can they afford to buy your non-necessity subscription package? I think most would agree that a lot of subscription-based content is available for free if you search hard enough (whether it’s legal is another stipulation). Creating a product that caters to a large enough user base who is willing to pay for content is pivotal.

Importance of device parity. Can consumers use your product across all of their devices, and is it a similar experience on all? In the multi-device environment, developing a product that has similar features across desktop and smartphone (and tablet, and smartwatch, and…) helps eliminate friction for (and churn of) users.


As we continue to focus efforts on the subscription-based media consumption world, it’s important to recognize that these models usually either come about from or have a symmetric ad-supported offering. But, as consumers continue to demand content through a product that caters to their every need for the short- and long-term, a subscription model helps companies continue to focus on truly staying a B2C enterprise.

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