Content, Services|September 15, 2011| Author: Steven Hodson|Tags: , ,

The subscription model is not as sustainable as some might think

For most of the life of Web 2.0 the rallying cry has been “Free is the way to go” with the majority of new media going with the tried and true ad supported model of making money. Then slowly we started hearing more about services and sites going with a freemium (part free and then full service for a subscription fee with no ads – sometimes) which has been followed with an increasing number of businesses going strictly subscription.

The problem is that our wallets are having a hard time keeping up with the cost of not only subscribing to all these great services but also the ever increasing cost of even accessing them in the first place.

Let’s put this in perspective here. We are living in a time when the number of people who unemployed is increasing and due to technological advances are going to find an even harder time finding jobs. Companies might be encouraged to hire more people but when you get companies like GE who would rather lay off people here and then brag about the billions that they are going to spend in China, not to mention the jobs they will create there, it doesn’t bode well for the jobless. It is because of the incredible advances in technology that they are able to do this in the first place; and as technology continues to advance it will mean fewer and fewer available jobs that aren’t being filled by some form of technology.

On top of that we are going through one of the worst recessions that I can remember and it is decimating jobs. So money is getting tight, and in some cases non-existent or pretty damn close to it. People are having to prioritize like they never have before, families are having to cut so far back on their budgets that those fun extras that they all had are getting tossed to the wayside.

At the same time the Internet is becoming the very backbone of how things are getting done in our society. From government to entertainment we are all being encouraged to do everything via the Web. Video is pumping out 24 hours a day, music is being streamed non-stop, and cash strapped government agencies are going paperless thanks to the Web.

News, weather, television shows, they are all transitioning to the Web and coming to us via all kinds of new types of devices. The problem is that to get all that data you need to be able to access the Web with all those different devices and in the process your broadband and wireless providers have you by the short hairs; and they are pulling on them for all they are worth.

Data plans for your smartphones, data plans for your tablets, tethering charges on top of the data plans, download caps that can be chewed through in a blink of an eye. These are all the charges we need to pay, charges that are not going down but slowly being increased, before we can even get to using any of those services on the web that we want so bad, once we pay the monthly subscription.

Ryan Lawler at GigaOM had an interesting post up today regarding a study done recently by Bernstien Research Senior Analyst Craig Moffett regarding the squeeze being faced by the consumer when it comes to their old media entertainment consumption.

No money for food, let alone cable

The latest note references a larger piece of Bernstein research entitled “The Poverty Problem,” which provides detailed data on income and expenditure trends for each of five income brackets. Taking that data into account, Moffett reports that the bottom two-fifths are being increasingly pressured due to the lack of real wage growth and the increase in the cost of necessities. Moffett wrote:

After the necessities of food, shelter, transportation and healthcare each month, the bottom 40% of U.S. households have already exhausted all of their disposable income. There is nothing left for clothing… for debt service… for cable… or for phone.

The inability to pay for necessities — much less home entertainment — threatens to upend an industry that has already more or less reached its saturation point. According to Moffett, approximately 86 percent of U.S. households currently pay for TV services. “Relatively few other sectors have this kind of economic exposure to the bottom half,” he wrote.

Of course the most common answer that you’ll hear when it comes to is that it’s time to cut the cord and switch entirely to Web based entertainment options, like Netflix or Hulu.

Except for a growing number of people that may not even be an option because of the increase cost of access and the decrease of service for that cost. From broadband providers to wireless carriers download caps are now the norm, and where they might not be they soon will be. It is to the point in Canada that Netflix had to offer its customers to downgrade their service quality so that they wouldn’t go over their bandwidth caps, and talk is that they will end rolling that out for the US as well.

If anyone thinks this is going to get better or change, other than for the worst, then you are living in a dream world and I want what ever drugs you are on. Even now Congress is pushing for Obama to give the thumbs up on the AT&T merger, a merger that not one single person with a brain cell that isn’t bought and paid for by AT&T or T-Mobile will tell you, and anyone else who will listen, that this isn’t a good deal. In the end you can be assured that the consumer will get screwed with higher prices and sub-par service.

Now we get to the Web itself and the wonderful plethora of services for us all to get our gut on with. From Pandora and Spotify to Hulu and Netflix subscriptions are the rule of the day (yes I know Spotify has a free option but if you want the full course you need a subscription – oh and live in the US or Europe). They are only the tip of the iceberg as more news type sites are moving to some sort of subscription model whether it be via the Web or some app for a device. Then there are other services like Carbonite (online backup service) or like Evernote with their fremium service.

Sure, $9.95 here or $2.99 there may not seem like much, and separately they are pretty easy to handle wallet wise; but start adding them all up and through in things like your Xbox Live membership or your HBO Go service and suddenly you can find yourself suffering from subscription bankruptcy.

Already we are seeing music streaming services like MOG and Rdio coming out with competing “free” plans because all these services know the dirty little secret with it comes to all their Achilles heels – people don’t have enough money to pay for all these services which means that at some point something has to give, and these companies can’t afford for it to be their service.

As money continues to get tighter and broadband providers, along with wireless carriers, continue to push the limits of what they charge for access this Achilles heel is going to become more obvious as the days pass by. Subscriptions might be the answer in better times but those times are long gone and people are having to decide between food and rent over subscription to fun stuff.

When people have to decide between surviving and subscriptions I’m betting I know which one will be the winner.

  • gman thebrave

    It seems to me that the key is volume for the low end subscription services. I don’t know many people who have 10 different subscription services but I would say we have it pretty good considering the number of services many subscribe to. Personally I would gladly subscribe to an inclusive service and get 20 movie channels too with my DISH Network employee account because I watch a lot of movies and TV. There are so many shows on TV that I like, I’m watching shows from the past through Blockbuster, DVRing shows I don’t have time to watch all of them now and trying to empty DVR recordings from last year. Variety is the spice of life and there are still plenty of people willing to pay for variety or we would hear of a lot more entertainment companies going out of business.