Death By Subscription

Apple’s “Show Time” event on March 25th was more interesting for what it didn’t announce, than for what it did. Apple is clearly making a stronger play into content creation and delivery, but whereas in the past they led the way in pricing and consumer choice, they’re doing the opposite now.

Apple essentially created (and popularized) the pay-per-item content delivery economy with the introduction of the iTunes Music Store in 2003, and bolstered this new digital economy with the (somewhat forced) introduction of the iPhone App Store in 2008. Both things were revolutionary for their time, more for their pricing models and their unbundling of products than for the type of wares they were peddling. They helped democratize music and software, for a pittance.

Back in my day, music was primarily packaged and sold as a collection of songs that were delivered via some physical medium. We would look forward to these collections (aka “albums”), count the days before their release, and choose to spend our hard earned cash wisely on only a few releases every month - maybe. After all, you needed time to consume all this new music, to dissect the cover art, find hidden meaning in the lyrics, and it took a while to figure out which tracks you’d skip in the future.

Buying software was a similar experience, perhaps minus the anticipation of a new release. You’d plunk down a significant amount of money for a “program” or set of applications that would do something useful or something fun. In order to entice you to part with your money, these programs would have to be feature-rich, or generally solve a bunch of problems in one package, otherwise, it was hard to justify their high price. Good software cost good money (sometimes more than it should), and you expected a lot for your money.

What the iTunes Music Store and iPhone App Store achieved was the unbundling of music and software into smaller consumable chunks, and at much lower prices - free, even. You could still buy an album if you wanted (and you’d usually get a slight volume discount), but 99¢ a song was a revolution. Now you could buy only the music you wanted and not pay for the tracks you’d be skipping anyway. I no longer bought a collection of computer card games for $40, I could buy one game for 99¢. If I needed a slightly better calculator than the one that I already had on my phone, or maybe if I just needed one at all, I could buy one. Affordably.

While the music industry suffered from the unbundling of their product, forcing artists to turn to touring and ancillary revenue sources to stay afloat, software was a different story. It was a veritable gold rush of new software and newly minted independent developers with viable distribution. Meanwhile, traditional software publishers that failed to adapt to the new model struggled to maintain revenues, retain talent, bring new products to market, and sometimes, to just keep the lights on. Ad revenues kept things afloat for a while, but compromises in user experience were required. How about a one-time fee to remove those ads? The freemium business model was another attempt at driving revenue, hoping users would be attracted enough by the quality of the product and be happy to pay to upgrade their experience, unlocking additional functionality or content. None of these approaches have been the panacea publishers were hoping for. So, what next?

Enter the monthly subscription.

Subscriptions provide a reliable and predictable income stream, which is why companies (and their investors) love them. That, and the resources a subscriber use rarely reach the cost of providing the service in the first place, or those underutilizing the service subsidize those enjoying it to its fullest. These new digital content subscription models provide the illusion of unlimited choice, all without the added complexity of itemized billing. They’re the gift card of the 21st century. Why do retailers love gift cards? In the United States, $1 Billion worth go unused every year. Where does that money go? Straight to the retailer’s bottom line. Digital subscriptions are similar. A significant proportion of subscribed services go underutilized, accidentally renewed, or completely forgotten by their subscribers.

Netflix, Spotify and Hulu were early pioneers of the unlimited digital subscription model, and it has become standard practice for all content distributors or services to offer one. How much? Around $10 USD a month seems to be the sweet spot. A great deal if you can get all of what you want from one service, but content exclusivity deals and differences in media types mean that’s not realistic for most.

Want to stream unlimited music? $10 a month for Spotify. Want to watch the latest Black Mirror? $10 a month for Netflix. Are you a cord cutter and like network TV? $10 a month for Hulu. Live sports? How about $20 a month for DAZN. Hate ads on YouTube? You guessed it. $10 a month. How about Game of Thrones? $15 a month for HBO. Like to read The New York Times? $20 a month. And the Washington Post, too? $10 more a month. You’ve got Amazon Prime, right? That’ll be $13 a month. Have an internet connected security camera? $5 a month for Nest. Online backup or storage? $10 a month for Dropbox. And you’ll need an internet connection to use all this stuff. Hopefully with unlimited usage. That’s not free, either.

I could obviously go on, but I think you get the point. Cable companies gained a reputation in the 1980’s for price gouging, monopolistic business practices, and terrible service, but this isn’t much better (if at all). It's just rearranged the deck chairs on the Titanic. Instead of consuming all your content in one place and getting a giant bill every month from one provider, you’re spreading your purchases over many providers.  Managing all of these subscriptions, forgetting that you have them, tracking when to cancel, or underutilizing them, all lead to substantial subscription fatigue.

I now use an app called Bobby to track all my recurring subscriptions. It helpfully tallies up all my subscriptions and gives me an average monthly cost. It even notifies me when a service is up for renewal. It was an eye opener to see how much I was already spending on all my digital subscriptions, and it’s helped me get my monthly spend a little more under control.

Back to Apple. They announced three new subscription services at their “Show Time” event, but only felt compelled to announce pricing for one: Apple News+ for $10/month (Apple TV+ and and Apple Arcade are the other two). This makes sense for Apple, but each of these is very much a “me too” play primarily catering to Apple’s fanbase while trading on increased privacy and respect for your personal data. Apple’s device growth has been stagnating lately, and the digital services and content delivery business is designed to make up for that. Assuming a monthly price of $10 for each service, one could easily spend upwards of $50 per month on digital services with Apple alone, and with approximately 90 million iPhone’s just in the United States, you’re looking at billions of dollars of revenue per month. Just from services.

At QUID, we think Apple had it right in the mid 2000’s - giving consumers the choice and ability to consume smaller chunks of content, applications or services, as they desire, at equally small prices. We’re focused on enabling this new micro economy for content creators and application developers and are excited to see new and innovative ways people use our technology. I’m personally looking forward to the day I stop being nagged for an expensive subscription to something I’ll only use once or twice a month.

Oh, there’s one more thing...

Not an official “one more thing”, but something a little different than what else was announced. Apple Card - as a credit card product, is a solid first take, and offers an unprecedented level of security.  It does this by eschewing most of the technology and networks that have made credit cards ubiquitous, but it's an area that has been begging for some innovation and disruption, so it's a welcome development.

Compared to its peers, Apple Card doesn’t offer the lowest fees (despite some notions to the contrary), its reward earn rates aren’t best-in-class (they’re on par with the industry), and its accounting and categorization reports are standard fare. The physical card being made of titanium also isn’t new - Chase has issued metal credit cards since 2016 - but it is done with Apple's typical flair and attention to detail.  The physical card is a compromise Apple had to make in order to drive any sort of reasonable adoption, because (especially in the United States), the world just isn’t quite ready to rely solely on the contactless method of payment Apple Wallet has been facilitating the past few years. But make no mistake, driving Apple Wallet use and contactless payments is the real motivator.  

Apple Card is a slick way for them to keep more of the money its fans are spending on its products and services, while making extra revenue running a standard credit card business.  In the end, it’s just another credit card - but prettier.

At least there’s no subscription fee.

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About Derrick Mealiffe

Derrick is an approachable nerd and avid cyclist who knows far too much about things most people don't (and shouldn't) care about.