The UnderTow: Subscriptions are the New Business Model of Choice. So Why are Subscriptions Failing in the Arts?

Many of the world’s largest companies have opted out of traditional retail transactions in favor of subscription models. Whether it’s software, newspapers, movies, TV, or even food, fashion or cars, subscription schemes are becoming a go-to model. And headlines the past few weeks have been full of stories about what’s happening to subscriber-driven companies – Netflix most of all.

So perhaps a slightly awkward question: – given that traditional arts institutions have depended on the subscription ticket model for decades, why are arts subscriptions now in steep decline just as the rest of the world has latched on to them as their ticket forward?

Is it the subscription model that’s not working or is it the way the arts do subscriptions? We’ll look into what’s going on with Netflix – perhaps the world’s largest subscription model – and talk about the trends and where they’re pointing.

NOTE: Some readers have asked for a transcript. Here is one below (please excuse typos/transcription oddnesses) Also – please remember – this is me speaking, not writing, so it is different in style/form than were I writing an actual post:

Hi: This is Doug McLennan, and welcome to another episode of The UnderTow, ArtsJournal’s new more-or-less-weekly podcast examining the issues underlying headlines of cultural stories making news. This week: Subscriptions everywhere. Many of the world’s largest companies have opted out of traditional retail transactions in favor of subscription models. Whether it’s software, newspapers, movies, TV, or even food, fashion or cars, subscription schemes are becoming a go-to model. And headlines the past few weeks have been full of stories about what’s happening to subscriber-driven companies – Netflix most of all. So perhaps a slightly awkward question: – given that traditional arts institutions have depended on the subscription ticket model for decades, why are arts subscriptions now in steep decline just as the rest of the world has latched on to them as their ticket forward? Is it the subscription model that’s not working or is it the way the arts do subscriptions? We’ll look into what’s going on with Netflix – perhaps the world’s largest subscription model – and talk about the trends and where they’re pointing.

But first, — speaking of subscriptions — if you like what you’re hearing, and want to explore any of our other episodes and be alerted when new podcasts drop, please hit the subscribe, like or comment buttons wherever you get you podcasts. Preferably all three, even. It helps.

First thing to say is  – I know we all watch movies, but why should we care about Netflix and the news over the past two weeks that the company reported a loss of about 600,000 subscribers in its first quarter – which constitutes less than half of one percent of its 221 million, I should note – hammering down the company’s stock?

Analysts are freaking out because Netflix is perhaps the poster child for a subscription model that now drives and pays for services and products all across the internet. Netflix has seen massive subscriber growth over the past decade, and particularly during the COVID lockdowns as people stayed home instead of going out. It should also be said that Netflix has spent massively in recent years on making movies and series as it transitioned from simply being a platform that licensed already-made content, to becoming one of the largest producers in Hollywood. In 2021, Netflix spent $17 billion on making content, basically allowing it access to whatever talent and projects it wanted. Netflix’s spending spree helped fuel a record number of 559 productions across all platforms in 2021, almost double the number of a decade earlier. And over the past ten years, Netflix has been nominated for and won dozens of Oscars, Emmys and Golden Globes. So to sum up – one of Hollywood biggest players. So the Netflix model has been a transformative model for the entertainment business.

But today I want to expand the discussion from Netflix to the subscription model itself. In the early days of Netflix, the company demonstrated such success for its model that in Silicon Valley it spawned a whole category of startups that pitched themselves as “the Netflix of…” and fill in the blank as you want… What this meant was simple. Access to an entire store of whatever you want with astonishing choice for a very small recurring fee. You could apply the idea to anything – why buy a whole car when you could get access to one whenever you wanted for a fraction of the cost?  Or food or clothes – for a low fee we’ll send you meals and sweaters on a regular schedule.

So as a business model, subscriptions took off. And this was no small achievement. Finally, after almost two decades of attempts to shift the way we pay for things in the digital economy, people’s willingness to pay for content through subscriptions has seemed to have turned the tide.

At the same time – paradoxically – across the arts, which have reliably depended on subscription models for decades, subscription sales have been declining for years. The executive director of one major orchestra told me a couple of years ago that subscriptions are done. Finished. And there’s little motivation in trying to cling to an old model that no longer works. Just a couple of weeks ago a marketing director of another major orchestra told me that post-COVID – and I guess we really can’t say “post” anything yet, but anyway — single ticket sales had actually rebounded above 2019 level, but that subscriptions were a dead letter.

You can’t really blame people for not buying subscriptions to live events right now. How do you know what the pandemic situation is even a month from now, let alone at the other end of a season. But it isn’t just the pandemic that’s been killing subscriptions – as competition for our attention has exploded fueled by the internet, audiences have been less willing to commit to buying blocks of tickets in advance. This creates problems when you’re a producer trying to plan ahead a season and dependent on steady income. Still – subscription businesses all around us are thriving – even Netflix – in a time of heightened competition. And tickets to big pop concerts sell out months ahead in a flash.  So why are subscriptions dying in the arts?

There’s a way of looking at the digital revolution of the past 20 years as a debate about how people are going to pay for the things they use. If you want to really boil it down to basics, there are really only three options – I pay, you pay, or someone else pays. Simple as that. “I pay” is the traditional retail transaction – I pick out what I want, you tell me the price and I pay it. “You pay” is a little more nuanced. For whatever reason – maybe you’re looking to build audience or market share, maybe you’re hoping to get me into a relationship with you so you can entice me into paying something more later, the value to you in having me as a customer is something you’re willing to subsidize. And finally there’s “somebody else pays.” The classic example is the advertising model in which an advertiser pays a content publisher of platform to reach an audience.

None of these was invented by the internet. But the internet upended the cost of production and the ways people get access to ideas and things, and, perhaps most important, changed the expectations people have about what they have to pay and how.  Inside these three types of transactions are many flavors and hybrids, and none is necessarily better than another, depending on the objectives. When people talk about disruption of business models brought about by the internet, they’re usually talking about something in version one two or three that used to work but no longer does.

Perhaps the best example of this is iTunes and the iPod. In 2001, Apple introduced the iPod, which instantly changed the way people got their music. Instead of buying a physical recording such as a CD, Apple sold you a digital file that it could price much lower because it didn’t have to physically make those CDs. But perhaps the most important thing iTunes did was reset consumer expectation. iTunes made it so easy to get and share music that people were willing to give up the idea that when they bought something they could hold it in their hands.

The movie industry was later to the game – they could see that their business was going to change with the internet, but they didn’t know how. But they had the advantage of being able to hang out watching how the music business fared because that early-2000s internet was actually quite slow, and while you could download a song in a few minutes, a movie would take hours.

The movie business, however, had one advantage music didn’t. Blockbuster Video had conditioned customers to the idea that they didn’t need to own movies – they could rent fairly cheaply. This is important, because when Netflix came along, its radical idea was that instead of going to your neighborhood Blockbuster, you could choose your movie from a vast selection of titles online, and Netflix would send your movie on a dvd by the next day. Moreover, you could watch as many movies as you wanted and there were never any much-hated late return fees. In other words – don’t rent “a” movie, buy access to all movies.

Of course the dvd-by-mail business was really just a placeholder until technology improved the internet enough where Netflix could stream any movie in its catalog to as many people who wanted to watch it whenever they wanted. Netflix in the beginning didn’t make content – they gave customers access to other people’s content and reduced all the effort of getting to it to a couple of clicks. The toughest thing about seeing a movie wasn’t having to leave your house and go to a movie theatre or the video store – it was sorting out what you felt like watching from what seemed like an endless array of choices.

Okay – scroll up to 2022 and Netflix has managed to attract 221 million subscribers to become the biggest of the new streaming platforms. Right now the competition for streaming services is intense, with dozens competing for customers, including Amazon with 175 million subscribers, Disney+ with 137 million, HBOMax, Hulu, Paramount+ etc. Most of us now have multiple subscriptions to various services so we can see the shows we want.

But the competition is getting too fierce, and Netflix’s first subscriber decline – even if it’s still just a slight one – suggests the market might be getting saturated. Plus – Netflix’s massive spending on producing content – indiscriminately so, has squeezed its margins. At the risk of being not kind, while Netflix has made a lot of quality shows, it’s also been loading up on crap – and unlike a streaming service like HBOMax or even Disney+, both of which are more focused on a quality brand rather than recreating, oh I don’t know – CBS, maybe – they’re maybe starting to max out on subscribers — which is why the stock took such an astonishing plunge. But really, we’re probably at the very start of what will be some consolidation of some of these subscriber platforms.

Before I get back to the arts though, I want to explore another company and industry that has evolved its subscription model for the 21^st Century. And that’s journalism. Now – journalism always had subscriptions, sometimes highly discounted to lock readers into consuming the papers every day. But in truth, subscriptions were never the real revenue engine for newspapers, though they were crucially important.

Newspapers were firmly in the “somebody else pays” category of models. Subscriptions – indeed even single-copy sales were never the biggest revenue – advertising was, and it was a lucrative business indeed. In the 1990s, newspapers were making 20 percent margins. Subscription income? That maybe paid for the cost of physically printing the paper, or delivering it (but not both). All of the costs of reporting, editing, — all the things that made the content – were paid for by advertisers.

When the internet came along, newspapers initially thought that freed of the overhead of printing and delivery, they’d do quite well. They were wrong. Turns out once advertisers could see exactly who was looking at their ads, they weren’t so willing to pay as much as they had been. Also – with millions of websites online, the places you could slap ad on grew exponentially. The rates advertisers had paid collapsed.

And as fewer people were interested in paying for paper copies, the news business collapsed, with more than half of all journalism jobs – including those who produced stories about the arts – went away. But then an interesting thing happened. After experimenting with numerous schemes – micro-payments, aggregation, crowdfunding, paywalls, even events, a couple of very smart publications figured out something. The New York Times, which for the first several years of the digital age even had separate digital and traditional paper newsrooms, figured out that it needed to be a multimedia company and began experimenting with different models of digital subscriptions. The Washington Post, which had been hollowed to a shell of its former self, was bought by Jeff Bezos, who had his Amazon platform geniuses remake the entire digital product, and The Atlantic Magazine, sold to a new visionary owner, figured out a niche that subscribers piled into.

A decade on and the New York Times – which at its peak circulation in the old physical paper era had a daily circulation of about 1.1 million give or take, now has an astonishing 9.5 million subscribers, and with 1,400 journalists, the biggest newsroom in its history. The Post and The Atlantic are similarly profitable and are very much better products than they have been in a long time. Though all three still have advertising, subscriptions now make up most of the revenue. In one generation, these legacy businesses transformed themselves from one model to another, more successful one.

Now there are caveats – this makeover has not yet reached down the food chain to many other publications. Local newspapers – journalism of all sorts — has been decimated over the past couple decades. Subscriptions have not made up the gap in the drop of advertising for most publications. But I think there are reasons for this, three main ones, actually:

1. A greatly diminished product. Squeezed by the advertising revenue loss, it’s inescapable that the news product has declined – fewer reporters and editors and less coverage.
2. The user experience isn’t great. Annoying ads and pop-ups, constant reminders to subscribe, paywalls, outdated designs and design that fails to compete with the big tech platforms. And…
3. The user experience – as opposed to the core product itself — isn’t fun, it isn’t easy, it isn’t delightful.

The Times produces some of the best journalism out there, but it has also added Wordle and Wirecutter and podcasts and games and recipes etc. The Atlantic has added a festival, does live events, and leans heavily into its various expert personalities. Other publications such as the Wall Street Journal, the New Yorker, and the Daily Beast have all found ways to be excellent, fun and above all, easy to use.

Okay, so that was a long digression, but let’s get back to the arts. The arts subscription model in the old days when it worked was essentially a bulk sales model. Buy our whole season and we’ll give you a discount to make it worth it. But when times were good, maybe you didn’t get that discount. Maybe it was enough of an enticement that you got your preferred seats or first choice on selecting them.

This is what pro sports teams do when they’re popular. In cities with hot teams where tickets sell out, it’s often not enough to buy tickets for all the season, you also buy something called “a seat license” usually an expensive fee for the PRIVILEGE of shelling out thousands for the season ticket. When you decide to stop buying season tickets there’s presumably a market to sell your license. But this only works when your team is hugely popular, and usually then, when you’re opening a new stadium or arena that everyone wants to get into.

But most arts franchises aren’t in that position. And – unless you’re selling out show after show, buying a subscription ticket is no longer a hedge, it’s a risk – maybe you might not want to see a particular show in a series you bought, maybe there’s something else that came up that night you like better, maybe you catch covid and can’t go. Or maybe it’s just easier to stay home and watch a movie on Netflix… The point is – for the average consumer, a series subscription in a marketplace vying for our attention is more risk than reward. And besides- given the world as it is now, if I wait, I’ll probably be able to get a ticket if I walk up to the box office on the day of.

But this is thinking in the bulk sales model. Today’s subscription models are so much more sophisticated and nuanced. Some people subscribe because they want aggravations to go away – like the ads on a website, for example. Some people subscribe because they want convenience – like aggregating of content or a newsletter that distills down something bigger. Some people subscribe because they want access – I don’t know what movies or music I’m going to want until you make it easy for me to see it all. Some people subscribe because they want a guide, a curator, an expert to hold their hand as they explore. Some people just want the ability to explore and be introduced to new things.

Volvo lets you buy a subscription to their cars that bundles insurance, licensing, maintenance and repairs and even replacement when it’s time to trade in. Blue Apron will send you meals every week based on your preferences. Everything – even the spices and garnishes – arrives in discreet packages with picture-book instructions. All these subscriptions are meant to delight you, to make the experience of whatever it is as important as the thing itself. It’s entertainment, it’s surprise, it’s comfort, it’s convenience, it’s all about making the subscriber better in some way and making it fun in the process.

But getting back to the arts. In the arts, subscriptions still largely operate in the bulk sales model. If I learned one thing when I started ArtsJournal, it’s that it’s a mistake to build your business model around one thing. And as I said earlier, the inducement to buy an arts subscription often doesn’t make the buyer more secure, it actually introduces risk – that not all the shows are great, that the subscriber might not be able to go to everything. Risk. And that’s not inducement.

So some ideas?

1. First – how about a transaction platform that works with the ease of Amazon so transactions can be processed in a click or two.
2. How about if I subscribe I get access to other things that might be valuable to me – When Jeff Bezos bought the Washington Post, he had Amazon offer Post subscriptions at a discount. If you were a subscriber to a local newspaper you could get a free or discounted subscription to the Post.
3. If I’m a subscriber, how about offering me access to other music or theatre or dance by partner organizations.
4. Or access to web streaming of the artist I’m paying to come see in person at the show in Portland the night before.
5. How about a team of subscriber concierge/curators who get to know subscribers and offers them personal suggestion based on their tastes? One of Netflix’s superpowers and most valuable assets, is its suggestion algorithm that learns your viewing history and makes suggestions based on it.

One of the disruptions that brought about what has been considered the Golden Age of TV/streaming, is the online chat services and forums where fans get to obsessively dish and dissect the shows they’re watching. One of the internet’s most popular classical music sites is Norman Lebrecht’s Slipped Disc, which began life here on ArtsJournal. Most classical music fans I know, regularly check out. Why? It offers news in the industry, sure. But it’s catty. Cheeky. Gossipy, rude and fun. Readers are addicted because it makes fans visible around things they really really care about.

I recently started listening to the sports radio station in Seattle. I’ve always been a casual sports fan, but decided after a number of years of not really keeping up that I’d try to get back into the teams again. On the local sports station, they talk sports 24/7 – opinion after opinion after opinion. Analysing, endless conjecture, confessions of pet passions and hates. It’s really fun to listen to people who have passion about what they follow. And not just one person’s opinion, but many. And they duke it out and try to convince one another. By the time you actually get to the ball park or see a game on TV you know what to look for, to see what matters. And you start to have the big opinions yourself, and you care.

Now compare this to what the public sees in the arts. There’s maybe one critic in town, and little debate. Even if you’re a fan of your local orchestra or theatre, you probably don’t know much about how the sausage is put together. So how are you supposed to care? Of course you care about the music or the play. But those are commodities, things you buy tickets to. A retail transaction. Subscriptions are something you invest in, that make you feel part of something, that change your life in some way – whether it’s new food, unlimited movies, or access to the pool you like to swim in.

There’s a reason Netflix doesn’t sell access to movies one-at-a-time. That rental cars no longer charge by the mile, that internet providers don’t charge by the minute. We like predictable pricing. We like convenience, ease. We like unlimited usage. We like control. We like choice. And we like to feel that we’re getting a deal.

Today’s Netflixes and Ubers have figured that out and fashioned a subscription bundle that works. The arts? I’m sorry, but with some notable exceptions, subscriptions are still just retail transactions.

Thanks for listening. If you liked what you heard on this podcast, please click the like, share and subscribe buttons. If you have any suggestions of comments, please send an email to theundertow@artsjournal.com. I read every one. I’m Doug McLennan. Back next week.