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Subscription vs Download
Everyone who reads this blog regularly knows that I am a big fan of subscriptions for digital media services.
While I certainly understand the value of owning music, I generally only buy about a third off all the music I listen to. I get the rest of my music through Rhapsody and personalized radio services like last.fm and hypemachine. I pay $9.99 per month for Rhapsody and get access to pretty much all the music I would want to listen to. I don't even use Rhapsody to play the music anymore as I access it on Sonos around my house and Yottamusic on my computer.
We feel the same way about DVDs. Except that we only buy about 5% of all the movies we watch. We've been subscribers to Netflix since the beginning. And we love Netflix. We vary our plan by time of year. In the winter when we are stuck inside, we have a five DVD plan at $29.99 per month. In the summer, we cut that back to three DVD plan for $17.99. When we go on vacations, we up it to eight and spend $47.99 for that month. It's a fantastic service.
And Netflix just got better as David Pogue explains in this review of Netflix by Internet in today's New York Times. Netflix is starting to offer streaming access to its catalog of movies and the best part is you don't have to pay more. You get one hour of streaming for every dollar of your monthly subscription. If we are paying $30/month, then we get 30 hours of streaming. Awesome.
The only problem is that Netflix by Internet doesn't support Mac yet. So the Mac Mini that I just connected to our display in the family room won't be able to stream movies. Yet. But it's going to happen pretty soon.
iTunes' download model may work for some. But subscription is the way I want to get my media. Rhapsody and Netflix are my kinds of services.
Comments (16) | Posted January 25, 2007 in Venture Capital and Technology
Comments
Subscriptions are great, especially for new stuff and for timely media. There are some pieces of media I want to own, but the vast majority of media I consume is essentially disposable and it's fine if it's ephemeral.
All that said I'm not sure the HFC cable plants are up to snuff to support the widespread adoption of streaming of large media files.
Posted by: Erik Schwartz | Jan 25, 2007 9:02:07 AM
There are very few movies I'd watch a second time, so renting movies (and TV shows) makes complete sense to me. I prefer to own *good* music ands I could see subscribing just to me exposed to new music. But the thing is there are already so many (too many) free sources of music (internet streaming, podcasts, DirecTV music channels...) that I see no reason to pay for a service.
BTW, I love that a kazillionaire :-) like yourself tweaks his NetFlix subscription like that. That's some true "Kazillionaire Next Door" stuff. :-)
Posted by: Michael | Jan 25, 2007 10:10:40 AM
I agree Fred. I have several subscription services and maybe ownership will be seen as a 20th century idea in a few decades.
Affordable Access and Availability are all I care about.
Posted by: Sam Sethi | Jan 25, 2007 10:11:42 AM
With a relatively small patent portfolio, Netflix does have a stake in not only rental mail-to-home DVD's, but a more broadly phrased delivery which "may be any medium for transferring data between customer and provider and the invention is not limited to any particular medium. Examples include, without limitation, a network such as a LAN, WAN or the Internet, a telecommunications link, a wire or optical link or a wireless connection." What Netflix is not protected against is 'buy and download' services like Apple, CinemaNow and others, nor can it fend off video on demand services by cable providers such as Comcast. What Netflix can do is make it hard for other players to maintain an online rental queue with electronic delivery of a specified number of movies at one time. Clearly a bet on Netflix is a bet on consumers enjoying making a preference list, and having it available to them when they are ready to watch a rented/subscribed to movie, which has to compete with Video on Demand long term.
Posted by: patent-monkey | Jan 25, 2007 10:43:24 AM
agree agree agree
subscription model is not only better for us consumers, it also offers a pth out of the morass of DRM and all -- when subscription media becomes easy and ubiquitous and reasonably priced, essentially everyone will have it and pirates will become lonely geek freaks, sort of like the old phone phreaks like Captain Crunch
Posted by: steve | Jan 25, 2007 1:19:55 PM
Subscription services presume that you have very broad interests and need the access to the 2-3M songs that Rhapsody gives you. Remember that the average person listens to radio (god knows how) and hears 50 songs at best in heavy rotation, or hears 100 songs on his satellite player, or perhaps listens to the same 200 songs on the IPOD. The quote Clayton Christensen, this is "good enough" for most. Taken a step further, pandora.com and last.fm give you even more choices - again for free. There's a real high threshold of lean forward user engagement than needs to be crested to make the $9.99 per month worthwhile. For someone like youself who is all over the music scene, and really enjoys being able to travel quickly between specific tracks from the 60's to today - it makes all the sense in the wold. But for most people - what they can get elsewhere is good enough - thus the complete lack of success for the subscription services.
Posted by: Harry DeMott | Jan 25, 2007 2:23:13 PM
OK, you think the subscription model suits media but, what about from the other side? The revenue side? I am building a theme-oriented photo-sharing site ... my programmer and I are at odds - he says subscription model is better than my free (ad-based revenue) model. Any thoughts? We need cash now, so he's thinking bring it in, $20 bucks at a time. I would rather tweak our B to B play, and use the first deal to fund finishing the consumer product, it's not even beta yet, how can we 'sell' subscriptions. Any thoughts? Our model is different than Ofoto or Shutterfly, where sales of prints and other merchandise is the model.
Posted by: Joanne | Jan 25, 2007 5:43:32 PM
Subscription services work best once the value of a product/service has been proven. Low price a la carte offerings are often superior in the beginning since the barrier to try out a service is so much lower. Look at the online music industry. Only after Itunes proved the value of paying for online music did subscription based services like Rhapsody emerge as legitimate options. Correct me if I am wrong, but pre-Itunes several subscription based services tried and failed. My two cents.
Posted by: John | Jan 25, 2007 9:28:36 PM
See, I think being shackled to a service, when we're (uh, middle class, hehe) drowning in service fees is a barrier to entry. For me, I fall into the category of listener Mr. DeMott describes. I do have deep interests in music, but not the time or facility to pursue every interest. I rely on my super-smart chums and NPR reviews to do my searching (or Pandora, which is nice).
As for movies, we're buyers. Our plan? Get'em now while the DRM is crackable, and I can perpetuate them in binary format (backups stored on HD's), and eventually we will watch them all-- our retirement plan!
Then again, some people are collectors, others are tasters. I'm a little of both, but it works out where I'm more of a pack rat. I certainly agree that, at fair market value, a service makes a lot of sense.
Posted by: Victor Agreda Jr | Jan 25, 2007 11:14:24 PM
So I guess all the millions who use iTunes and not Rhapsody ... are just dumb? Ignorant of Rhapsody? "Stuck" with iPods?
No, most people do not want to rent music. They want to buy music so it's theirs forever. They want to have music they can listen on their computer, in their living room, in the car, at work, on their iPod, at their friend's house. They want to be able to lend it to their friend to listen to. They listen to their music over and over again. They don't want to return it. Music is a much bigger, more personal part of people's lives than movies or TV shows. That's why the subscription services have never and will never take off. The services provide a product that is of greatly reduced value to consumers.
Posted by: Michael | Jan 26, 2007 1:22:04 AM
I like the cost effectiveness of subscriptions, but I think I prefer downloading my music. I agree with the notion of DRM being a drain. It is a true setback to progress. However, I don't see Rhapsody as any different. As much as you can criticize Apple, where is the iPod support from Rhapsody? It's just the other side of the same coin. All Apple needs to do is provide songs at real economies of scale pricing - $0.10 a song would make it a no-brainer for everyone - even duplicate downloads. At this pricing, piracy has no gain and even casual listeners won't blink at buying. Truthfully, Apple will probably never get there, and so the real future of music will be "free to listen." Artists will regain control, and giving out a song will become equivalent to giving out a business card. "Here's my card, come see my show." The spoils will go to the company that can couple free music delivery, promotion, and ticket sales. Fred, the future of music is right in front of you when you post - it is blogging, YouTube, MySpace - all rolled into one. It is the feeding of information downstream with free music - concert info, ticket sales, bios, blog entries, and even product promotions. The greatest services online will always be disruptors - not distributors.
Posted by: NICCAI | Jan 26, 2007 2:20:42 AM
I still think subscriptions work best for video-based content, where one's "utility" drops pretty quickly with additional usage (with a few exceptions, like Disney or similar, which kids can watch again and again).
Subscription could also work for music, where one's utility is sustained (or even increases) with additional consumption. However, on the passive/discovery side (radio), most people are used to getting the content for free in an ad-based model.
Anecdotally, it seems most use on-demand subs (like Rhapsody) for (1) expensive music discovery and/or (2) tuning into music they don't like well enough to actually buy, rather than as a substitute for music acquisition. But they still acquire music they really like (whether they do so legally or not).
I think a subscription *ownership* model is compelling for a broader segment of the market (e.g. eMusic) as there's no limits on where the music can be played and no risk of losing music/playlists should one's current service become too expensive or a superior competitor come along.
Posted by: David Porter | Jan 26, 2007 5:59:12 PM
I was one of the earlier subscribers to Netflix and used it for years... Then they changed the rules on the maximum number of DVD's that they would send per month and I canceled my subscription on principle.
Now I use Blockbuster Total Access, which is much better for me. First, it is the same as Netflix in RE to the queue and online management but there is also two bonuses. First, I get a coupon for a free in-store rental and secondly, instead of dropping the videos in the mail (which I can do), I can take them to my local neighborhood Blockbuster and exchange them for free in-store rentals, which basically equates to 8 for the price of 4.
I receive the videos in my queue within 24-48 hours of dropping them off at Blockbuster.
Very nice. I am usually knee deep in movies to watch but I still might try Netflix's new service...
Posted by: Dan Buell | Jan 27, 2007 6:04:06 AM
Fred -- I work for Rhapsody, so obviously I agree with you that subscriptions are a very cool idea. If you like the Sonos system, you may also want to try out the Logitech Squeezebox, which also offers direct access to Rhapsody without a PC.
David P. is right that many of our customers use Rhapsody to sample and discover music and then purchase the stuff they really, really like.
The whole rental vs. subscription argument kills me. It's not an either/or proposition -- *all* of the major subscription services let you purchase the music you like, in many cases (including Rhapsody) at a discount over iTunes. You can do it by sampling much more than 30-second clips. And as a result, you will likely *like* what you buy, with no feeling of being burned by the "liked the single, hated the album" phenomenon.
One more thing, responding to NICCAI: Rhapsody would love to support the iPod for subscriptions. In fact, we reached out to Steve Jobs asking to talk about doing just that, but he rebuffed the offer. The fact of the matter is that Apple has consistently declined either to open up FairPlay so that other services can sell songs in the secure format that can be played on the iPod, or to support other secure DRM schemes (WMA, RealAudio etc) on the iPod. The result is a closed loop where you as a user have no choice but to shop at iTunes if you want to buy major label music. Place the blame for that where it belongs: with Apple.
Posted by: matt | Jan 28, 2007 6:18:06 PM
where you are gonna get the biggest change in your life is when you integrate The Sonos System into your home... its compat. with zune, rhap, yahoo, walmart (crap) and napster... its the illest product...
the american mindset is to OWN everything ... so it will take a while for people to bend their minds... unless apple does it for them...
Posted by: dark warrior | Jan 29, 2007 5:54:48 PM
Matt, good reponse, but the real argument is against DRM all together. DRM schemes, HD DVD vs... It's all ridiculous. The future is open standards and open competition. I don't disagree that bundles of money will be made by some (probably Apple), but I argue against the notion of users switching constantly - trading one DRM for the next. I'm sure people will argue against this citing the mobile phone industry as an example, but I also feel that life span is short lived - with 5-10 years max before someone turns it on its head.
Posted by: NICCAI | Jan 30, 2007 4:34:36 PM
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