10 ms·

The thing that bothers me about subscription based models is that there is a non linear relationship between value to the customer and revenue. At some inflecti

by joemag 8y ago

The thing that bothers me about subscription based models is that there is a non linear relationship between value to the customer and revenue. At some inflection point, increasing the value customer gets out of the product does not result in new subscriptions. Wherein, in pay per use models, existing customers will spend more when they get more value out of the product. I have no idea how far away that inflection point is (there are 7+ billion of us, after all), and if this is even the right way to think about subscription based business models. But this is something that always bugged me about them.

genbit 8y ago
netflix keeps increasing prices, you can say that they increase price, because their value to average customer increases.
- partiallypro 8y ago
  Their latest price increase is undoubtedly because their cash burn is really really high. Even despite their increase in prices they noted their burn rate would remain the same...which means they are spending a lot of money content.
  - xiphias2 8y ago
    At least I see some interesting new original content now. I wish they would try to create less, but more expensive content. The superhero series are for example boring for me because they are cheaply produced (I usually watch them _just_ because of the animations).
    - mavhc 8y ago
      Which superhero series? I wonder how long a show is worth something to them? In a decade they'll have 1000 series, can they slow down making shows then? Or do they need to make 5 hours of new tv every day forever? Does a 10 year old show attract customers?
      - janekm 8y ago
        My impression is that the "water cooler" effect is still very important for Netflix. "Hey, have you seen that new X show on Netflix with actress Y? Oh, you don't have Netflix? Let me send you an invite!"
        whywhywhywhy 8y ago
        It’s not even water cooler anymore it’s a Netflix monoculture. Look at your twitter feed when Netflix releases something successful. It’s actually a bit scary how it’s the only thing so many people are consuming
      - TeMPOraL 8y ago
        > Does a 10 year old show attract customers? Let me put it like this: I'd happily double my subscription payments (and I'm on the max tier already) if they offered the entire Babylon 5 series, just to show my support. Hell, the only reason I started using Netflix in the first place is because they had all Star Trek TV shows, including the remastered version of TNG. I also know I'm not the only one in my circle of friends who started using Netflix because of Star Trek, and who would fork extra money for some 80s/90s sci-fi shows, just to show their support.
        johnny22 8y ago
        thing is, that's the sort of thing that the original IP owners are trying to put on their own subscription services. I expect you'll end up finding them somewhere that's not Netflix. That's why Netflix is spending all this money for original content. They don't wanna be left with nothing as warner brothers, NBC universal, disney, etc all launch their own streaming services.
        TeMPOraL 8y ago
        Yeah, I know. There's an ongoing process of balkanization of video streaming that started recently. I just hope all those IP owners get what's coming to them for this failure to cooperate - namely, that all those HD streams get ripped and put on torrents, where people who don't have patience for this bullshit will be looking for them now.
    - philliphaydon 8y ago
      Which Netflix originals superhero is cheaply produced?
  - Godel_unicode 8y ago
    Except if their increased value to the customer didn't give them this pricing power, you would expect increased prices to cause an overall drop in prices. Prices are more about what the market will pay than about what a company needs to charge.
    - partiallypro 8y ago
      Netflix understand market elasticity, but that doesn't mean they didn't up the price so they could create more content.
- eeeeeeeeeeeee 8y ago
  It’s because one of their primary metrics is hours viewed. Netflix needs you constantly watching hours and hours of content so you feel you’re getting “value” and don’t cancel. To do all of this, they constantly need to be financing new content, despite the fact that a lot of it isn’t very good.
gizmo686 8y ago
We really don't have a good model for digital goods. In theory, the cost of goods should be roughly equal to the marginal cost of creating them. With physical goods, this mostly works out: amortizing the fixed costs and profit margin result in just a relativly small markup on the marginal cost. With digital goods, and their near 0 marginal cost, this system fundamentally breaks down, and we are still just hacking together whatever solution we can get to kind of work.
- aikinai 8y ago
  This is not unique to digital goods. Products that rely on intellectual property have worked the same way for centuries. The cost of movies, drugs, books, etc. have nothing to do with their marginal cost.
  - Godel_unicode 8y ago
    It's not even just an intellectual property problem either, but one of any market with artificially constrained supply. See for instance OPEC-created oil prices and De Beers-created diamond prices. In a way, you could argue that iTunes was the fracking of music sales, and that other markets need something similar.
  - EGreg 8y ago
    The cost of goods should be the amortized startup cost plus the marginal cost. Startup costs can include the R&D and so on. “Intellectual property” is just one framework by which the startup costs can be recouped, but at the price of a major impedance mismatch. Instead, the startup costs can be paid for in a collaborative framework (open source, wikipedia, and so on) and the growing snowball of results freely used and remixed in common by all, producing more results. Then the marginal costs would be simply hosting and support. The questions of “but then who would make XYZ” have already been answered. The question, though, is will we still have famous authors and heroes, or will our digital products be made 95% by the crowd. I think the latter. Wikipedia and open source have very few famous personalities - just the BDFLs that launched and run the project, and not specific creators of content.
gear54rus 8y ago
The thing that bothers me about subscription models is that they reverse the power dynamic between a business and a customer. They are fundamentally 'pay us and maybe we'll produce something worthwhile, if not you can unsubscribe after you've already paid'. And it should be the other way around: 'we produce something and if you find it worthwhile, pay us'. Asshole corps will always find ways to milk you dry but it might just become easier with the subscription.
- antpls 8y ago
  Maybe crowdfunding sites like Kickstarter and GoFundMe could be alternatives : 'pay us and this is what we will produce' The 3 models offer diversity
pishpash 8y ago
People are bad judges of value. Companies push subscriptions because people always over-susbcribe for the value they get. But even if they don't, just by virtue of a prepaid subscription, the sunk cost makes people consume more than they would if it were a metered service. In fact the addition issue is tightly related to the subscription model. For Google and Facebook it's because the "subscription" is free. For Netflix and other consumptions it's because it's paid upfront. If every piece of content required a conscious decision of paying, people would automatically value their consumption properly and stop using.
- johnny22 8y ago
  I never paid for shows on itunes or wherever that had per episode prices, because I could never justify the cost. That's why I use subscription services. For the price of say 5 episodes at current prices, I end up with more than 3-4 episodes of value on Netflix.
anongraddebt 8y ago
From a purely intellectual perspective, this is one of the more interesting aspects to these new models. Effectively, your business model is, "what's the highest share of global discretionary income we can take while blanketing the planet with our product/service?" What you sell just needs to be good enough to keep retention at a level that enables this blanketing. Throw-in the addiction aspect to these new models as well as the monopolistic tendencies inherent to them, and what you end up with is a vision of taxing the globe for the relevant industry. To me, Netflix seems like a global tax on entertainment in some weird way (obviously, not a variable fee, so perhaps a 'toll' is more accurate).
bo1024 8y ago
One fix is to have strong competition from multiple services. Along with low switching costs and no lock-in. Then need for customer retention drives quality. (This is another case where long copyright terms hurts consumers. If every streaming company could carry all movies over 20 years old, it would force them to compete more strongly.)
mark_l_watson 8y ago
I prefer buying media from Google Play and iTunes Store. Watching specific shows that I decided to buy seems like more of an entertainment event. That said, I think Netflix is a good value, but there are very real opportunity costs to realize at the end of a weekend that I ‘binged’ on a series for 4 or 5 hours. Time is our most precious resource.

by joemag 8y ago

genbit 8y ago

netflix keeps increasing prices, you can say that they increase price, because their value to average customer increases.

partiallypro 8y ago
Their latest price increase is undoubtedly because their cash burn is really really high. Even despite their increase in prices they noted their burn rate would remain the same...which means they are spending a lot of money content.
- xiphias2 8y ago
  At least I see some interesting new original content now. I wish they would try to create less, but more expensive content. The superhero series are for example boring for me because they are cheaply produced (I usually watch them _just_ because of the animations).
  - mavhc 8y ago
    Which superhero series? I wonder how long a show is worth something to them? In a decade they'll have 1000 series, can they slow down making shows then? Or do they need to make 5 hours of new tv every day forever? Does a 10 year old show attract customers?
    - janekm 8y ago
      My impression is that the "water cooler" effect is still very important for Netflix. "Hey, have you seen that new X show on Netflix with actress Y? Oh, you don't have Netflix? Let me send you an invite!"
      - whywhywhywhy 8y ago
        It’s not even water cooler anymore it’s a Netflix monoculture. Look at your twitter feed when Netflix releases something successful. It’s actually a bit scary how it’s the only thing so many people are consuming
    - TeMPOraL 8y ago
      > Does a 10 year old show attract customers? Let me put it like this: I'd happily double my subscription payments (and I'm on the max tier already) if they offered the entire Babylon 5 series, just to show my support. Hell, the only reason I started using Netflix in the first place is because they had all Star Trek TV shows, including the remastered version of TNG. I also know I'm not the only one in my circle of friends who started using Netflix because of Star Trek, and who would fork extra money for some 80s/90s sci-fi shows, just to show their support.
      - johnny22 8y ago
        thing is, that's the sort of thing that the original IP owners are trying to put on their own subscription services. I expect you'll end up finding them somewhere that's not Netflix. That's why Netflix is spending all this money for original content. They don't wanna be left with nothing as warner brothers, NBC universal, disney, etc all launch their own streaming services.
        TeMPOraL 8y ago
        Yeah, I know. There's an ongoing process of balkanization of video streaming that started recently. I just hope all those IP owners get what's coming to them for this failure to cooperate - namely, that all those HD streams get ripped and put on torrents, where people who don't have patience for this bullshit will be looking for them now.
  - philliphaydon 8y ago
    Which Netflix originals superhero is cheaply produced?
- Godel_unicode 8y ago
  Except if their increased value to the customer didn't give them this pricing power, you would expect increased prices to cause an overall drop in prices. Prices are more about what the market will pay than about what a company needs to charge.
  - partiallypro 8y ago
    Netflix understand market elasticity, but that doesn't mean they didn't up the price so they could create more content.
eeeeeeeeeeeee 8y ago
It’s because one of their primary metrics is hours viewed. Netflix needs you constantly watching hours and hours of content so you feel you’re getting “value” and don’t cancel. To do all of this, they constantly need to be financing new content, despite the fact that a lot of it isn’t very good.

gizmo686 8y ago

We really don't have a good model for digital goods. In theory, the cost of goods should be roughly equal to the marginal cost of creating them. With physical goods, this mostly works out: amortizing the fixed costs and profit margin result in just a relativly small markup on the marginal cost. With digital goods, and their near 0 marginal cost, this system fundamentally breaks down, and we are still just hacking together whatever solution we can get to kind of work.

aikinai 8y ago
This is not unique to digital goods. Products that rely on intellectual property have worked the same way for centuries. The cost of movies, drugs, books, etc. have nothing to do with their marginal cost.
- Godel_unicode 8y ago
  It's not even just an intellectual property problem either, but one of any market with artificially constrained supply. See for instance OPEC-created oil prices and De Beers-created diamond prices. In a way, you could argue that iTunes was the fracking of music sales, and that other markets need something similar.
- EGreg 8y ago
  The cost of goods should be the amortized startup cost plus the marginal cost. Startup costs can include the R&D and so on. “Intellectual property” is just one framework by which the startup costs can be recouped, but at the price of a major impedance mismatch. Instead, the startup costs can be paid for in a collaborative framework (open source, wikipedia, and so on) and the growing snowball of results freely used and remixed in common by all, producing more results. Then the marginal costs would be simply hosting and support. The questions of “but then who would make XYZ” have already been answered. The question, though, is will we still have famous authors and heroes, or will our digital products be made 95% by the crowd. I think the latter. Wikipedia and open source have very few famous personalities - just the BDFLs that launched and run the project, and not specific creators of content.

gear54rus 8y ago

The thing that bothers me about subscription models is that they reverse the power dynamic between a business and a customer. They are fundamentally 'pay us and maybe we'll produce something worthwhile, if not you can unsubscribe after you've already paid'. And it should be the other way around: 'we produce something and if you find it worthwhile, pay us'. Asshole corps will always find ways to milk you dry but it might just become easier with the subscription.

antpls 8y ago
Maybe crowdfunding sites like Kickstarter and GoFundMe could be alternatives : 'pay us and this is what we will produce' The 3 models offer diversity

pishpash 8y ago

People are bad judges of value. Companies push subscriptions because people always over-susbcribe for the value they get. But even if they don't, just by virtue of a prepaid subscription, the sunk cost makes people consume more than they would if it were a metered service. In fact the addition issue is tightly related to the subscription model. For Google and Facebook it's because the "subscription" is free. For Netflix and other consumptions it's because it's paid upfront. If every piece of content required a conscious decision of paying, people would automatically value their consumption properly and stop using.

johnny22 8y ago
I never paid for shows on itunes or wherever that had per episode prices, because I could never justify the cost. That's why I use subscription services. For the price of say 5 episodes at current prices, I end up with more than 3-4 episodes of value on Netflix.

anongraddebt 8y ago

From a purely intellectual perspective, this is one of the more interesting aspects to these new models. Effectively, your business model is, "what's the highest share of global discretionary income we can take while blanketing the planet with our product/service?" What you sell just needs to be good enough to keep retention at a level that enables this blanketing. Throw-in the addiction aspect to these new models as well as the monopolistic tendencies inherent to them, and what you end up with is a vision of taxing the globe for the relevant industry. To me, Netflix seems like a global tax on entertainment in some weird way (obviously, not a variable fee, so perhaps a 'toll' is more accurate).

bo1024 8y ago

One fix is to have strong competition from multiple services. Along with low switching costs and no lock-in. Then need for customer retention drives quality. (This is another case where long copyright terms hurts consumers. If every streaming company could carry all movies over 20 years old, it would force them to compete more strongly.)

mark_l_watson 8y ago

I prefer buying media from Google Play and iTunes Store. Watching specific shows that I decided to buy seems like more of an entertainment event. That said, I think Netflix is a good value, but there are very real opportunity costs to realize at the end of a weekend that I ‘binged’ on a series for 4 or 5 hours. Time is our most precious resource.