What do Adobe and the WWE have in common? All two “old media” companies that are experimenting with new, drastic business models that may change the way they distribute content and, more importantly, the way others access it.
Adobe is a popular software company known for it’s expensive, professional applications including Photoshop, Illustrator, Flash and Indesign, to name a few. Just under a year ago it introduced Creative Cloud, a plan by which a user, for a monthly fee, could access all of Adobe’s applications and stay up-to-date on the latest versions.
WWE, the popular wrestling organization, has announced a similar service, the WWE Channel, which is an upcoming service that will let users stream all prior WWE programming and also watch all pay-per-view events live, for $10 per month.
Though these types of services are common in “new media” companies including Spotify, Hulu, Netflix, Oyster, Rdio and more, these experiments by traditional media companies may represent a tipping point, one that could mean a drastic change in how content is produced, distributed and consumed.
That is, if these experiments pan out.
The Netflix-ification of Content
In the early days of the Internet, most of the legal, paid content was bought and sold in a way that analogous to the physical world. MP3s were wold like CD singles, digital movie rentals were handled as if they were DVDs.
Technology changed, but the rules of ownership did not.
However, Netflix changed all of that. While it wasn’t the first company to sell access to content, it was the first to become a broad mainstream success, build largely on the back of its more traditional (and now fading) DVD rental service.
With Netflix showing that the public was comfortable paying for access to its content, rather than owning it directly, other services began to spring up for other types of content, including Spotify for music and Oyster for ebooks.
However, those were new companies licensing content from established players. In the case of Adobe and WWE, they aren’t waiting for a third party to offer them a licensing deal, they are forging their own paths.
(Note: WWE does license some of its content to third party services, such as Netflix, but not nearly all.)
For companies, these types of arrangements can be compelling. Though the WWE might miss out on selling a $45 pay-per-view because someone opted for a a $10 subscription, it also means they earn $10 when a viewer doesn’t watch that month’s event. The same is true for Adobe who might miss out on a $500 application sale for a $50 monthly subscription, but one skipped update doesn’t risk hurting the company.
Subscription services are a great way for content producers to smooth out the roller coaster caused by fluctuations between popular releases and down times, providing more consistent and stable revenue.
For consumers, they represent and unparalleled opportunity. Previously, to have a complete library of content like you find through these services one either had to A) Spend a fortune or B) Pirate the content.
There’s also a convenience of knowing where to go to get the content you need and, most importantly, an element of price predictability. An Adobe Creative Cloud user isn’t going to be hit with a surprise bill for a needed upgrade next month.
But while the deal might, in many ways, be better for both sides, it can also be a great deal worse.
The Downside of Content Subscription
As good of a deal as paying for content access can be, it can also be a terrible deal at times too.
For one, consumers often times pay for services that don’t use. Don’t listen to a Spotify track for a month or use an Adobe application in that time? There’s no refund.
For another, the consumer never actually owns their product. If they stop paying their Adobe bills, they can no longer access the programs they’ve come to need and use. The same holds true for Microsoft with Office 365 and similar services. If you own a DVD, CD, or application, you have rights to it, rights that you don’t get with a copy you merely obtain through a subscription service.
Of course, those exact rights have been under fire since long before subscription services became popular, such as with the Vernor v. Autodesk case, which placed limits on resale rights for licensed goods.
Subscription services also pose risks for content creators though. Not only is there overhead and additional expenses that come with providing the service, including support and infrastructure. They also risk cannibalizing existing, lucrative markets in exchange for smaller monthly subscriptions.
In fact, it’s heavy customers, the ones most lucrative under traditional models, are the ones most likely to benefit from subscription services and sign up. As a result, the amount earned from those customers could be eroded, though hopefully replaced by subscriptions from those who otherwise would not be customers at all or would otherwise be much more limited ones.
Still, for companies this is a tremendous risk, eschewing traditional, successful business models for one that is still largely unproven. It’s easy to see why many have failed to jump on board or have only done so with third-party intermediaries.
The Longer-Term Risk
However, the bigger risk is what the market could look like down the road. While the customer burden isn’t that great when they’re just using Spotify and Netflix, which is about ($228 per year), the story changes as the market expands.
If a user were to subscribe to Netflix, Spotify, Hulu, Adobe Creative Cloud, Microsoft 365, Oyster, Amazon Prime and WWE Network, that amount balloons to over $1,350, nearly half of which goes to Adobe, and this is likely just the beginning.
That’s a lot of money and a lot of subscriptions to manage. It’s going to be difficult, in a fragmented market, for consumers to obtain all of their content through this means. Most likely, providers are going to have to team up and offer bundles that are compelling, much like cable bundles now, but that may create some of the same issues that exist now, including customers being forced to pay for content they don’t want.
Of course that already happens to some degree. Every Netflix subscriber already has part of their monthly subscription go to license content that they will never watch. However, most Netflix customers don’t seem to mind.
Still, content creators need to be aware that, as more services selling access come online, the risk of customer burnout is real.
Subscription services were, in large part, a response to piracy. They offered customers a mean to access to a huge, convenient library of content at an affordable price (or at least a price broken out in an affordable way), while giving content creators a more stable revenue stream. While they are becoming wildly popular, they aren’t becoming wildly profitable.
However, for most types of content the business model is nascent, it’s going to be years before we know if this is the wave of the future or just a lark of today.
But for content creators who have been battling piracy, increased competition and other challenges on the Web, this approach still provides some hope in a dark time, even if it isn’t producing the desired revenues now.
While many artists are understandably skeptical, and rightfully so in many cases, it’s clear that this model isn’t going anywhere in the near future.
As such, it will be interesting to watch as the various experiments either soar into the future or crash into obscurity.