Sign Me Up: Why We’re Subscribing to Everything

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I just signed up for Apple Music. I’ve resisted the social pull of Spotify for years on principle – I don’t ever buy $10 worth of songs a month from iTunes, so why would should I pay that much to do it with Spotify? But all of a sudden, things have changed – Apple has joined the fight for subscription-based music. Now regardless of what anyone says, I believe this is a monumental bellwether for the music industry. Either (1) Apple, from its throne high above the rest of us, has finally decreed that subscription-based music is the law of the land, or (2) Apple, from its throne high above the rest of us, finally realized that no one is listening to it anymore and is trying to reinsert itself into the spotlight in which it once basked. Whichever of these is the case, the outcome is the same: music subscriptions have won, and we had better learn to like it.

This shift, however, seems to go deeper than music. Netflix, Amazon Prime, Hulu and hundreds of other sites are taking the subscription model and commandeering it for their own products. Unlimited streamed music is only the beginning. Next comes unlimited streamed movies, then unlimited streamed TV episodes, unlimited streamed video games and more. The digital world is transforming–but why?

1. All-You-Can-Eat: Economies of Scale

The first appeal of streaming subscriptions is what I call the “all-you-can-eat” effect, or, in economic terms, a concept called economies of scale. In other words, the more you consume at a set price, the cheaper each additional unit becomes. For example: In the world of digital ownership, you generally can purchase a song for $0.99, or about $1. Buy 10 songs, pay $10. Buy 3,000 songs, pay $3,000. In other words, with iTunes or other download sites, you get no discount with volume.

With all-you-can-eat (streaming style), however, there is a perceived discount with volume (note: perceived). Listen to one song in a month for your $10 subscription fee and you’ve basically paid $10 to listen to that song. Listen to ten songs, and you’ve basically paid $1/song–what you would have paid for iTunes downloads. Listen to 3,000 songs, however, and you’ve paid only $0.0033/song. “What a deal!” the world says. And it is–kind of.

The hard thing for us as digital subscribers to actively comprehend is that even if volume offers a better “deal” on streaming services like Spotify than on download services like iTunes, it doesn’t necessarily offer a lower out-of-pocket cost. In the end, your wallet doesn’t care about what purchase was or wasn’t a “better deal”–it cares about how many dollars you spent. You could (hypothetically) pay a mere $1 million for a Boeing 747 jet (a 99.7% off sale) and still go broke. That’s why sales, discounts and coupons exist–we consumers are tempted to think in terms of cost reduction instead of end cost.

2. Variable Expenses to Fixed Expenses

I recently downloaded a free personal budget template, and was amused to see that under “Fixed Expenses,” just after “Rent,” “Car Insurance,” “Health Insurance” and “Phone,” was “Netflix.” Movies, which in days of old would have been considered variable expenses (changing on a month-to-month basis depending on how many you decided to “consume”), have now become fixed expenses–as regular and unquestioned as a mortgage, car payment or insurance. Therefore, not only are your subscriptions like Netflix or Spotify automatically renewed every month (for your “convenience”), but they have also been converted from extraneous expenses to essential expenses. The average family with a Netflix subscription, if caught in a financial bind, will often actually seek to reduce the grocery bill before canceling Netflix. THAT is a powerful marketing psychology.

3. It’s Not a Product

Up until recently, we have always viewed digital media as products–items to be purchased, owned and consumed at will. Now, however, we see media transforming into a service. We pay for temporary access to the product, not the product itself. It is as if digital media providers have convinced us to abandon the kiddie pools in our back yards for the waterpark down the street. The waterpark is, no doubt, much more spectacular. However, your autonomy as a media consumer is all but absent–their park, their rules and (most importantly) their prices. It’s easy to get caught up in enjoying the many waterslides and fountains and games (“What a great deal for all this stuff!”) while forgetting what life was like without it all (simple). In the end, that’s the genius of marketing a service over a digital product: give customers ownership of a product, and they have little need to become repeat buyers. Give them a subscription, and you have them hooked.

Finally, Apple Music: Is it Worth the Switch?

Like it or not, subscriptions seem to be here to stay–at least, that is, until the next innovator comes up with an even cleverer marketing strategy. So, for the sake of practicality–switching to Spotify or Apple Music is “worth it” to you financially if you are already buying more than 10 songs from other sources in a regular month. It is notworth it,” however, if you start listening to more than ten songs on Spotify in a month. That’s part of the clever, clever marketing illusion. It makes zero difference if, once you subscribe to Spotify or Apple Music, you listen to five songs, ten songs or a million songs–you paid $10. It’s a sunk cost. The only way to see if a subscription is “worth it” to you financially is to look at your bill from the past few months. If you spent more than $10 each month, go for it. If you didn’t, but still want to subscribe, sign up knowing that you are partaking in an elaborate marketing scheme–and a brilliant one at that.

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