Cerillion : Are subscription businesses better off going solo?

Subscription businesses are increasingly being drawn to new platforms created by tech giants Apple, Google and Facebook. While the upside is higher visibility, these platforms also come at a cost to these companies. So, what's the best way out for subscription businesses?

This year we have seen tech giants such as Apple and Facebook entering the subscription industry. Service platforms including Apple News+ and Facebook Fan Subscriptions are now helping businesses tap into the power of their large ecosystems. These come with the promise of better visibility and reach, but companies are becoming increasingly wary about signing up to these platforms.

Take the recent example of record labels which are nervous about Apple's new plan of bundling Apple Music and its upcoming video streaming service Apple TV+. These companies fear that they may lose margins if Apple undercuts the $10 monthly price that is the current industry standard. The Cupertino giant with its deep pockets and monopoly hold in the market can easily afford to forego short-term profit for long-term revenues, and this may end up hurting the music labels.

Similarly with Apple News+ - the news subscription service launched earlier this year. While many smaller publishers have joined the platform, prominent ones such as The New York Times and The Washington Post have stayed away. Their own digital subscriptions are doing pretty well, which makes them less interested in third-party platforms which would take a share of their revenues. In fact, CEO of The New York Times Mark Thompson has even said that reliance on third-party distribution can be dangerous for publishers who risk losing control over their own product.

Facebook Fan Subscriptions is a similar platform that allows creators the ability to start offering content to subscribers for a monthly fee. While creators can currently keep the subscription fees for themselves, Facebook plans to take a 30% cut of fan subscriptions from 2020. In addition, Facebook also gets a lifetime licence to use the creators' work.

Of course, this ties back to the broader question of who should make money from online platforms. YouTube has faced a lot of controversy around its monetisation rules and policies. While tech platforms have their advantages, it is clear that they are more focused on increasing their own bottom line rather than offering genuine value to subscription businesses.

Subscription businesses which embrace large service platforms primarily face three key issues:

Loss of revenue - As we pointed out earlier, most of these platforms take a significant cut from the revenues of subscription businesses. Even subscription giants such as Netflix had to bear the brunt of these policies, before finally stopping subscriptions through such platforms. Netflix now asks users to subscribe directly through its website or mobile app. In fact, the US Supreme Court also allowed an antitrust lawsuit to move forward against Apple which may require it to stop charging the 30% transaction fee altogether. Apple made over $2 billion in revenue alone from third party apps last year. Subscription businesses can save a lot by staying away and using the savings to bolster other aspects of their service.

Lack of control - Subscriptions are all about delivering a good experience to users, but a platform play limits the options for subscription businesses. For instance, many publishers are concerned about the design of the Apple News+ app which makes it difficult for them to push content they want to showcase amidst a sea of content from other sources. Furthermore, publishers also want to encourage users to spend more time in a publication since they are paid based on the time subscribers spend reading their content. However, they are at the mercy of Apple for this important aspect of the deal.

No access to Data - At a time when companies are taking smarter decisions based on data, the platform model ensures that only the tech companies owning these platforms have access to customer data. Important data about subscribers - credit cards, email addresses, subscriber preferences - are not given to the smaller subscription businesses. However, without access to customer data, these companies cannot effectively improve their services, potentially losing revenues in the long run.

While the jury is out on the platform model, perhaps subscription businesses may be better served going solo by focusing on their core value proposition. Companies can become more agile in their pricing and billing models by adopting a robust subscription billing platform, also gaining access to their data to continually improve their services and develop meaningful customer relationships. Tech platforms may help subscription businesses move beyond their organic subscriber base quickly, but it comes at the cost of delivering a good subscription experience. And that is not the best outcome in the long run.