Over on Due Diligence, Tim Oren posts a lengthy but well-worth it read summarizing the conundrum old media faces as it’s 350 year old business model is chipped away by the superior flexibility and reach of digital media indexed by search engines and distributed by RSS. The business proposition of subscription bundles to both the reader and the advertiser break down and economics drive both towards spot purchases which favor the more nimble new media organizations that don’t have to pay for expensive production and distribution as does old media.
A subscription is a bundle of a different sort. It combines multiple transactions into one by collapsing them in time. It therefore adds a futures element to the transaction. More so than the spot transaction of buying a single item, trust becomes an issue. The purchaser is betting that the supplier will be reliable in the future and, in the case of a media periodical, continue to deliver a collection of content of value. . .
If the subscriber observes that the value of the content delivered is decaying over time, either absolutely or compared to competitive sources, then a renewal becomes less likely – the futures bargain no longer works. If this is widely true of a subscriber base, then churn (lost subscribers) will be increasing over time. To keep the revenue line stable, the subscribers must be replaced, incurring subscriber acquisition costs. Since every new subscriber’s choice is made in the context of competitive options, including spot purchase as an alternative, the per-subscriber acquisition costs may be rising at the same time. At the point where discounted future value of a subscriber, given churn, becomes less than acquisition costs, the business model that looked like a reliable cash spinner is suddenly upside down. All that is left is to milk the existing subscriber base as it decays.
Dissecting the Media: Trust and Transactions
As my father would say, nothing beats the look and feel of a newspaper as a physical experience. Are we entering a world where the newspaper or magazine is something you pick up as a luxury item to browse over your morning coffee (on those days when you have the time) and no one can afford to subscribe regularly? Will the paper boy become a quaint figure of day’s gone by like those jockey boys people find on the suburban lawns?