Most financial experts agree that if you need a car, buying is almost always a better financial decision than leasing. Even if you have to borrow money for the purchase, traditional financing is a better option than making payments for a couple of years and having nothing to show for it unless you’re willing to pay even more. The same attitude leaves home renters with the feeling that they’re throwing money away when compared to homeowners, but the analogy isn’t completely accurate.
Subscription payments — recurring monthly or annual payments — have a place. Consumers pay for certain services on a subscription basis. Newspapers, magazines, and television are all traditional media-based services that operate their businesses using subscriptions. In return for a monthly fee, consumers receive new media content, on-demand or on a regular schedule. Media companies are increasingly using subscription programs as a replacement for selling individual items, and it’s great for them. Rather than one-time income, companies are setting up systems that generate a stable income stream. In theory, these companies can then put the guaranteed revenue into the development of more content.
But for more and more companies, the subscription model is just a big cash cow. Organizations claim that their customers prefer the model over one-time purchases of content, and that might be true. People like when the things they consume cost less money up-front, despite a long-term draining of financial resources. Companies are coming up with clever ways to turn products into services, services consumers will pay for on a recurring basis instead of products consumers will own.
When I would find a musical artist I like, I used to buy his or her albums. The music would then be mine, to listen to whenever I like, without advertising interference, forever. I could do whatever I like with recording, including sharing it with friends, as long as I didn’t cross a legal line in terms of copyright infringement. This arrangement worked well for me and millions of other consumers.
Maybe due to the development of digital media and increased unauthorized duplication and distribution, the music industry needed to find a way to change its model. They tried digital rights management, and that was a complete failure. The music industry has its solution: subscription service. With a subscription to a streaming music service, consumers never own the music they buy (though that option is still available).
Music streaming and movie streaming doesn’t seem to be a bad value compared to what you might spend on buying media you’d like to enjoy on a repeat basis, but you leave control in the hands of the media supplier. If they want to remove your access or increase your monthly subscription fee, you lose everything you “bought.” If I start relying on Netflix streaming rather than buying personal copies of films I enjoy, if I decide to cancel my Netflix subscription, I end up with nothing to show for my hundreds or thousands of dollars spent on the subscription except memories of sitting in front of a television screen.
Leaving control of personal media in the hands of the companies that provide it has already caused problems. Customers of the Kindle book-reader have seen Amazon change or erase purchased digital copies of books. You don’t own anything when you buy books with a Kindle account or a similar service. The financial model is a little different for consumers, and in this case you do pay a price for each piece of media which is then supposed to be “yours,” but you’re severely limited in your own control of that piece of media.
A few months ago, Adobe Software, the maker of PhotoShop and other important software for media professionals, decided to stop its long-time process of selling software updates each year. The company now offers its most popular software in a subscription model only. “Software as a service” is the now industry-standard model of requiring users to pay an ongoing fee — effectively renting software rather than buying it. It’s quite profitable, primarily because most consumers of software are actually businesses, and it’s much easier for businesses to justify an expense than it is for hobbyists or people who do not make money from their use of the software.
The end result of this is that consumers decreasingly own what they consume. There is no asset received in return for spending. With a subscription service for music, I’m no longer building a collection of CDs that I could at some point in the future sell (at a great loss) if I were desperate for cash. Maybe decreasing clutter, eliminating “stuff,” is a good thing, but even in this subscription culture my clutter doesn’t actually seem to be decreasing. (Maybe that’s because I still prefer to own my own media.)
You can see the changes. Quicken may be the financial software of a previous generation, but it’s still what I use. At one point, I could buy one version of Quicken for $20 and I could theoretically use it forever. Then Intuit introduced features that expire after a few years, and perhaps rightly so, stopped supporting versions older than a few years. When Mint.com was introduced, it followed the software as a service model. Today it’s free, and it doesn’t offer nearly the same feature set as Quicken, but it sets the company up to eventually replace the buy-and-upgrade Quicken model with a subscribe-indefinitely model. The company is on that path with QuickBooks, accounting software for businesses, so it wouldn’t surprise me if Quicken followed that model within a few years.
In the case of software as a service, the cost for me as a consumer, and probably you, will increase greatly. It won’t feel bad because each payment is lower than the traditional one-time payment. And as any late-night infomercial marketer knows, it’s that advertised initial price point that drives sales, not contemplation of the total cost.
Are you fine with the gradual transition to subscriptions for everything you use? Is this just an inevitable progression of business economy? Is there enough dissatisfaction with this type of payment plan for the market to generate alternatives or will consumers just smile as they pay out more money for less substance over time?
Published or updated August 29, 2013.