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2 A Model For the Production Of Culture: The Subscriber Model
Beyond the theoretical exercise of illustrating that the nonlinear affordances of internet distribution divorce portals from the flow model, recognizing the different protocols enabled by internet distribution also reveals opportunities for new strategies and ways of thinking about television’s economic exchange. Nonlinear distribution and its on-demand nature require rethinking many of the strategies that have proven successful for linear television—most of which were related to scheduling. Linear distribution required synchronous viewing; it mandated timeliness as a structuring norm of television engagement.
Broadcast’s technological limitations necessitated the protocol of the schedule, which was particularly well-suited for advertising because viewers had no control over the stream of content, which made them more likely to be captive for advertisers’ messages. The content abundance characteristic of internet distribution and viewers’ ability to self-navigate access have challenged the norms of advertising that developed for broadcast and cable distribution technologies. Legacy practices of pricing and selling advertising and measuring exposure to advertising messages have not proven effective for the very different experience of nonlinear distribution—particularly in terms of the budgets required for professional-level content. Even outside of internet-distributed video, viewer-accepted practices of advertiser messaging and valid measures for the exchange of attention remain in development and inconsistent across social media platforms. New distribution technologies such as cable-distributed, advertiser-supported, video on-demand (e.g., Comcast’s Xfinity service) offer examples of access to nonlinear programming reliant in part on advertiser support, but practices specifically attuned to this environment remain preliminary.
Despite some previous cases, media have not extensively used a subscriber-funded revenue model that is not supplemented with advertising, and thus conceptualization of subscriber-funded media is limited. “Subscriptions” are most common to US media audiences in the context of magazines—which, with few exceptions, are predominantly advertiser supported despite the small subscription fee. Reliance on advertising in any amount strongly affects strategy and leads such dual-revenue media to conform mostly to logics of advertiser-supported media. US audiences also might think of a “subscription” to a cable, phone, or internet service. None of these cases is illustrative of the subscriber-funded services focused upon here. A cable subscription comes closest—it provides access to cable channels in exchange for a monthly fee. But the majority of those channels are supported in part by advertising. HBO, Showtime, Cinemax, and Starz, as purely subscriber-funded, provide the clearest precedent.
As the use of the subscriber-only revenue model has grown more prevalent among internet-distributed media, it has become necessary to theorize the specificities of subscriber-funded media as well as their use in the context of the affordances internet distribution allows. The limited use of only subscriber financing in exchange for access to an array of goods has been uncommon enough to escape detailed theorization. There are few precedents in and limited theorizing of media using a subscription-for-library-access model despite origins of this model that date to the circulating libraries of the 1700s. Circulating libraries provide a precursor to portals’ subscriber funding as a contemporary business model for media, as does video rental of the 1980s. Subscriber funding is also a key revenue stream for emerging businesses offering streaming music access. Factors of media specificity create different dynamics in all these contexts, but nevertheless create a relevant field of examination.
Although “subscriptions” to print goods such as newspapers and magazines have been common for the last century, this transaction too is distinct from the context of portals. Miége considered these goods as produced within a “written press” model that was ultimately quite similar to the flow model because advertising provided the primary revenue stream and the regularized creation and release of these goods mirrored the scheduling function of flow media and likewise required constant production infrastructure. Moreover, subscriptions to media goods typically have been narrowly circumscribed—a subscription to a particular publication, rather than the breadth of content most portals offer. Finally, advertising remained the primary source of revenue of newspapers and magazines so that their practices of content selection are governed by strategies very different from those wholly reliant on subscriber payment.
The most significant previous work seeking to theorize subscription derives from Lacroix and Tremblay’s preliminary suggestion of a “club model” in 1997. This work importantly recognized the distinctive logics of subscriber-funded media, such as cable systems that became widespread in the 1990s, but blended advertising and subscriber revenue. Moreover, their model (at least from what I can discern from translated sources) remains too broad to be extensively helpful—particularly due to its inclusion of multiple revenue models. Writing about cable and related affordances, they note, “Club logic, which develops alongside network development, offers both to those who are hooked up, that is, to those who pay a monthly subscription: programming financed by advertisements, subscriptions or on a pay-per-view basis, and products and services which consumers can … reproduce on material supports.” Their work is valuable in its address of shifting distribution technologies that required refinement in previous models and begins to think through the distinctive nature of a cable subscription as a media transaction. In the US context of cable subscription at least, the cable service does not play a curatorial role comparable to subscriber-funded portals. Cable and satellite service providers participate minimally in curation or scheduling, their function is more that of the gateway utility, akin to the internet service provider in the context of portals. Cable subscriptions also mostly provide access to content reliant on advertising so that the logics of advertising govern the production of cable programming.
The clearest precursor of subscriber-funded portals is linear subscriber-funded television service as offered by HBO and Showtime. Although similar in business model, even these entities are distinct from portals because of the limitation to access created by linear transmission. As for the cases of linearly distributed HBO and Showtime, portal subscribers assess the value of subscriber-funded, internet-distributed portals based on the availability of content that matches personal interests. Subscribers might only be willing to pay for a service if it offers a value proposition considerably better than what they can achieve in an advertiser-supported environment. These services consequently embraced technologies such as multiplexing and cable on demand that expanded access beyond the linear schedule to increase their value proposition. With few exceptions, linear subscriber-funded television services were such a small part of the television ecosystem that their business model has not been extensively explored.
Here, I extend the endeavors of Francophone cultural industries theorists such as Miége, Flichy, Lacroix, and Tremblay by suggesting a “subscriber model” of media industry operation. More specifically, I identify the characteristics of the subscriber model utilized by internet-distributed portals to ground it in a particular context.
Key to differentiating media operating in a subscriber model: unlike flow and even written press models, advertising does not drive these industries, and viewers buy access to a package of goods, rather than the individual goods transacted in the publishing model. As established, a “subscriber model” is not particular to internet distribution. Such a model could have been created to explain the logics and strategies evident of HBO in an era in which it remained tied to a linear schedule, and this model building consequently contributes to understanding subscriber-supported, linear television such as HBO and Showtime. Likewise, although this model building relies on the situation of internet-distributed television portals, points of commonality with various subscriber-funded music services such as Spotify and Pandora can be identified. Deeper exploration of a model for subscriber-funded entities is required now that it has emerged as the preponderant model of this preliminary stage of internet-distributed portals.
Beyond its revenue stream, a subscriber model differs from other media transactions by relying on bundling, which has been a common practice in media industries. Often the bundling characteristic of media consumption in a pre-digital age—the aggregation of articles in a newspaper or magazine, the collection of songs to make an album—emerged from the economics of manufacturing and distributing a physical good. When a physical form was required for distribution, economies of scope necessitated aggregating media to justify the manufacturing costs of the good. Internet distribution eliminates the need for a physical good and, along with viewer desire for access to disaggregated goods, has resulted in the separation of songs from albums and articles from newspapers.
The strategy of bundling access to an array of content in portals—as opposed to selling individual series as done by transaction retailers such as iTunes and Amazon—is related and yet demonstrably different. It is not that the economics of transaction functionally require bundling to make efficient sale of a good, as was the case of physical media. Rather the portal strategy of collecting goods in a library is a response to heterogeneous taste, the risk averseness of audiences to paying to try new programs, and the marketing costs of transacting single goods.
Bakos and Brynjolfsson’s research, while focused on “information goods,” helps explain bundling as a business practice for portals distributing television entertainment as well. Their analysis seeks to explain practices emerging for goods with very low marginal costs and how bundling creates “economies of aggregation.” Although their models do not fully take into account the situation of portals—particularly the dynamic of a seller that creates its own intellectual property—two points of their analysis are very relevant. The value of bundling over transaction derives from bundling’s greater efficiency in predicting consumer value of a collection of goods as opposed to single goods. This greater predictability is then matched with the capacity to collect extensive data about viewer tastes that quickly generates more predictive capabilities for large bundlers that enables them to extract more value from goods than smaller bundlers. Smith and Telang address the strategy of bundles for consumers by noting the larger the bundle the more convenient for consumers, which increases their willingness to pay. Bundling thus produces benefits for both sellers and consumers and is increasingly beneficial in an environment of internet distribution in which marginal cost is functionally zero.
Other research has also explored the strategy of bundling in contexts in which physical goods are not a factor, such as the newspaper industry’s use of subscriber funding versus pay-per-article online access, bundling strategies and pricing of online magazine content, or tying access to a package of channels together in cable bundles. Notably, in all these cases, advertising remains a crucial revenue stream. The situation of subscriber-funded portals that exchange access to a bundle of content for a flat fee consequently remains distinctive.
Miége explains the logics of the publishing, flow, and written press models by delimiting each according to their general characteristics, central function, economic organization, creative professions, income, and market characteristics. Following that organizational logic helps identify the distinction of a subscriber model that is developed with the situation of subscriber-funded, internet-distributed portals in mind. Analysis of consequent business strategies and exploration of emerging implications follows.
A Subscriber Model of Cultural Production
At its most basic, the subscriber model is characterized by a user paying a fee for access to a collection of cultural goods. The subscriber, generally either an individual or household, typically enjoys unlimited access to the collection of goods held in the library for the duration of the subscription. Media operating within this model curate a collection of cultural goods according to a strategy based on providing a particular value proposition to subscribers.
In the case of broadcast- and cable-distributed television, the limitation of the linear schedule constrained this task by enabling a channel to offer only a single piece of content at a time, but internet-distributed portals create a repository of content according to their particular curation tactic. A range of strategies differentiates the curation tactics of portals that cultivate a library of content for a taste group or conglomeration of taste groups.
The audience strategies enabled by nonlinear distribution enumerated in the introductory discussion of how library curation differs from scheduling establishes several of the general characteristics of a subscriber model. Key to subscriber-funded media is the necessity of providing content of such value that consumers will pay for it when they face a marketplace of options that includes those that do not require a subscription fee.
The central task of media operating within the subscriber model is to curate a collection of cultural goods such that curating involves both compiling content and organizing it in a convenient and accessible manner. It is the contents of the collection and the experience of accessing it that offer the primary value propositions to subscribers. This is an important adjustment from linear subscriber-funded services that competed solely on content because its organization was confined to its ordering in a linear schedule. Although channels varied in what they offered at a particular moment, the use experience was consistent among subscriber-funded services such as HBO and Showtime and undifferentiated from those with ad-support (beyond their obvious exclusion of advertisements).
Portals accomplish the central function of collecting—or curating—cultural goods primarily either through funding content creation (original content) or licensing content from other rights holders (acquired content). Some portals license content from a wide range of sources (Netflix), whereas others use the portal as a vertical extension of self-owned creative goods. Such entities, distinguished here as “studio portals,” manage the capacity constraint of content acquisition budgets through a tactic of vertical integration. Their catalogs may not be as valuable to subscribers because their offerings are not selected based on cultivating subscriber experience, but on a strategy of relying on self-owned intellectual property that diminishes the cost of operation.
The strategic opportunity of vertical integration and the reliance on a library rather than the scarce capacity of a schedule have led the portals to value ownership of rights and to maintain valued titles in perpetuity, whereas channels historically only licensed programs for an initial period. Original content consequently can continue to provide value to a portal well beyond its initial availability because there is no capacity constraint that forces elimination of some content to introduce new content. The possibility of perpetual access consequently distinguishes these subscription libraries from common practices in other media industries that have used artificial scarcity, price discrimination, and windowing to drive viewer behavior and maximize revenue. Content originally created for portals thus produces long-term value for the collection and makes existing measures of success such as immediate ratings of limited value (irrespective of the irrelevance of ratings to subscriber-funded services that instead measure success by number of new subscribers and rate of cancellation by existing subscribers).
Very important to the curation strategies of these services, subscribers pay a flat fee regardless of the amount of content accessed. Such a model responds to the variation in price sensitivity among consumers and their heterogeneous content interests. Subscriber-supported portals license rights for a period of time at a fee independent of how many viewers then access the licensed content. This makes the marginal cost for each stream of a show zero, differentiating, say, the streaming service of Netflix from its DVD by-mail service, which pays a per DVD fee in acquisition and is limited by its ability to service a single subscriber with a disk at a time.
These practices make it difficult to evaluate how valuable any single piece of the collection is to the value proposition of the service through simple measures such as how many times an episode or series has been streamed although the richness of user data that portals collect allows more sophisticated evaluations. Where advertiser-supported media have clear metrics of success based on the number of viewers attracted by a piece of content—viewers then sold to advertisers—assessing the value of each good in the library is more difficult. Some content may be accessed by a high percentage of subscribers, but not be particularly valued, while another series may be accessed by few, but that series might be so highly valued as to compel continued subscription. This is an internet-distributed corollary to Bruce Owen and Steven Wildman’s broadcast television finding that “the production of mass media messages involves a trade-off between the savings from shared consumption of a common commodity and the loss of consumer satisfaction that occurs when messages are not tailored to individual or local tastes.” As a result, “most watched” content is not necessarily the most valuable for a service. The rich behavioral data available to portals allow for the creation of internal measures of the value of content even if these metrics and data do not circulate more broadly.
Because the experience of portal use—including search, recommendation, and user interface—also differentiates portals’ value, maintaining and improving the portal product are also important functions of subscriber portals as competitive strategies of differentiation. Those who perform work related to reimagining how viewers experience content supplement the more traditional work of those who develop what subscribers can watch.
Importantly, much variation in current practices is possible that would still be characteristic of a subscriber-funded model. Portals could price according to use level rather than the all-you-can-stream norm, and license holders could seek a different remuneration model—for example, one linked to consumption. Such changes would produce considerable adjustments in portals’ strategic operations.
Viewers’ access to a portal’s curated goods is typically paid per month. Consumption within the period of subscribership is unlimited. Here, the affordance of internet distribution in enabling an individual to select content on demand marks a significant expansion in the value proposition from what linear subscriber-funded services could provide. A subscription to linear HBO often meant access to the one program HBO selected to air each hour although the service was at the vanguard of multicasting and on-demand technologies that enable viewers to derive more value from their subscription.
In exchange for payment of a monthly fee, subscribers receive log-in credentials. Contracts imply credentials are meant for only the immediate household although it should be noted that in the early years of these services, passwords were widely shared. Such behavior was tacitly permitted as services did not attempt to penalize subscribers using multiple, and sometimes simultaneous IP addresses, which may have been a strategy to cultivate eventual subscription. In some cases, fees were structured to provide simultaneous use to multiple users for additional fees. Notably, where cable subscriptions were necessarily geographically specific, portal subscriptions are not similarly tied to a particular place.
In terms of their economic organization, the portals generally require extensive infrastructure and many employees tasked with redeveloping and curating the collection as well as several engaged in tasks unrelated to making or acquiring media. Curation activities include identifying and pursuing licenses for content that fits the collection, whereas others develop original content or contract for its creation. Another set of employees maintains the portal infrastructure and works on the advancement of the product. Yet another category of employees works to expand the subscriber base and provide service to existing subscribers requiring assistance.
The affordances of internet distribution that allow for gathering data about user behavior introduce more information to the tasks of curation than has been available to linear subscriber-funded services. Subscriber-funded portals thus also require employees with skill sets that enable the collection and analysis of data such as how and what subscribers view and what devices they use to do so. Such data enable more strategic curation than previously possible, and portals with larger scale achieve increased predictive abilities. Notably, subscriber-funded portals use the data they collect proprietarily so that the services often know much more about viewer engagement with their content than the companies with whom they negotiate licensing deals. The availability of viewer data of much greater specificity than characteristic of previous television distribution technologies and the lack of shared, nonproprietary data provide two notable divergences from previous industry operation.
The conditions and activities of creative professionals are much like those of intermediaries for linear and ad-supported television. As true of development executives at legacy networks and channels, the subscriber-funded portals require creative professionals able to curate the collection by identifying valuable licenses and to develop original content well-suited to curatorial aims. The tasks of portal curation and content development are distinct from content creation, just as broadcast network executives do not centrally participate in series production.
The creative professionals who make original content for portals follow the norms of the publishing model in a manner largely consistent with content creation for other types of television although this is a business-to-business application of the publishing model. Those commissioned to create series are employed on a series-specific basis—although some key talent, for example, actor Adam Sandler, was contracted for multiple films by Netflix in a deal that generated substantial press attention. At this point, no creative talent is exclusively tied to a portal per a model akin to the studio system although nothing precludes this.
Portals’ exchange of library access rather than a single scheduled piece of content does necessitate some adjustments in established norms for contracting with and remunerating talent. Unlike previous contracts with creatives, the value of ongoing residual earnings is most limited in cases in which portals purchase series for global distribution and hold licenses in perpetuity, as Netflix has increasingly sought. In such arrangements, the lions’ share of a studio’s earnings is paid upfront significantly rewriting industry norms in which a successful series returned revenue for years, even decades, as it was sold and resold in a variety of domestic and international markets. This substantial revision of long-established industry business practices warrants much critical and theoretical reconsideration, as it likely has many implications for creatives, their agency in the creative process, the risks they may take, and the content they create.
Subscriber-funded portals also require creative professionals skilled in data science and analysis to evaluate subscriber behavior data because of the much richer information available to these companies. Unlike previous distribution technologies, internet distribution of video enables portal companies to produce extensive data about subscriber behavior from which they can infer preferences, predict behavior, and discern insight valuable for curators. At this point, all such data are proprietary and little of what companies know or how they use such information circulates publicly.
Subscriber portals also employ computer and data scientists to improve the functionality and experience of the portal, including recommendation algorithms, viewer interface, and all forms of functionality. Many of these roles are far removed from the content creation typically viewed as central to media industries. For example, BAMTech, the company that emerged out of Major League Baseball’s early innovation in streaming, now provides the distribution infrastructure to others such as HBO Now and WWE Network; Disney bought a substantial stake in the company in 2016. Although primarily classified as “engineering roles,” these duties must also be considered as expanding the range of creative work involved, not only as components of television distribution.
Profitability of subscriber-funded portals requires a careful balance of limiting the cost of content licensing and creation while maintaining enough desirable content—as determined by each subscriber—to make the subscription of adequate value. The consistent economic organization among current portals yields little differentiation among services although many alternative business models are possible and would have implications for income.
Monthly fees from subscribers generate regular—and therefore fairly predictable—revenue for services in the subscriber model, and the use of automated credit card charges or bank account deductions adds further regularity to revenue flow. Once users decide to subscribe, they maintain subscriptions until actively deciding to cancel the service. Services consequently evaluate their revenue generating success based on the number of subscribers, with attention to rates of new subscriptions as well as “churn” rates, or the percentage leaving the service in a given period.
The access to a package of goods characteristic of this model thus provides more predictability than industries characteristic of the publishing model that regularly experience either steep windfalls or great losses on particular media goods. Although acquiring and maintaining subscribers is not without challenges, providing a portfolio of products and collecting extensive data about use helps these companies understand thresholds of subscriber satisfaction and subscriber preferences that aids in managing content costs.
Greater pricing variation can be achieved by tiering pricing based on the amount of content streamed. Importantly, emergent viewing behaviors are greatly influenced by the use of a pricing structure that encourages consumption through unlimited viewing. Shifts in pricing would yield changes in viewer behavior—perhaps discouraging “trying” a wide range of goods to an extent that alters subscribers’ perception of value. Home internet pricing in the United States also has encouraged consumption because it too—at least through 2017—has not been priced according to use in the manner increasingly common for cellular data, but in an “all you can use” bundle adequate for all but the heaviest of internet users. A change in internet pricing structures could have significant implications for portals, especially because of the uncompetitive conditions created by the prevalence of high-speed internet monopolies in the United States. This limitation might also be ameliorated once the technical capacity and pricing of mobile internet providers become a competitive alternative to home internet service.
Again, subscriber-funded portals have unprecedented access to data that inform them of the frequency with which subscribers do not finish series and a range of viewer behavior helpful in developing pricing and curation strategies of optimal value. Portals with great scale, such as Netflix, achieve a particular advantage given the vastness of data it collects. To date, these data seem to only serve internal operating strategies, but some data likely have market value if services sought to sell information. The potential value of these data is considerable. Even if they are not sold in the manner of the revenue strategies of social media companies, meaningful data are a core product created in the operation of these industries.
It is difficult to gauge market characteristics at this preliminary point of development of portals using a subscriber-funded model. A wide range of entities exists utilizing strategies from conglomerating several niches (Netflix, HBO Now), to focusing on specific genres (SeeSo), to niche focused by audience (Noggin—preschoolers), niche focused by content (WWE Network—wrestling), and as determined by existing intellectual property (CBS All Access). The monthly cost for a service must match the value proposition of the content and portal experience although curious patterns already exist. Netflix and HBO Now are the most directly comparable of the services, but HBO Now cost subscribers roughly twice as much as a Netflix subscription until Netflix raised rates in 2016 ($;8, then $;10 versus $;15 monthly for HBO). This difference can be explained in the broader economics of the companies as Netflix maintains a direct-to-consumer relationship and retains subscriber fees in their entirety, whereas HBO Now has followed the model of partnering with providers that was characteristic of its linear service. HBO sells HBO Now through partners such as Apple, Amazon, and Verizon that maintain a share of monthly fees in return for managing the customer relationship (although likely a share less than the equal share commonly claimed by cable and satellite companies distributing the linear version). Given that it maintains its linear service, HBO was compelled to enter the market at a price point comparable to that service. Although an awkward comparison because most of HBO’s revenue still comes from its cable-distributed service, it is also the case that HBO is much more profitable than Netflix, mostly because it spends significantly less on content. According to 2015 data published by media analyst Matthew Ball, HBO earns a monthly profit of $;3.65 per subscription, whereas Netflix earns only $;.28 as a result of its high programming costs, low subscription price, and the costs of international expansion.
In addition to the key role of a library of intellectual property in launching a portal, a considerably sophisticated customer interface is required, which has not conventionally been a component of the operations of many media companies with vast IP holdings. It is notable that a company the size of HBO has chosen to distribute HBO Now through partners rather than a self-owned, direct-to-consumer infrastructure, especially since it is part of a conglomerate that could likely monetize that infrastructure through other portals such as Turner’s art house film service FilmStruck and by creating portals for other Time Warner properties.
As commonly true of emergent media, the initial period considered here of significant variation among a wide range of preliminary competitors will eventually give way to the adoption of greater standardization among fewer competitors as varied strategies prove successful, and not. This preliminary understanding of a subscriber model and enumeration of emerging practices of internet-distributed portals will be refined as the market matures beyond early entrants. This analysis may be nascent, and thus limited in predictive value, but establishing terms, taxonomies, and characteristics is valuable as a first—although far from final—stage of theory building.
Although Miége does not include “key strategies” among his aspects distinguishing different models for the production of culture, this too is a valuable point of analysis. Offering exclusive content is a key strategy for subscriber-supported services—whether linear or nonlinear. Despite this, both Netflix and HBO have utilized a “mixed bundling” windowed strategy by offering their exclusive original content for transaction sale by title months after original release on the service. In some cases, they also have licensed their original content to other distribution outlets. As portal strategies mature, the different logics of subscription and the vast capacity of libraries may lead away from this mixed strategy as only true exclusivity might promote subscription.
Because portals are not confined to the linear schedule they can maintain content and continue to derive value as long as it remains in their libraries. Self-owned content thus can confer long-term value, which differs substantially from previous content distribution models built upon an initial period of exclusivity and resale through multiple markets. It also makes metrics of success built for linear television difficult to apply.
The scarcity characteristic of the affordances of past technology enhanced the viability of exclusivity as a strategy. It is unclear whether exclusivity will remain as beneficial a strategy in an era of considerable abundance—arguably even a surplus—of content. Many portals have subscription arrangements more flexible than previous services that made adding and dropping services difficult, demanded start-up or initiation fees, or required lengthy contracts for service. Flexible subscription terms encourage viewer trial although may diminish the value of exclusivity. If services limit flexibility in subscription—such as through requiring or incentivizing long-term contracts—in this abundant content environment in which piracy too remains available, the tool of exclusivity may encourage illegal access rather than subscription. Though the lower price point of many portals and the convenience they offer also might drive viewers who have opted for unauthorized access into paying for access.
Vertical integration is also a key strategy of subscriber-funded portals. This strategy is discussed in depth in Chapter Three. Table 1 charts the basic features of the subscriber model in accord with Miége’s format in The Capitalization of Cultural Production, pp. 146–47.
|Curates a collection of cultural goods.|
|Individual/household purchases access to collection of goods and enjoys unlimited consumption.|
|Distinctive strategies for both broad and narrow collections.|
|The portal curates, purchasing rights, or creating content that can be accessed at will.|
|Portal maximizes value of limited content budget, sometimes by leveraging library of self-owned intellectual property as in the studio portal.|
|Maintains and improves viewer experience of portal technology.|
|Large infrastructure of employees maintains the curation, licensing, infrastructure, and customer acquisition and service activities.|
|Actual content creation follows norms of publishing model in which employment is irregular and linked to the creation of a specific good although alternative logics are feasible (studio system).|
|Creator remuneration for initial creation and less linked to metric of performance; limited use of residual payments.|
|License fees currently paid for unlimited viewing for a period of time.|
|Portals aim to provide the least content that maintains maximum subscribers.|
|Data analysts make sense of subscriber behavior to inform development/acquisition strategies.|
|Computer/data scientists improve recommendation algorithms, user experience interface, features, and functionality.|
|Development and acquisition teams oversee commissions and licenses.|
|Creative talent (externally contracted) makes content.|
|Consistent; linked to number of subscribers rather than consumption of particular pieces of content or quantity of consumption.|
|Benefits from economies of scale and near zero marginal cost.|
|More variation in pricing strategies possible than currently common in market.|
|Varied based on general or niche aim.|
|Varied based on self-owned intellectual property.|
|Goods bundled into a library.|
Implications of Subscriber-Funded Portals
Claiming implications of subscriber-funded portals for viewers and creatives at such an incipient stage is difficult. But just as delineating a preliminary subscriber model aids in organizing conversation about and analysis of this rapidly evolving market, so too can establishing areas of critical focus provide guidance as more evidence becomes available. Asserting grounded claims on any of the following key critical questions is difficult given the paucity of evidence, but the following are important questions for critical assessment of internet-distributed television in its pervasive subscriber-funded deployment—both in comparing the implications of various strategies within this distribution technology and in comparison with the experience and related theories developed over decades of linear broadcast and cable distribution.
In What Ways Are Subscriber-Funded Portals “Good” and “Bad” for Audiences?
The knee-jerk response to the emergence of subscriber-funded portals has been to assume such outlets as less democratic and of particular disadvantage to those with low incomes. This is an important consideration for cultural critics to raise but should be pursued with nuance. Such assumptions disregard the way “free TV” has never been free—because advertising costs are embedded in products—and also does not account for how the advertiser-supported broadcast and cable industries have grown dependent on subscriber funding as well (explored in depth in Chapter Three). Moreover, assumptions that access to cable-distributed, “pay TV” is best predicted by income level have not borne out; rather a more complicated matrix of factors explains the roughly 18 percent of homes that did not access cable before internet-distributed services became an option. Research by the National Association of Broadcasters found that inability to pay only explained the lack of access for six of the twenty million homes without cable.
By far the most costly aspect of these portals is the internet service required to use them. A line of argument can be made that internet service and the monthly fee for one or a handful of these services can still be obtained at a lower price than basic cable service. All of this is to say that claiming that a subscriber fee makes this television the terrain of the affluent is a false assumption. Nevertheless, this critique would be further moderated if the United States had a more substantive public service broadcaster that provided robust “free” service and innovatively pivoted—as has the BBC—to making its content available through a portal such as the iPlayer.
Subscriber-funded portals are arguably good for audiences that have been unvalued by advertisers. Advertiser support has never been democratic, but geared toward those audiences advertisers most desire to reach. Broadcast and cable television has targeted younger, whiter, and more affluent audiences because of the way advertisers buy audiences based on such blunt demographic features. Subscriber-funded services care much less about demographic features of their subscribers beyond that they are willing to pay the monthly subscription fee. Subscriber-supported services thus have the potential to create content for audiences that advertisers have been disinterested in reaching as long as enough like-interested viewers can be aggregated to support the costs of the portal’s programming.
Given the limited competition in the cable service marketplace at the launch of internet-distributed television, these subscriber portals can be argued as good for viewers because they provide more choice in configuring video expenditures. The phenomenon of households leaving or never subscribing to cable—cord-cutters or cord-nevers—has drawn considerable attention from the television industry in recent years precisely because of the fear that subscribers would replace a $;80 to $;100 monthly cable subscription with a $;10 Netflix fee. In truth, cutting cable has been a limited phenomenon because significant internet service fees are still required and the content available through portals—even combining three or four—does not quite reproduce the content of the bundle and meet the needs for many, especially households of multiple individuals. But the competition from portals has enabled “cord shaving,” or reducing the tier of cable subscription, then supplementing it with an internet-delivered service. The competition from portals, as well as internet-distributed packages of channels often called “skinny bundles” (offered by Sling and Sony in 2015 and announced for 2017 by Hulu, AT&T/DirecTV, and YouTube), have encouraged many monopoly providers to allow subscribers greater variation in packages.
Of course, these gains are not without limitations. Perhaps the biggest negative feature for viewers of subscriber-funded portals is the inability to sample content from other portals and the degree to which portals use exclusivity to drive subscriptions. Although most portals have flexible subscription plans that allow viewers short-term access and cancellation without great difficulty, such practices may change. The feasibility of unauthorized access also maintains a check against services that make access to portals onerous or unreasonably expensive.
The most widely expressed concern about subscriber-funded portals ponders their additional splintering of an already fragmented viewing culture. There is no question that the lack of time specificity characteristic of internet distribution further shifts US television away from understandings that were developed for the medium when it featured limited competition among a handful of channels and required viewing at network specified times. The content circulated by US television has not been characteristic of a “mass” medium for twenty years, and subscriber-funded, nonlinear portals only ensure greater variation of patterns of viewing. Whether this is truly “bad” for viewers, in what ways, and for which viewers—remains unexplored empirically.
In What Ways Are Subscriber-Funded Portals “Good” and “Bad” for Creatives?
Just as the affordances of subscriber-funded portals allow for different viewing experiences, they also adjust the creative experience. The different metrics of success and consequent divergent goals of a subscriber-funded outlet allow for different types of content to be created because it is not constrained by the parameters of collecting an advertiser-desired audience. This can be valuable to creatives who seek to tell stories that have not been deemed as viable for that advertiser-dominated marketplace.
Beyond the opening up of storytelling possibilities, it is unclear whether the storytelling commissioned by subscriber-funded portals is, on balance, more good than bad for creatives. Discourses circulating through the industry—and even culturally—have suggested overwhelmingly good experiences of creatives who have been freed from many constraints characteristic of the linear, advertiser-supported environment in which program lengths and structures were heavily regulated and creatives received a cascade of “notes” from studio and network executives. The linear, subscriber-funded environment of HBO inaugurated this discourse of subscriber-funded television as a place of great freedom and support for creatives’ visions.
The strategies of a subscriber-funded service differ from those that are advertiser supported because of the discrepancy in their central mandate. Subscriber-funded services pursue strategies aimed at maintaining and attracting subscribers; advertiser-supported services seek to gather as many viewers with the characteristics advertisers desire. The differences in these mandates do encourage different programming strategies, but do not require particular approaches to creative freedom. Here, it is important to distinguish between practices that evolved into norms—such as the networks’ micromanagement of creatives through notes—and strategies related to the difference in the logics of advertiser support and subscriber support. Nothing precludes an advertiser-supported service from being as creatively hands off as one supported by subscription (as the situation at FX has recently suggested), or from the subscriber-funded services to also micromanage.
There may be evidence that the creative opportunities for which subscriber-funded services are lauded come at a financial cost, and it may be a high one for creatives developing shows for subscriber-funded outlets. Guild agreements have not kept pace with changing production and distribution norms. To use one example—although audiences have rejoiced at the elimination of rerun episodes as a standard scheduling practice, the eradication of this norm has been consequential to writers, producers, directors, and in some cases, actors who garnered significant residual revenue from these airings.
The subscriber-funded portals that develop original content have further revised the economics of earnings. In most cases, shows produced for Netflix will have no “backend”; so long as the portals develop international viewer bases, they will seek perpetual and international rights leaving transaction streaming or DVD sale as the only likely secondary market. The many distribution windows characteristic of pre-internet-distributed video produced residual earnings for creatives such that a single success could yield significant financial flexibility to allow subsequent experimentation. It is too soon to appreciate the consequences of how internet distribution erodes residuals or whether subsequent guild agreements will adequately adjust to their norms, but these are necessary sites of analysis.
Another curious quirk of subscriber-funded portals has been their tendency to closely guard data about viewership—even from those creating the shows they distribute. It is difficult to know whether to argue this as a good or bad attribute, as it may be case and artist specific, but the current situation—and it may be a preliminary one—in which creatives have no idea about how many viewers watch their shows and are dependent on data not externally verifiable is unprecedented and likely of consequence.
Do Subscriber-Funded Portals Enable the Creation of Commercial Video Otherwise Impossible?
Although series created for portals remain a new phenomenon, the more than twenty years of HBO original series production suggests that subscriber-funded outlets do produce content unlike advertiser-supported television. Importantly, television produced within the public service mandate has likewise long illustrated other possibilities than those characteristic of US television’s advertiser-dominated history.
Subscriber-funded television has been a relatively small sector of the marketplace, and more evidence of the nature of the content produced by and for these subscriber-funded portals is necessary to better understand the opportunities and limitations of this revenue model for content and for creatives. Advertiser-supported television aims to create content likely to draw the audience members sought by advertisers, while subscriber-funded services seek to provide content that justifies a subscriber’s monthly fee.
In addition to considering the different imperatives of various revenue models, other related factors also differentiate content. Subscriber-funded outlets can structure storytelling differently because they do not need to allow for regular commercial breaks. Moreover, the nonlinear affordance of portals also enables greater flexibility in program length. As discussions of the length and structure of several of Netflix early original series have noted, the ability to surpass the episode lengths of linear norms does not necessarily lead to better storytelling. Finally, creatives who create for portals that release full seasons of episodes can expect a different pattern of viewer consumption than those creating series distributed by weekly episodes. Although only anecdotes from creatives support this as significant for content development, in time, analysis based on examining narrative structures and strategies will reveal the extent to which programs produced for portals may differ.
How Do Portal Strategies Constitute Cultures and Subcultures?
Much remains unknown about who subscribes—although it is a mass phenomenon—why they subscribe, and how portal viewing differs as a cultural experience from previous norms. Many identified the fragmentation of the audience in the late years of cable and often regarded this “breaking up” of the mass audience as a matter of concern. Portals clearly enable additional sites to further exacerbate content fragmentation while also fragmenting the audience by time because their nonlinearity does not enforce synchronous viewing.
We must be wary of viewing past cultural constitution with nostalgia and carefully weigh perceptions of lost common culture against the reality of how narrow a view of the world advertiser-supported, broadcast- and cable-distributed television permitted. It is easy for those whose culture was prevalent to see a shift from this forced, shared culture as a loss, but that shared culture was alienating and foreign to many that now see themselves or their lives represented. Moreover, the international reach of several portals further destabilizes nation and geographic proximity that were reasonably assumed of the cultural role of previous television distribution technologies and practices and likewise have significant implications for the non-proximate constitution of cultures and subcultures.
From a business standpoint, the logics of the subscriber model have proven most successful in transitioning audiences from the norms of broadcast and cable distribution into experimenting with internet-distributed television. Like in the first years of cable availability, significant heterogeneous demand exists so that viewers desire additional programming services for wide-ranging reasons. The subscription library model and a conglomerated niche curation strategy correspond well with this preliminary period of internet-distributed video, just as was the case of early cable channel bundling, in which subscription to cable service met the disparate desires of those seeking varied content. In time, cable channels became more narrowly targeted—or specifically branded—but that strategy was enabled by the content creation oligopoly that leveraged a particularly desirable channel to gain carriage of more narrowly targeted channels in negotiations with cable and satellite providers. Portals in many ways introduce the long sought “á la carte” cable environment in which viewers can more precisely select the range of program services they desire.
It is too soon to take the preliminary success of subscriber-funded portals as a referendum on portal business models, but it is unquestionably the case that relying only on subscriber support makes the economic relationship many times less complicated than advertiser support. Throughout the last twenty years, advancement of television has been consistently instigated by subscriber-funded services: consider the early moves of HBO and Showtime into multiplexing, then on demand, then developing original series, and most recently, as the earliest legacy companies to develop complementary internet portals. This may not be because of an inherent advantage to subscriber-funded models that will be ongoing, but this simpler relationship of economic exchange is better able to embrace the uncertainty of emergent practices. The complexity of coordinating new metrics and pricing for advertising—especially with advertisers using the linear legacy model as a benchmark for the new—have made advertiser support inadequate for the scale of funding needed for the budgets of professional content.
Notably, in time, advertiser-supported television has adopted the innovations subscriber-supported entities spearheaded. Just as the revenue models and value propositions of the services that have been in the market for some time have already changed repeatedly, continued evolution should be expected based on the range of program services available and their relative specialization.
Importantly, the characteristics of a subscriber model outlined here offer little insight into portals relying on advertising support. Although revenue model is just one of many industrial factors, the distinction between advertising and subscriber support leads to very different logics and allows for a range of strategies that differentiate media businesses regardless of distribution technology. It remains a preliminary moment in the establishment of internet-distributed television, and although several strategies have emerged, measures of success and evaluation remain uncertain.
The object of study explored here may be nascent and uncertain, but it is necessary to begin building frameworks for understanding changes in the television industries such as creating taxonomies of the strategies used to differentiate internet-distributed portals and identifying characteristics of a subscriber model that are not purely hypothetical, but drawn from the operation of an emergent industry. The task of critical scholarship typically demands deeper interrogation of the consequences of matters such as industry structures or governing logics than on offer here. This initial venture finds the operation of these industries too preliminary and uncertain for broad, evidence-based claims about the consequences of subscriber-funded portals, but it is necessary to contemplate the important distinctions among these portals, their logics, and strategies from those developed for linear and ad-supported television.
Nuanced delineation of emerging models is a crucial preliminary step in developing understandings of internet distribution. Indeed, in moments of transition, practices are often too short-lived to warrant deep critical exploration—what seem like norms in one moment expire before analyses can even be published. Although existing conglomerates appear likely to dominate the portal market, the implications of vertical integration for internet-distributed television are only the same as broadcast- and cable-distributed television in the most blunt and facile senses. Rather than assuming markets and capital work the same in all situations, considerable insight can be gained by understanding divergences and what accounts for them.