The Wrap #26 | The Wrap makes $Bns more profit than Disney and Amazon!
A shot of thinking fuel, brought to you each month by Futurestate Design Co.
Goodbye November. Winter is coming. Recession is coming. The World Cup is coming home (as long as its home is Brazil). There’s a lot of uncertainty right now. So, with all the pressures on household incomes and a less-than-ideal business climate, subscriptions are really in the spotlight.
On the one hand, businesses think they’re a great idea: it’s regular, predictable income. On the other, consumers are getting twitchy: those regular, predictable outgoings keep adding up. Let’s dig a little deeper to see how to lose a ton of money with them and without them – and why banks might, for once, be a force for good.
Mickey’s burning Disney Dollars
What’s going on?
Disney+ has been the poster-child of consumer subscription businesses over the last few years, out-pacing Netflix to hit 235 million subscribers. That’s an impressive number. The problem is, the quarterly losses from its streaming businesses, of which Disney+ represents the mouse’s share (sorry), hit $1.5Bn. That’s a scary number. It’s so big it almost offset all the profits from the rest of the business. Gulp.
235 million is a lot of subscribers. If anyone should know about making an entertainment business work, it’s Disney. But it turns out a subscription-based entertainment business is a little tougher. So tough in fact that they’ve retired the CEO (they dropped a big anvil on him apparently, but he’s fine) and un-retired their iconic former leader, Bob Iger, to sort it all out.
Good luck Bob. We loved your autobiography, btw.
Why is it important?
Well, despite what many (naive fools) would suggest, subscriptions are not easy money. Far from it. Disney has shown that making a subscription business work is tough. But the two big takeaways for everyone here are that if you want to be this kind of big, it’ll cost you big, and whether you want to scale fast or slow, you need to be prepared for a long haul.
Alexa’s burning Amazon
What’s going on?
“Alexa, what’s a business model?” Eight years into Alexa’s existence and the device is on pace to lead Amazon’s “Worldwide Digital” unit to a $10Bn loss this year. Yep, that's right. $10 billion. Suddenly the profligate Mouse looks like the cautious uncle.
Amazon isn’t shy about owning up to these losses. The strategy, after all, has been to get these products into a customers home as a gateway for shopping. The thing is, that hasn’t been, ahem, terribly popular. In this Arstechnica article, the conclusion is that just about every plan to monetise Alexa has failed – with one Amazon employee quoted saying that it has been “a colossal failure of imagination" and "a wasted opportunity”. Well that’s awkward.
Why is it important?
Recent estimates suggest the annual smart home market will generate over $170Bn by 2025. Is it just a case of waiting until more volume is there?
We say that’s a big fat no. Alexa isn’t a product, it’s a platform, and while recent history tells us that platform businesses take a long time to build scale, Amazon has the scale thing nailed. What it needs is a business model. It needs subscriptions and it needs them bad.
For better or for worse Amazon has spent the last 10 years creating all of the ingredients of a great subscription business. Its users have even built more than 100,000 ‘skills’. With some smart thinking on Amazon’s part, and a very sensible pricing strategy, there are a lot of people who would subscribe to enhanced smart home services. The average UK home has 25 connected devices already and that number is set to double in a year. That is an incredible market to be the leader in.
Maybe it’s time for Alexa to ask someone else for the answer.
Read the Arstechnica article here
It’s VRPs to the rescue! Wait, what?
What’s going on?
Great news. Banks are getting into the subscription business. To be fair, any account with a fee attached already is a subscription, but we’ll park that for now. Because we want to talk about VRPs.
As most will know, open banking is how we now connect our bank accounts to other digital services. It lets us share our banking data and allows third parties to build additional services around it. It’s enabled some of our favourite services, like Chip, to connect to your bank through secure APIs to make AI-powered savings based on what you spend.
Now, a mechanism called VRPs (Variable Recurring Payments) is enabling consumers to pay all their loss-making subscription providers by connecting their bank accounts. Exciting eh? Well it’s more exciting than it sounds as it might give consumers more control of those pesky outgoings and encourage providers to make more customer-friendly features, like taking a break for a few months, easier, which in turn might help them keep more of those customers as customers.
Why is it important?
VRPs bring a little secure open-banking kudos to the world of subscriptions, so it may help some providers build new, innovative recurring payment-based services that consumers feel confident about signing up to because they’re ‘blessed’ by their bank. But for us, the big impact will come from the degree of visibility and control it will give consumers.
One of the reasons consumers are wary of subscription businesses is the ‘sign up and forget’ nature of them, and the ‘sorry, all lines are busy, forever’ cancellation mechanisms so many still think are a good idea. As soon as they’re all lined up nicely in your bank account (as some banks already do in a less tech-sexy way) and you can see what they add up to, you’re much more likely to switch off the ones you can do without – and VRPs make that easier too.
It’s that rarest of things: a banking win-win. You’re welcome.