House of the Subscription
Like so many other geekily minded individuals, I was a huge fan of HBO’s smash-hit fantasy series Game of Thrones, or at least its first six series. As such, I found myself eagerly awaiting the recently concluded first series of its much-anticipated prequel House of the Dragon.
However, in order to enjoy this next instalment in the blood-soaked saga of confusing names and even more confusing relationships, I needed a way in which to stream it. This led me to Sky’s ‘Now’ platform, commonly referred to as Now TV. It was at this point I was met with a barrage of options and packages ranging in prices and content libraries wildly.
And what’s more, an additional fee was required in order to stream any of this content at a decent resolution and without ads. This experience left me questioning the service’s modus operandi, as the question stewed in my mind: “Why would I pay for a subscription service that interrupts me with ads?” And then it hit me…
So many of the entertainment and even academic services to which we all subscribe operate via a branching business model with different tiers, priced corresponding to the number of limitations placed upon the user. Spotify and its Premium offering, Duolingo and its Plus service, and many more utilise what I now know to be a “Freemium” business model.
Ostensibly, what Freemium models do is give the user the choice to pay more or less depending on their level of tolerance for things like advertisements and the quality of the content they consume.
One user, for example, who consumes the odd episode of Blackadder on their commute to work may not be overly fussed as to the granular detail of what they’re watching, whereas a cinephile whose nightly ritual involves a viewing of the latest blockbuster may want to pay a premium for the highest possible quality audiovisual experience.
Moreover, more casual users of these sorts of services may be fine sitting through a 30-second ad or two if it means they pay a reduced fee, or even no fee at all.
This is where the Freemium model is beginning to carve out its real niche, as the cost of living crisis is forcing many to take a long, hard look at the many luxuries they enjoy and systematically whittle them down in order to live in a more financially responsible manner.
A Quick Fix for Netflix?
November 3 marked a notable turning point in Netflix’s business model with the launch of its ad-supported model “Basic with Ads”. This service, of course, introduces ads of 15 to 30 seconds in addition to restricting video quality to a modest 720p and a reduced library of films and television programmes, reportedly due to “licensing restrictions”.
Spanning 12 countries and having already demonstrated its popularity by nearly selling out its ad space, brands and marketers will be eager to explore the opportunity to connect with audiences as they stream their favourite programming.
Shez Iqbal, director of publisher partnerships, Northern Europe at online advertising specialist Criteo, shared with us his initial thoughts on Netflix’s ad-launch: “Ad-supported streaming is not a mature concept yet. It’s part of a proliferation of advertising options we’ve seen this year and understandably there’s a lot of excitement.
“Due to the demand, aspiring entrants will likely have to wait until 2023 to try it out, but there will be a host of new options like ITVX coming online over the festive period.
“For these initial campaigns, the key will be performance. Facing an uncertain economic future, even large advertisers are looking for meaningful, short term returns on investment. While streaming audiences are vast and include coveted younger audiences, it can take time as a relatively new advertising partner to ensure relevancy.
“What is certain is that we’ll continue to see plenty of innovation around ad formats and measurement. Given projected subscriber numbers will no longer be a metric used in assessing the streamer’s performance, it’s hard to understate the importance of success within the ad-supported tiers.
“An interesting facet of this will be uptake among production studios who are both dependent on new revenue streams to fund content and at the same time careful about how their content sits alongside advertising.”
Further expanding on this new frontier of streaming monetisation, one may naturally ask the question: “Will we ever see a Freemium iteration of Netflix or any of its contemporaries?”. This was a subject on which Shez was able to provide additional insight.
Shez continued: “Freemium models are an interesting concept and a smart way to increase the advertiser inventory levels during peak periods. This winter will see millions camped in front of their screens as the most economical form of entertainment.
“As subscribers switch between subscriptions based on what content is available, freemium models offer advertisers a means to reach audiences they might otherwise lose access to. The ROAS (return on ad spend) on this content could be significant, depending on the audience segmentation and pricing models used.
“It will be interesting to see the ratio of ads-to-content platforms dabble with across their free, hybrid and premium subscriptions. There’s a sweet spot, which I’m sure broadcasters will play with based on user behaviours and migration between the subscription models.”
Is Freemium the future?
In conclusion, it seems as though the Freemium model is something which will only continue to rise in prominence as consumers demand more options to pay what they want for the content they want. Furthermore, it is not just entertainment that is becoming increasingly reliant on this branching business model.
Recently, London based Log my Care, whose software platform enables care homes and social care organisations to ‘go digital’, raised £3.25m in a funding round led by Mercia, with Oxford Capital and angel investors also participating.
With the platform now being utilised by over 800 care providers, its success is emblematic of just how adaptable a Freemium model can be for a plethora of business types.
Moreover, the landscape of video games has become one flush with ‘Freemium’-type business models, with even juggernaut titles such as Call of Duty and World of Warcraft implementing Freemium elements in recent years.
The way in which this model works in the context of a game is really rather simple: You can download a game like Fortnite or Overwatch 2 for free and play with others around the world. However, you’d soon see said other players running around in elaborate designed ‘skins’ for their avatar which need to be purchased with real-world currency.
Now, the amount which companies charge for these skins can vary greatly, with many labelling them as ‘microtransactions’ on account of the small charge associated with any given skin or cosmetic item. What differs between releases is what developers, or more often greedy publishers, would describe as ‘micro’.
While some games charge no more than £5 or so for a unique character model, allowing players to express themselves in-game in exchange in return for their financial investment, the market has become considerably inflated in recent times with games like the aforementioned Overwatch 2 charging upwards of £20.
This has caused a significant amount of backlash for many games and, in some cases, even outright boycotting by large segments of the former player base. However, when done right this ‘Freemium’ implementation can lead to wild success and a positive relationship between the game’s users and its creators.
Resultantly, some games which once charged upfront in order to be played, such as Destiny 2, have pivoted to a ‘Free to Play’ model in order to get more players in the door and subsequently splash their cash on in-game items and cosmetics.
These items are often dished out via a linear sequence of rewards which the player can earn one-by-one through playing the game consistently. This method of content distribution is often referred to in the industry as a ‘battle pass’, as popularised by the monolithic free-to-play shooter Fortnite.
The most significant benefit of the increasing prominence of the free-to-play or ‘freemium’ model in gaming is that, much like with TV and music services, gamers are given a greater degree of choice in terms of how much time they want to invest in a particular game.
Some may be happy to flick between free games in a more casual manner and never have to spend a penny, whereas others may become more fixated with one game, and thus decide to spend some money on skins or similar in order to showcase their obsession to other players.
Logging off…
Therefore, the Freemium model is one that will shine in the current economic climate, as customers look to make savings where they can whilst still enjoying a multitude of subscription services, a market which continues to balloon.
And, whilst the idea of Freemium may seem somewhat restrictive with ads and less content on lower cost tiers, one could argue that it, in fact, acts in the polar opposite manner: Giving consumers the choice as to what level of engagement they want to have with a particular platform or service.
Furthermore, while the gaming industry has struggled in some cases with proper implementation of freemium mechanics or services that actually serve the customer, the clear examples of success indicate that its viability is undeniable in giving players freedom to express themselves and dedicate themselves to an experience only as much as they want to.
This level of choice is, in this writer’s opinion, absolutely vital as the economy continues to tighten its grip and force us all to reflect on our spending habits, picking and choosing what value we are really getting for what we spend.
At the end of the day, these services and products aren’t going to get any cheaper, what with inflation, supply chain issues and staff retention posing such brutal challenges in so many industries. Thus, freemium models give consumers the opportunity to soften the blow of investing in a new game, or an album, or even a language tutoring course. The possibilities are endless.
By Matthew Neville, Correspondent, Bdaily
