We spend a lot on digital subscriptions. More than people think.
You can buy streamed television entertainment, sports coverage and music. When these options bore you, there are services that deliver computer games over the net.
Newspapers and magazine publishers now sell digital subscriptions.
Then there are online storage services. These includes those that specialise in looking after your photographs.
You can pay monthly for small business accounting, for security or productivity applications. Xero, Microsoft Office or Adobe Photoshop are popular examples.
Little and often
Subscriptions tend to be monthly or annual. Although there are those who charge for three or six months at a time.
Each monthly payment might be small in itself. But they soon add up to a hefty recurring commitment.
Estimates of how much people spend depend on what you include. Should you, say, include your mobile phone and broadband bills when you tot up your total spend?
Few people can tell you how much they spend on subscriptions. A US consulting firm asked Americans to guess their monthly spend: They underestimated by a huge margin. The average spend was three times people’s first guess.
It would not be that different if you asked New Zealanders.
When ignorance is not bliss
Not knowing your spend should be a wake up call. It would make a budgeting expert flinch. When you’ve no idea how much money is dribbling away, it’s hard to make rational spending decisions.
The amount people spend on subscriptions climbs each year. In part that’s because there’s more to buy. A year ago Netflix, Neon, Lightbox and Amazon Prime were the main New Zealand streaming video options. This year Disney joined the party. And there is a revamped Apple TV along with a fleet of niche alternatives.
Another reason spending climbs is we connect more and more devices to the Internet. One way or another these devices need feeding.
Weird subscription economics
There’s a lot of weird economics in digital services. On one level it all makes sense. On another it might not.
The price of individual digital services is usually low. When software companies switched to selling online subscriptions, it looked like a bargain.
Lower headline prices seduced customers. Take Microsoft Office. The annual NZ$120 subscription looks a bargain compared with five times as much for a packaged version. Knowing that you’d always be up-to-date and compatible with others helps ease fears about long-term costs.
Software purchased the traditional way can go on working for years. There are people with ten-year-old versions of Word. If you keep software that long, subscriptions are expensive compared with buying outright.
After all, it’s not as if, say, Microsoft Word has changed much in ten years. This goes for a lot of subscription software.
Xero is newer than Word. There is no pre-subscription era to look back at.
In the early years, Xero developed fast. It grew up with its customers.
As far as what ordinary customers see, the product is now stable. There may be updates, but its core functionality for small business owners has not budged in a while.
Sometimes the upgrades to subscription software are the digital equivalent of a lick of paint and a rub down. Things look new and fresh, but nothing important has changed.
Music subscriptions obey a different set of economic rules. Many fans have hundreds, even thousands of dollars invested in vinyl, CDs and digital downloads.
My non-streaming digital music collection has more than 40 days of listening material. That’s 40 times 24 hours. I can go the best part of a year without hearing the same track twice.
Paying NZ$20 a month on top of this, when a lot of what is served up is sitting on my computer, doesn’t make sense. In effect, people in this position are paying an algorithm to find new songs. Which is great if you thirst for new songs. Otherwise, it’s an indulgence.
Tracking your subscription spend
As we’ve seen, one worrying aspect of digital subscriptions is that it is hard to keep track of them all.
It is even harder to know if you get value from each of the services in your portfolio.
Take, my Amazon Prime subscription. It is ‘free’ (that’s free as in marketing language, not free as a in free beer) as part of my broadband plan. In the last year we may have watched five or six hours of Prime material. If we paid for the subscription, the cost per show would be prohibitive.
It’s clear this would not be a good service to purchase when the broadband ‘free’ offer expires.
Not knowing is part of the business model
The point earlier about people not knowing how much they spend on subscriptions is more than an anecdote.
Allowing people to forget about subscriptions but carry on paying the small monthly fee is part of the business model. It’s like gyms. They collect a sizeable slice of their revenue from people who rarely show up to use the equipment.
One reason people sign up for a streaming service is to watch an original series or two. Think of those who joined to watch Game of Thrones.
The service providers know that once customers have sucked dry the handful of programmes they signed for, their subscription can tick over for months before they realise they are no longer getting value.
Audit your subscription spending
It’s a good idea to audit your spending on digital services. There’s a chance there will be at least one active subscription that you don’t get value from. There will be annual and monthly payments, perhaps others.
One nasty trap many fall into is the free trial period. Often you are asked for credit card details when you sign on. It may take a few cycles before you realise what happened. This is extra hard when the trial is for an additional service from a provider you already buy something else from as the charge can be buried with something else in your bank statements.
Work through your card or bank statements. You’ll need to look at the last 12 months to capture all annual subscriptions. If you can, pull the data into a spreadsheet and count up the subscription total. Look for double-ups and services that seemed like a good idea at the time, but are no longer used. Cancel the repayments now. You’ll forget later.
Watch for extras. These can be hidden. Streaming services may charge more for 4K content or for not including advertising. You may pay for more cloud storage than you need or for options that don’t get used.
If this all sounds confusing, and it is, remind yourself this is not an accident. Keeping you confused about subscriptions is worth billions to service providers. Vast sums are at stake when millions of customers forget to cancel at the end of popular series.