Subscriptions Weekly - 11/27
Happy early turkey day! Scribd, Patreon, and more.
Is Scribd Netflix or Spotify?
Scribd raises $58M for subscription e-books and audiobooks
Scribd has been a super interesting company to watch evolve. My first encounters with it were when I was searching for bootleg ebooks or problem set answers. Since then, they've transformed into a subscription platform for ebooks and audiobooks resembles both Netflix and a public library, and they've been fairly successful in doing so.
The latest step, launching original content, is also clearly a page out of Netflix's book, and it makes sense - they pay publishers for each downloaded book or audiofile, so creating their own content is necessary to get leverage over their costs. Indeed, their new VP product previously was at Netflix. But their business reminds me more of Spotify than it does of Netflix - why?
Scribd throttles power users from downloading too many books, at a relatively low cap, which suggests that they have an arrangement where they pay rightsholders per book download. This is similar to Spotify, which pays the record labels a small fee per stream. Contrast that to Netflix's model which pays the studio a fixed cost to rent the material over a certain period of time. Netflix's model is essentially a bet that they will have subscriber growth, whereas Scribd is subscriber-growth-neutral: if Netflix grows subscribers, their content cost per subscriber goes down. If you have doubts about subscriber growth, then the on-demand payment structure makes more sense. I'd look to Scribd to renegotiate that contract with publishers — you can think of Scribd as an aggregator of reader demand, and if Scribd can aggregate enough demand so that they're a material part of a publisher's revenue, then they have leverage. Spotify, for example, pays a very low rate to record labels compared to Apple Music and Tidal; this is partially out of choice, partially out of demand-side leverage. Spotify is similarly trying to create original content and having (what I'd consider to be) mixed results, so it'll be interesting to see where Scribd can go.
From a product perspective, the capped usage model is significantly worse. Presumably users reading more would reflect a better reader experience; however, in the short term at least, Scribd was incentivized to keep utilization low and consequently, margins high. This turns into a tightrope to walk: minimize consumption constrained on users renewing their subscription. Under the Netflix model, user and product incentives are aligned: the more users watch, the more likely they are to resubscribe, and costs ex bandwidth are relatively constant. Speaking as a generally lazy person, your job is way easier when doing the right thing for users is also the right thing for your wallet. But the ultimate lesson is that when you are at scale, doing most things yourself makes the most economic sense. It's true for Netflix and content, it's true for Disney+, and it's even true for fonts.
It will be interesting to see if Scribd can make headway in the very crowded publishing space with their own original content. I have an investing thesis that the marketplace for writers is very inefficient, with a few legacy publishers and Amazon, and all the players are dumb in one way or another. Somebody should be able to do well here, and maybe it'll be Scribd.
Patreon announces some numbers
Here's a pretty good breakdown of Patreon's numbers and history.
Tracking Patreon's March To 4M Patrons, $1B In Payouts
I don't have that much to say in addition here, but a couple points:
The growth rate looks like 60% YoY in revenue and 33% YoY in patrons, down from 100% YoY in revenue for the year prior and 50% YoY in patrons for the year prior. It's not surprising to see slowing growth but I would expect it to
Patreon's future revenue growth is probably only through increasing the take rate, i.e. upselling creators on new features or making merch purchases a bigger part of the business. They're still not doing demand generation for creators, which would boost revenue by increasing the number of subscriptions on the platform.
I'm not the first person to point out Patreon's avoidance of demand generation; they've written specifically about why they don't do discovery and The Outline covered how few of their creators were making substantial sums back in 2017. One really great line from that piece stands out, that Patreon had a job listing with a requirement that "[y]ou can get Patreon’s foot in the door with creators [with] established followings who regularly post online. You understand our Target Creator." That tells you everything you need to know about the bottlenecks to their growth.
Fact or fiction?
If You Ever Want to See Your Grandchild Again, You'll Subscribe to Our New Streaming Network
Obviously this proposal is satirical. In reality, the streaming infrastructure necessary to support the ever-changing lives of today's kids is a fixed cost which is best amortized over many families selling their own subscriptions. It is unrealistic to expect that each family has a software engineer to design their platform, at least not until Lambda School achieves world domination in 2030.