Lifetime Subscriptions Are a Bad Idea

Generating reader revenue is paramount for publishers. And getting the equivalent of years of subscription revenue upfront appears to be a great thing. But for the vast majority of publishers, offering a lifetime subscription is a bad idea.

The problem is that you’re trading long-term optionality for short-term revenue. But that’s often the case when building a business. EBITDA doesn’t pay the bills, cash does. And so, generating a large sum of cash ensures you stay alive. So, when you can get two or three years’ worth of subscription revenue from a subscriber, it can be meaningful.

The problem is that the short-term cash gets spent, and yet the costs continue. It can quickly become a problem. WSJ published a story about the “hard lessons of lifetime subscriptions” from a consumer perspective. I found this anecdote about Rolling Stone interesting:

Jason Walker bought a lifetime subscription to Rolling Stone magazine in 2004 for $99, when he was 18. Most of the 400-plus print issues he has received sit on his basement shelves. Rolling Stone today charges $59.88 for a year’s print subscription, meaning Walker has long since earned his money’s worth.

In May, Rolling Stone said it was switching lifetime subscriptions from print to digital-only. Walker was annoyed.

Let’s assume the price of a subscription grew with inflation. So, if today it’s $59.88 for a year’s print subscription, then back then the subscription would have been $36. And so, when someone purchased a $99 subscription in 2004, they were effectively pre-paying the equivalent of 2.5 years. If Rolling Stone added 100,000 subscribers that year, they either made $3.6 million on an annual subscription or $9.9 million. Which is better for the business?

In 2004, $9.9 million was better for the business. In 2005, it was the same. Halfway through 2006, the publisher finally broke even. But in the second half of 2006, Rolling Stone isn’t making any more subscriber revenue. But the brand still needs to print the magazines and ship them—all fixed costs.

Now, that’s not to say Rolling Stone wasn’t making any money. One of the secondary benefits from having a lifetime subscription was that you knew the person was receiving it and thus, you could monetize with ads. If we go back to this era of magazines, the goal was never to make large amounts money on the subscription. It was to maximize circulation to sell more ads. I found this article in The New York Times from 2009 talking about increasing subscription prices.

Many publishers argue that these magazines are the exception, not the rule, and say they would lose too many readers if they raised their prices.

“Sports Illustrated could theoretically charge $100 a year and have a much smaller circulation, but we wouldn’t be maximizing what the enterprise could make,” said John Reese, the vice president for consumer marketing in the Sports Illustrated group.

The lifetime subscription ensured that there were plenty of guaranteed people receiving the magazine without needing to continue investing in further circulation, re-nurturing, retention, etc.

Let’s assume it costs $2 to print and ship a magazine in fixed costs (maybe it’s more, maybe it’s less). That’s $24 a year in hard costs. If there is no subscription revenue to offset those costs, you have to make it up all on ads. It may not be possible. And so, as each year goes on, you technically lose money on those subscribers.

It’s the same for a digital subscription business too, by the way. There are inherent costs to running a media company and once the subscription revenue part dies out, you’re making less per reader. You still need all of those reporters and designers and editors to ensure there’s a finished product, but you get none of the revenue from the subscriber once the lifetime subscription has equalized with a monthly or annual subscription.

So, from a cash flow perspective, it’s hard to stomach giving up any future money even for a rush of short-term money. One way around this would be offering multi-year subscriptions. And so, if one year costs $100, maybe you can offer a two-year for $150 or a three-yearr for $225. Yes, you’re making less—and the percent discount is likely different for every publication—but at least you’ll get a renewal from them at some point.

Anyone that reads a publication for three years and then wants to keep reading it should continue paying. Your most loyal readers are the ones you should be monetizing the most, not the least. And so, if you want to get revenue locked up in the short-term, do it with a multi-year subscription, not a lifetime.

But it’s not just about short-term cash flow versus long-term costs. This is also about enterprise value. Consider how a prospective acquirer determines what to pay for your business. They look at revenue, EBITDA, cash flow, growth rates, etc. Let’s run a scenario.

Assume in 2024, you sell a lifetime subscription for $500 and all of that cash hits your bank account. In 2025, someone comes along and wants to buy you. How much of that subscription revenue should be applied to the multiple? I’d argue none because it’s not really a subscription. It’s a one-time purchase. And so, if 10% of your “subscription” revenue is actually lifetime subscriptions, your revenue is 10% lower.

That, alone, is annoying from an M&A perspective. But what you’re actually asking a prospective buyer is to take all the risk—subscriptions are technically liabilities on a P&L—without any of the upside. You’ve made the money—that $500—while they have to honor the subscription. And so, not only will the buyer discount your revenue because they don’t get to see any of it, they’ll discount it further because they will have costs to service the lifetime subscriber. You reaped the benefit; they are stuck with the bill.

There are ways around this. In a Slate article about this lifetime subscription:

Still, [Alexandra] Roberts [a professor of law and media at Northeastern] notes, Rolling Stone has changed hands since the deal was made. Without a clause ensuring that any future owners abide by the terms these lifetime subscribers bought into, “the new owner is probably not bound by the lifetime subscription deal,” Roberts told me. “Hence, no breach.”

And so, the absence of this clause could be how a prospective buyer gets around taking on the liability of you offering a lifetime subscription.

Even then, as a buyer, I’d still discount these subscribers. If you’re a reader and pay $500 for a lifetime subscription. And then someone comes along, years later, and says, “thanks for that, it’s not lifetime anymore, you can now get it for $100 per year,” are you going to stick around? Or will you feel irritated and churn? And so, that prospective buyer has to take into account that there are some people who will no longer be readers.

Obviously businesses want to get cash in their hands as quickly as possible. Cash is how we pay our bills. And so, getting multiple years of subscription revenue up front feels great. But it can come back to bite you both from a cash flow perspective and an enterprise value perspective. Pivoting to multi-year subscriptions that have a renewal versus a one-off purchase is a way to benefit from the additional cash flow without losing out on the long-term upside.

Lifetime subscriptions can be appealing, but I’d encourage operators to avoid them.

Thanks for reading today’s AMO. If you have thoughts, hit reply or join the AMO Slack to discuss this or any topics in more depth. Have a great weekend!