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‘When the community succeeds, we succeed’ should be the motto of subscription based services. But in reality, for many, that just isn’t the case.
Many subscription and streaming providers, like Spotify, use the traditional ‘big pool’ method because it’s simple, safe, and easy to do.
While big pool is simple and popular, it has several inherent flaws. The core issue is that a subscriber’s money does not go to the contributors of content they used. And for unlimited access subscriptions, this creates important problems:
- Heavy users get too much of a vote. In effect, they decide where money from less active subscribers goes, even if everyone pays the same.
- Specialized or niche content struggles to earn real money. Everyone goes for the big hit.
- It is vulnerable to click fraud. You can control more money than you paid, just by downloading lots.
Imagine you subscribe for $49/month, with 50% covering platform costs and 50% (i.e. $24.50) going into a big pool for contributors. Let’s say you download 10 items, one each from 10 people. From your perspective, that’s great value, and you plan to continue subscribing. You might assume the contributors get $2.45 per download, right?
Actually, no. If the average subscriber uses 100 items (not 10), then all downloads are worth $0.245. So your $24.50 is split into $2.45 for your 10 items, and $22.05 for items used by other people. That’s right: 90% of your money would pay for other people’s use!
But what about an alternative method that promises greater fairness, but it’s more complex and somewhat unproven.
What Is Subscriber Share?
Subscriber share is an alternative way to calculate revenue share. The core idea is that a subscriber’s money should go to the contributors they actually use and value.
Take that example above. You pay $49/month, 50% going to platform costs and 50% to contributors (i.e. $24.50). With subscriber share, all of it goes to items you used. And we split it among contributors based on their share of what you used.
So if you download 10 items, then each item is 1/10 of your total usage, and the contributor of each gets $2.45. Taken to an extreme, if you only download 1 item, then that contributor gets the full $24.50.
Proud (and Viable) to Be Independent
With subscriber share, contributors can earn real money from just a few subscribers. To do this, they need to account for a healthy share of the items used by those subscribers.
This has huge implications for a contributor’s content library because they don’t have to chase the next big “hit”. When their items are relevant and useful, they earn a reputation with subscribers.
What Does It All Mean for Contributors?
The total amount of money going to contributors does not change. All that changes is how much each individual gets. But from the perspective of an individual contributor, it’s still a legitimate question. Does big pool vs. subscriber share matter?
After all, big pool pays contributors based on downloads. More downloads equals more money, so what’s the problem?
Imagine we have ten subscribers: two light users, five moderate, two heavy, and one extremely heavy. Each pays $49 per month for unlimited use. Of this, 50 percent covers platform costs, while the other 50 percent goes to contributors (i.e. $24.50).
With big pool, the heavy and extreme users control 80 percent of contributor earnings. This is despite the fact they only make up 30 percent of revenue. In fact, the single heaviest user controls a massive 53 percent of contributor payouts. This is because they made 160 downloads out of the total 300.
But with subscriber share, each of the 10 subscribers controls 10 percent of contributor earnings. This is in perfect proportion with the revenue that they bring to the table.
What About Me as an Individual Contributor?
- You contribute items that have broad appeal
Let’s say all subscribers use your items, with two downloads by each of the ten users. With big pool you earn only $16.33, compared to $47.02 with subscriber share. This shows you’re better off with subscriber share. It rewards you more for creating items that many people need.
- You contribute items that offer significant value to a niche
Say that your items are only used by a few subscribers, say five downloads each by three of the moderate users. With big pool you only earn $12.25, but with subscriber share you earn a much higher $36.75. This means that with subscriber share it becomes viable to target a niche and serve it really well.
- You contribute items used mostly by the heaviest users
Say the top two heaviest users download your items 15 times each. With big pool, you earn a bit more: $24.50 compared to $9.65 with subscriber share. So big pool creates an incentive for copycat behavior (imitating the most downloaded items). It also focuses attention on prolific users who probably do not care deeply about each item.
Subscriber share, as the opposite, discourages all that. It does a better job of supporting our goal of a broad, diverse range of unique content.
It’s easy to assume that subscriber share is unfair if you generate lots of downloads. But that’s not actually the case. The more downloads you get, the more money you earn with subscriber share.
- You try to game the system as an extremely active subscriber
Say the subscriber with the most downloads is also a contributor, and that they only download their own items, even if they don’t actually use them. With big pool they’d take home $130.67 (most of which is other people’s money, not their own). This means that they’d earn more than the $49 subscription cost, a lucrative but undesirable incentive to game the system.
With subscriber share, however, they’d only ever earn $24.50 of their own money at most. After paying the $49 subscription cost, they would lose money with this dishonest practice. Therefore, subscriber share is far better at discouraging click fraud.
Subscriber share serves both contributors and subscribers better by helping align contributor incentives with attracting more subscribers and retaining them over time. Subscriber share boosts the right behavior and encourages contributors to not only make items that are broadly appealing but also unique items that serve various niches. It discourages copycat behavior and allows designers to take a more sustainable and long-term approach to their content because they’re not trying to game the system. Unlike the traditional big pool method, subscriber share enables the community to succeed.
By Xavier Russo, strategy & marketing manager. Envato