Most Americans are paying for some form of subscription, whether it is leasing a car, listening to music, watching our favorite shows through streaming services, or paying for Amazon Prime to get the oh-so-sweet one-day free delivery. We do not always recognize it, but the choice to subscribe to receive a good or service is economical. Let’s use music as an example to help understand our everyday choices between subscriptions and purchases.
Statistically speaking, the amount of music being purchased and downloaded (ownership) is nearly identical to the amount that is being accessed via subscription (S. Li et al., 2020). The data also suggests that the Subscription Model is gaining popularity. In economic terms, the increased popularity of subscription music means that more people believe they are optimizing their utility by subscribing rather than owning. One reason for this is that the Subscription Model has adapted to the rapid advancements in technology far better than the competition (S. Li et al., 2020). In other words, producers of subscription music have done a better job of finding the market equilibrium for their product, so more consumers want to buy at the offered price.
What model will we see more of in the future? If the trend continues, the Subscription Model will quickly overtake the Ownership Model. Still, if producers of the Ownership Model adapt to what the consumers want, then the future can be unpredictable.
References:
Li, S., Luo, Q., Qiu, L., & Bandyopadhyay, S. (2020). Optimal pricing model of digital music: Subscription, ownership or mixed? Production and Operations Management, 29(3), 688-704. https://doi.org/10.1111/poms.13131