Digest // 13

Netflix goes Freemium, Repackaging GQ, and Apple: The Price-Change Messenger

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We’re back to a digest this week, dissecting packaging developments across Netflix, GQ, and Apple. If you’re enjoying the newsletter, I’ve been posting more field notes on packaging strategy on Twitter. Click the button below to follow along!

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On to this week’s digest.

Briefing 📋

  • The Netflix Freemium Teaser 🎞: Netflix recently announced free access to select originals for non-subscribers. This Faux Free strategy allows them to get premium content in front of prospective subscribers without cannibalizing their core subscription or devaluing the Netflix brand.

  • Repackaging GQ, Beyond the Magazine 👔: GQ is moving into owned commerce, but they’ve done so methodically over the last few years with a series of moves. While their multi-product strategy is currently siloed, they’re setting the foundation for bundle opportunities down the road that could significantly boost expansionary revenue and subscriber LTV (Lifetime Value).

  • Apple: The Price Change Messenger 📢: One of the most common questions we get at ProfitWell is how to message price increases. The answer really depends on the product and customer relationship, but one constant is that the news should come directly from the company making the price change. Apple’s automated price-change notifications highlight the pitfalls of relying on a third-party for price change messaging, and reinforce why it’s so critical to own the message yourself.

The Netflix Freemium Teaser 🎞

Netflix recently announced free access to select originals for non-subscribers. While this isn’t the first time they’ve dabbled with freemium strategies, it’s the most access they’ve allowed to originals for free. Of the catalog available, they’re allowing viewers to watch entire original films and the pilot episode of select original series. 

I think this Faux Free plan is the perfect play for Netflix for a few reasons.

First, one of the keys to Freemium is figuring out how to provide value for free without alienating paying customers. In this case, there’s no reason for paying subscribers to be upset. Non-subscribers only have access to the pilot of included original series, and while they do have access to entire original films, the available titles are far past their release date. 

Second, with a Freemium offering, it’s key to avoid strategies that lead to cannibalization or that devalue the product. In this case, Netflix is doing a great job of straddling both lines.

Giving away these specific films for free is smart because they’re older titles that non-subscribers otherwise wouldn’t see. Providing access for free allows them to broaden exposure and introduce a new market to the quality of their original films. Beyond that, they’re not cannibalizing their original series because they’re only giving away one episode. If anything, I think they could go even further, offering the first 3 episodes for free to hook new viewers and increase the chance of paid conversions.

Instead of a Faux Free approach, Netflix could have chosen either a Perpetual Free offering or a Free Trial. However, neither approach would work as well as their chosen path.

There are two paths to a Perpetual Free tier that they could have pursued. The first would include ads, which go against Netflix's ethos and strategy. YouTube TV uses this model, differentiating the YouTube Premium paid tier with the ability to watch ad-free. This is intuitive since advertising is YouTube’s primary means of monetization.

The other approach to Perpetual Free would be including full access to low-quality content. Amazon does this with the Kindle Unlimited offering. This works for Amazon because one of their biggest selling points is value. Netflix positions its content as premium fare, and giving away low-quality content could muddy the perception of Netflix across the broader consumer mindshare.

Alternatively, a Free Trial would be dangerous because it could cannibalize their current product. If they were to give away access to their entire catalog for 7 days, it would give viewers enough time to binge one of their original series without having to subscribe. 

With that in mind, this Faux Free strategy makes a lot of sense, and I expect it to help them drive even more subscribers over the coming months.

Repackaging GQ, Beyond the Magazine 👔

Over the last few years, my print subscriptions have dwindled, but one subscription I’ve held steady is GQ. I signed up a few years back, and have enjoyed watching the magazine evolve under recently appointed Editor-in-Chief, Will Welch.

Before Welch took over, I got my first taste of his vision listening to the GQ Style podcast, Corporate Lunch. A recurring segment on the podcast was called “13 Vibes” where Welch and co-host, Noah Johnson, would recommend the best products and practices they’d been tinkering with. I found them to be great curators, which is why it felt natural to me when GQ started to productize their taste with a dedicated affiliate program, GQ Recommends

After some success with the affiliate program, GQ formally launched their own curation product with a quarterly subscription box, packaging their favorite products each season. While it may seem like the moment for subscription boxes has passed, the GQ Best Stuff Box is thriving - up 165% in revenue in 2019, and regularly selling out.  

With the success of the box, GQ has taken the next step, designing and launching their own merchandise in a dedicated store called The GQ Shop. Jacob Donnelly from A Media Operator has a great write-up of the entire evolution

Upon hearing this news, I was immediately skeptical of the demand for GQ-branded attire but was pleasantly surprised to see that they’re mixing in collaborations with their favorite brands and editorial.

For instance, the first drop features a collaboration with Online Ceramics, a small-batch clothing company known for hand-made designs paying homage to the Grateful Dead. It also includes “The Larry T-Shirt”, which features a photo of Larry David from their February cover. Unsurprisingly, it’s already sold out (just look at that beauty 😍).

What’s even more compelling to me is how this could look in the future. As these products continue to evolve, GQ can continue offering each as stand-alone products, or they could offer tiered subscriptions bundles that feature combinations of the core magazine subscription, a subscription to GQ Style, the Best Stuff Box, and select products from The GQ Shop.

A premium subscription that gives subscribers priority access to limited releases could significantly boost LTV and drive intense loyalty - especially if there’s a waitlist to join. In his seminal post, On Linear Commerce, Web Smith writes: 

“Brands will develop publishing as a core competency, and publishers will develop retail operations as a core competency.”

GQ is definitely in the infancy with this, but considering their recently reported circulation of 950k subscribers, they have a huge opportunity to drive subscribers deeper into their ecosystem and boost expansionary revenue beyond the magazine.

Apple: The Price-Change Messenger 📢

One question we’re asked often at ProfitWell is how to message a price-increase to existing customers. While price-change PR strategy is nuanced and highly dependent on the product and relationship with the customer, one universal principle is that the message should come directly from the company making the price change. 

Simply put, you don’t want your customers to hear about a price increase from someone else before you have the chance to explain why.

That’s why the following tweet makes me nervous for subscription products that rely heavily on Apple for subscription management.

The Tweeter refers to this as a nice solution from Apple, which makes sense through the lens of the consumer. However, for App in the Air, the subject of this notification, the message does a serious disservice.

Note the simplicity of the notification and renewal landing page:

Neither screen explains why this price increase is actually happening, and in this case, there’s a very good reason. As commenters roasted App in the Air in response to the original tweet, their social media team stepped in to explain. 

The change-in-tone of the commenter above after understanding the context is a perfect example of why it’s critical to own your price-change messaging. Nowhere in Apple’s auto-renewal flow did they mention that the price-change was due to the end of a promotion, and as a result, the gut-reaction is that App in the Air is the bad guy.

Judging by Apple’s developer website, it doesn’t seem like there’s any ability to customize these notifications either, as they seem to be automated upon detection of an increase in the monthly subscription price.

Apple has already been under scrutiny for two high-profile challenges to its app store policies this year. This is another factor to consider when determining how much to leverage their distribution channel. While enabling auto-renewals provides a lot of value for their marketplace, is it worth the indirect relationship with end-customers?

I’d argue price change and billing notifications, when possible, should always be managed directly, and if managed by a third-party, it should at least be possible to provide input on the tone and content of the message. Softer messaging with more context could help recover renewals that might otherwise have a negative knee-jerk reaction. And at scale, every churn recovery counts. 

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