← The Prof G Pod with Scott Galloway
The Prof G Pod with Scott Galloway
Subscription Inflation, How to Use a Gap Year, and Deciding When to Retire
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Claim a special offer welcome to Office Hours with Prof. G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to office hours of propgmedia.com Again, that's officehoursofgmedia.com or post your question on the Scott Galloway subreddit and we just might feature it in our next episode. Our first question comes from Reddit Nico I says, 26 year old guy here from the Bay Area. I've got a good job, I work hard and I actually enjoy what I do. But lately it feels like every subscription in my life, including streaming software, cloud storage, productivity tools and gaming, have raised prices all at the same time. How do you see this wave of price hikes? Are we seeing a genuine macroeconomic adjustment or just the pricing power phase of the subscription economy? I'm doing fine financially, but everything's getting tighter at once. It's strange to feel responsible and stable on paper, yet still squeezed in Practice. Would love to hear the big dog's thought on these little dog problems. Okay, so according to Deloitte, the average US household now pays for four streaming services. And the total cost has jumped 13% in the past year, from 61 to $69 a month. For Gen Z and millennials, who average five subscriptions, the increase is closer to 20%. So people are spending pretty close to a thousand bucks a year now on their streaming media subscriptions. Disney plus just raised prices again, adding two to three doll plans. Apple TV hiked prices for the third time in three years earlier this year. Netflix, Discovery, Peacock, Paramount and others all followed suit. Credit Karma calls streaming the top of the essential non essentials. In other words, even when budgets are tight, people cut other things before Netflix. I think Netflix might benefit from a recession that gives streamers permission to test our tolerance. And so far, we've tolerated a lot. There's been a lot of pricing power that these companies haven't been leveraging. A Deloitte survey found 60% of consumers would cancel if their favorite service went up another $5. But here's the kicker. 24% have churned and returned in the last six months. By the way, surveys are really dangerous. There's something called consumer dissonance where people say one thing and then actually behave another. I used to run focus groups when I was running a company called Profit, and we'd ask people, how much would you pay for this product? And they'd say, oh, $1,000. And then it's on sale for 100 and they don't buy it. Okay, a couple things here. A company that gets a billion dollars from transactional revenue, like an Urban Outfitters, gets a market cap of, I don't know, 0.5 to 2 times revenues. Call it 1 to 2 times revenues. Whereas a company like Netflix, for every billion dollars in subscription or recurring revenue, if it can show that it churns at a low rate, gets 6 to 12 times revenues. Now, why is that? Recurring revenues are amazing. And that is, once you figure out what your churn is, you can predict your business more easily. You know that. Okay, if we have a shitty line of tops and bottoms or whatever, our business isn't going to crash 20%. You can predict out kind of what your cash flows are and better plan your R and D. The market just loves consistency. It loves the stickiness. And whereas you have to make a proactive decision to go into Urban Outfitters and buy more, you have to make a proactive decision to not go onto Netflix. What do I mean, by that, you have to activ. Cancel Netflix. If someone showed up and held a gun to my head and said, cancel all your streaming services, I would be dead. Because I don't know how to cancel them. I don't have the patience to. And my guess is they have made it pretty easily. I've never seen a button on Netflix or any of the streaming services that says, press here to cancel. The other big benefit of subscription revenue is the following subscription. Tying your business to the clock is absolutely a better way to go. Now, these companies knew that. What do they do? They went out with what's called a penetration strategy, and that is they priced their services below the cost to produce that content. They were losing money because they wanted the value proposition to be so incredible. Their advantage is the following Warner Brothers discovery. Their shareholders are assholes. Their shareholders demand profits. Whereas Netflix shareholders, Ted Sarandos was such a visionary for the first 10 years, they didn't demand profits. And so he could offer someone a billion dollars in content for $0.70. This was sort of the Amazon strategy, and that is price your service below the cost and it'll be such an amazing value proposition that people will sign up. And then they went to recurring revenue. And probably the strongest recurring revenue program in the world is Amazon Prime. And they know something like 3% of people churn out Amazon Prime. I mean, that means basically people who die or their credit card expires. Everyone sticks with it. I think it's right up there with Netflix. The problem Netflix has, I think, the lowest churn of anyone and everyone else has triple or quadrupled the churn of Netflix. And as a result, Netflix trades at a much higher multiple and they're able to just invest at a rate the other guys aren't able to invest in. So these guys went in and said recurring revenue's amazing. SaaS companies, and they would offer just sort of undeniable value propositions. My guess is a lot of the subscription services you have for a long time were priced under market. You were getting $20 a service or eight bucks. And now that they have penetration and they have loyalty and they have subscribers that love watching Wednesday or the Last of Us or Trying to Think or K Pop Demon hunters. They kind of know they have you hooked and they know they have pricing power, you're in, you've given them their credit card and now they are starting to raise their prices because their shareholders have pivoted from focusing on growth to being more focused, not entirely, but being more focused on profitability. This is Just a standard part of the business cycle. Now what's difficult is to enter into this atmosphere. Now to enter into the Thunderdome, you need so much capital because to acquire people and go through the desert of a value proposition that's much greater than the price just takes a massive amount of capital. Even more capital now because you're trying to unseat incumbents. So long winded way of saying one attach your business model to the clock, not to transactions. Two, it taps into a flaw in the species and three, there are quite a few services that will review all of your subscription payments. And a decent way to manage, or a decent hack, if you will, of managing your own financial responsibility is to get out of recurring revenue payments. Recurring revenue payments just kill you. Do not rent an apartment that you can't afford. Do not get into a car lease. That's going to put you in over your head. I think the rule is you shouldn't pay more than 30% of your take home pay on your rent. There are numbers for all of this you shouldn't exceed because it's the recurring revenue obligations that kill you. Lot there, lot there. Second cup of coffee. Kicking in, kicking in for the dog. That's right, like a dog on mountain. Like a dog that's found my meth dealer, owner's supply running around the house chewing up everything, saying hello to strangers. Thanks for the question. Question number two also comes from Reddit. Medit akkttvbtw. Jeez, where did he get his name? Asks. Hi Scott, I recently graduated from college with a degree in finance and I'm taking a gap year before I attend law. Question is this. How can I make the most of the relative freedom I have over this next year to set myself up for success in the years to come? I work online and I'm fortunate enough to make good money with relatively few hours, so I have a lot of time to pursue other things, but it feels like I have so many options that it becomes overwhelming. Big fan of your work. Thanks for all that you do. I would try and get in fucking amazing shape. I would try and travel a lot and I would kind of enjoy yourself and spend a lot of time with friends and try and maybe make a lot of friends, maybe try and establish a romantic partnership. Because once you go into law school, you're going to kind of be very focused on law school. And a lot of this comes down to the economic freedom you have, how much money you have. But if you're single and you're alone, you can just kind of get A backpack and I mean I would definitely head to Europe for a couple months if you haven't done that. The funnest trip I've ever taken was a trip I took where I had absolutely or very little money. I bought a 300, I think it was $300 a euro pass back in 1987 and a backpack. And my friend Lee and I would occasionally stay at a two star hotel versus a one star. I remember in Italy they used to turn the air conditioning off between the hours of 1 and 5am and we'd sit there sweating, staring at the ceiling. So I would travel if you have the wherewithal and I would try and get in amazing shape because when you're in law school you have a lot of stresses on you. I would try invest a lot in being social, in relationships and if there's something you want to learn about, I wouldn't be too focused on trying to. I mean, I don't know your financial situation, but the amount of money you're going to save is probably inconsequential to the. I don't know how you're planning to pay for law school. I don't know if it's loans or your parents are going to help you out or if you need to make money. Obviously that changes the equation there. But I don't know if I have any pearls of wisdom here. Study the stoics. Youth is wasted on the young. Don't waste it. The opportunity and flexibility you have to just take off and go spend a month in Thailand. I just don't think you're ever going to regret when I don't know if you've seen those tiktoks where they talk to seniors about what they regret. They like they wish they traveled more because at some point we'll not be able to travel. No, my brother, just enjoy the year. It's going to go really fast. But one thing, just do it. Just like get to Europe quickly or get out a lot or start working on something or if you want to, I don't know if you want to write, you know, if you think I'd really like to write a book or just get a start today, don't sit around thinking about it because my brother, that year is going to go so goddamn fast. So what's the key to this year off now? As in if I'm going to trav. Write, make some money, get it. Whatever it is going to do, do it now. Because thinking, oh, I have a year sounds like a lot. No, it's not no, it's not. Three months are going to. If you're not careful, three months are going to go by and you haven't done a fucking thing. And then you're going to hit six months and it's like now I'm barreling towards law school. So whatever it is, just get on it. Anyways, good to be you. Thanks for the question. We'll be right back after a quick break. Support for the show comes from NetSuite. Every business is asking the same question. How do we make AI work? 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Right now, get the free business guide demystifying AI and netsuite.com propg the guide is free to you at netsuite.com propg netsuite.com propg Support for the show comes from Square. It's a month of gratitude. And one little thing that you can be thankful for is how easy it is to pay for stuff nowadays. A quick tap of your phone and you're right out the door, latte in hand. Simple. Well, the tool that makes those breezy transactions possible for a lot of your favorite businesses is called Square. It's a combination of streamlined software and polished hardware that lets you sell wherever your customers are, whether it's at the counter, online or through your phone. You can take payments anywhere, all synced in real time. And it can help your business with the behind the scenes stuff as well, letting you track sales, manage inventory and access reports in real time. Running a business involves a lot of moving parts and Square helps simplify all that. With Square, you get all the tools to run your business with none of the contracts or complexity. So why wait? Right now you can get up to 200 off square hardware at square.com goprof g that's sq U-A-R-E.com goprovg run your business smarter with Square get started today. Support for the show comes from Framer. If you run a business, you need a website. And sure you could pay for one of those cookie cutter site builders, but you'll end up with a website that looks like everyone else's. Or if you want to go beyond a typical site builder and get into something with a true aesthetic design, you could try Framer. Framer already built the fastest way to publish beautiful production ready websites and now it's redefining how we design for the web with the recent launch of Design Pages, a free canvas based design tool, Framer is more than a site builder, it's a true all in one design platform. From social assets to campaign visuals to vectors and icons all the way to a live site, Framer is where ideas go live start to finish. Framer even helps you design more than websites, creates social assets, campaign visuals, icons, and even site resources all in one place. Framer stands above the others because it's not just a site builder. Framer is a true design tool that also also publishes professional production ready sites ready to design, iterate and publish all in one tool. Start creating for free@framer.com design and use code Prof. G for a free month of framer pro. That's framer.com design and use promo code Prof. G framer.com design promo code Profg rules and restrictions may apply. Welcome back onto our final question. CapitolLadder123 asks Scott I'm a 62 year old male engineer with a Fortune 200 company in a small Rust Belt city. The recent tariffs are starting to catch up with us and I foresee a reduction in headcount coming. I plan to work for another five years, but between pension, Social Security and 401 I could retire today with no reduction in living standard. I don't love my job, but I'm well paid and get satisfaction from doing it well. If cutbacks come, assuming I'm not on the list, am I morally obligated to retire to free up a spot for a younger person who does not have the financial options that I have? I think that's pretty noble, but I don't think you need to be a martyr around your job. I mean, it sounds like you're going to be gone in three years no matter what. So I mean my first thought is hope they fire you and then you get some sort of severance and then you can focus on doing something else you like more or just hanging out with your partner and your kids or grandkids and playing golf or exercising or traveling. So you're in a good spot. But I wouldn't feel like you should. I'm thinking about shutting down at 65 and that it's giving. I do think there's something to. Old people have soaked up so much of the income and prosperity because we have this terrible habit of voting ourselves more money. And it's weird to refer to myself as older. I've always still think of myself as a kid and make that as an excuse to behave irresponsibly, which is sort of pathetic. There is something to us voting ourselves more money and also to what you're saying, and that is making room for younger people. One of the really terrible things about academia is the tenured faculty won't fucking leave because they don't have to. And about the time they become. They are awarded tenure is about the time they usually become unproductive. When you give tenure to somebody you had literally the university is mandated to put aside two or three million dollars, which is an acknowledgment that this person is no longer going to pull their weight. And then they won't leave. And so we end up with professors in their 60s and 70s who were the bomb in CAP2 accounting in 1988 and now just sit around and have petitions to get rid of the dean or very opinionated, desperately looking for relevance. It's probably a little harsh, but I work with one of the best faculties in the world at nyu and a third of them should be put on an ice floe. Too much? Too much. As you can see, I'm very popular in the faculty lounge. So I like the idea of you saying, I'm going to make room. You don't need to fill the onus to make room at 62. Maybe it's 65, maybe it's 70. But boss, just put that shit aside for now. Do what's best for you and your family and what you think it'd enjoy the most. But it sounds like, I don't know, maybe you'll get lucky. I'm able to fire you and give you severance, but if not, I'd probably stick it out for another three years. Bank some money such that when you travel, or you can travel to nicer places, or when you want to give your grandkids a little bit of money and give them a little bit more. But no, don't feel like at the age of 62. You have an immoral obligation to make room. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursoffertgmedia.com Again, that's officehoursoffertgmedia dot com or if you prefer to ask on Reddit, just post your question on the Scott Galloway subreddit and we just might feature it in an upcoming episode. This episode was produced by Jennifer Sanchez. Our assistant producer is Laura Gennaire. Drew Burroughs is our technical director. Thank you for listening to the ProPG pod from ProPG Media.
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