Update: We’ve ended the experiment for now. We hoped to land around 1,000 lifetime memberships sold in the month, but we blew past that in about four days. After exactly one week, we’re just over 1,500.
This was dramatically more successful than we anticipated, and in some interesting ways. Most of the people who went for lifetime were either new subscribers (56%) or folks upgrading from the bundle (32%). What does that mean? We have no idea yet.
The plan now is to pause, take a close look at the data and what it means, and think about how we’d want to go about doing another round. I think it’s safe to say we’ll do it again. Next time, we’ll clearly telegraph start and end dates for the promotion.
Thanks for indulging us, everyone. This was so much more successful than we could have hoped.
We’ve just launched a little experiment. For a limited time, you can sign up for a lifetime membership to Nebula. This isn’t a lesser tier of service. This gets you access to everything that the monthly and annual plans do. There’s no catch.
We’ve gotten a couple of comments on Twitter and YouTube about this being portentous of some kind of imminent implosion, so I thought I’d take a moment and explain why this experiment is interesting to us, and what we hope to get out of it.
The short version: raising cash makes sense for a streaming service to invest in producing bigger projects, and we prefer doing it via lifetime memberships versus giving up equity and taking on VC money.
The long version is also pretty interesting:
We knew at the beginning of the year that we would be taking over the handling for Nebula marketing costs ourselves. Up until recently, all marketing spend was handled by our bundle partner. We’ve been running models for a long time in preparation for this change and we were confident it would go reasonably well, but we aren’t a VC-backed startup or a trillion-dollar megacorporation; taking over hundreds of thousands of dollars in monthly marketing spend represents a significant risk for us. We had to plan for every scenario.
After a couple of months of spending nearly $1m total to sponsor our own creators, our team has learned a couple of things which have seriously surprised us.
All of our models were based on user trend data we had — data from direct subscribers. Until recently, direct subscribers were in the minority, and we’ve never really promoted direct subscriptions aside from the launch of Nebula Classes. That data suggested that monthly subscribers would be the dominant group. The reality? Not even close. Here’s a screenshot from our analytics dashboard. Dark orange is monthly subscribers. Light orange, top, is annual.
Our total count of annual subscribers has more than doubled in two months.
Why is this so exciting? Well, annual subscribers stay longer, so there’s reduced churn. That’s obviously good for the stats. But annual subscribers also pay up front. While we theoretically make more money in 12 months from a $5 per month customer than we do from a $50 per year customer, we can do more with $50 of today money than we can with $60 of next year money. Spending, for example, $25 on marketing to bring in a new customer is reasonable if you expect the lifetime value of the customer to be, say, $75. But at $5 per month it’ll be five months before you break even. For some period of time, you’re dipping into your savings account. If a bunch of those new subscribers pick the annual plan and pay $50 up front, you can reduce the amount you have to take from savings. But if a whole bunch of people pick annual, you might come out ahead every month.
This is where we landed. Since the change to direct promotion, a wide majority of new subscribers are choosing annual, and in under 30 days we generated more first-month revenue from new subscribers than we paid to bring those subscribers in. By the end of March nearly 90% of our first-month revenue was from annual subscribers.
This is the buried lede: when we took over our marketing spend to focus on direct subscribers, we instantly became one of the largest and most successful sponsors on YouTube, and if things stay on their current course, we can keep that up sustainably without having to go back to savings again.
Okay, so why lifetime?
We aren’t currently spending from savings to pay for marketing. That’s great. But that first month did come from savings. It wasn’t a huge dent and we’re filling it back up, but again, we’re not a VC-backed startup. We don’t have hundreds of millions of dollars we don’t know what to do with. Our strategy is sustainability, and our growth comes from making good choices with and for our creators, not from spending indiscriminately on casting the widest possible net.
The original plan, back at the beginning of the year, was to use lifetime memberships as a buffer. A way to raise a little bit of capital in case things were rougher than our models suggested, and to do so without having to give up equity. As our actual performance outpaced even our most optimistic models, we realized there was still an interesting opportunity in raising capital this way.
Cash is king in any business — that isn’t unique to us — but Nebula is in an especially interesting position as a streamer. We have marketing costs, operational costs, and content costs. Operational costs are long-term, so you don’t typically want to make hires out of short-term cash bursts. Assume marketing is a relatively stable system for the moment. A short-term cash infusion for content? Now that’s interesting.
Our three biggest projects last year were a sci-fi movie about an evil coconut, a trans coming-out theater performance take on Shakespeare, and a travel game show. Super fun experiments that went over incredibly well, and suggest that our audience would love more creator-led big-scope projects. We have ideas. Our creators are pitching really cool stuff. We want to start making those projects real today, not in several months when the bank account fills up.
Okay, so why “experiment”? Why only for a limited time? What does success look like for this experiment?
The internal codename for lifetime memberships was “Project McRib.” The idea was that we’d turn it on, see how many people were interested, take some notes, then turn it back off until we felt like we understood what we were looking at. Then, if it makes sense, occasionally bring it back when we want to duplicate the experiment and raise some more cash for big stuff again later.
Maybe the pricing changes later. Maybe nobody is interested. Maybe having a more expensive option above the annual subscription makes annual the more attractive price point, improving cash flow and retention overall even if zero people sign up for lifetime. If there’s enthusiasm and people are trusting us enough to spend the money on a lifetime membership, that tells us something about how the audience sees us overall. If nobody goes for it, that also tells us something. My goal for the experiment was 1,000 lifetime memberships sold. In the first 24 hours we had over 300 people sign up. I’d say that bodes well.
Another thing to consider in all of this is the creators themselves. We fund Nebula Originals in part based on how well we think they’ll do for bringing in and retaining customers. If, say, Jessie Gender has an exciting new project in the works and announces it to her audience and a bunch of them go for annual or lifetime memberships, we can increase the budget. It’s not quite as one-to-one as something like Kickstarter, but the cash flow could have a very real impact on how we build projects, and that knowledge might make creators more enthusiastic about promoting those projects, leading to a wonderful virtuous cycle where creators get to make dope shit and the audience gets to enjoy dope shit. And because creator payouts overall are based on signups and profit, changes in our cash flow have a very real impact on their businesses, too.
We knew that it would be the most engaged, highest-value-potential subscribers who went for this. We set the price based on what our current data suggests that lifetime relationship looks like. But — and this is absolutely crucial to understand — this isn’t about maximum value extraction on either side. It’s okay if we lose a few bucks over the life of those subscribers. It’s okay if we come out slightly ahead. The real goal here is to give the most enthusiastic and excited people in the audience a chance to make a significant up-front impact to the creators and to the system we’re building.
I’ve never been less worried about the future of Nebula. I’d just much rather answer to the creators and the audience than to venture capitalists.