Finance beyond Financial Institutions: How the ‘subscription economy’ is colonising our future

Firms like Netflix and Spotify are changing the way we consume. What does this mean for how we study and understand finance?

What does it mean to say we live in a financialised society? Does it simply represent the growing dominance of financial institutions, or have there been more substantive transformations to the systems underlying our economy? These questions animate my new article in New Political Economy, which looks at how welfare reform has responded to the demands that finance places on state and society. Thinking about these questions, I’ve realised how finance has begun to break out of its ‘traditional’ domain of saving and borrowing, to become an ever more ubiquitous presence in our lives.

If we keep our view of finance fixed on its traditional domains, we risk missing the subtler ways in which it is changing the society around us. Something fundamental to finance has broken free from its role in saving, borrowing, credit and debt and now informs ever greater swathes of economic activity.

At its heart, finance is about the relationship between the economic present and future, allowing the future to be ‘colonised’ through claims grounded in legal agreements or justifiable expectations. Central to this, and the unique contribution that finance makes to capitalist society, is the calculation of Net Present Value (NPV). This sets up a direct equivalence between any given asset and series of payments made over time, subject to discounting based on the level of expected risk and the opportunity cost of investing elsewhere. This relationship works both ways – an asset is expected to be ‘put to work’, to generate a stream of future payments, whilst the right to series of future payments can be given a cash value in the present and sold as an asset. The latter lies at the heart of the securitisation that both revolutionised and destabilised the financial sector. Most famously, this underpinned the mortgage-backed securities that threaten to detonate the global financial system.

These kinds of relationships are beginning to proliferate outside the traditional domains of finance. Few firms today exemplify this more than Netflix, who briefly became the largest entertainment company in the world, larger than Disney despite a much slimmer catalogue of intellectual property. What they did have was a large and growing base of subscribers, whose value was not just in the money they provided in the present, but the assumption that these regular, steady payments would continue to drip in over time. By being able to present each subscriber as a valuable, long-term asset, the company was able to expand and develop through huge levels of borrowing. The end-consumers are not formally engaged in an explicitly financial relationship with Netflix, but the underlying relationship is the same, one that places value on the expectations of peoples conduct in the future.

This has been driven by a quiet revolution in accounting rules and practices means that expectations of future returns can be ‘marked-down’ to their value in the present. This gives companies a significant incentive to ensure that it is not just commodities today that are being sold, but that consumers are committing to longer term relationships. In this way, Netflix, and a growing number of companies like it, have cut out the middle man of the financial services sector, and are directly colonising the future on the back of expectations of our consumption behaviour. As consumers, we are increasingly being asked to not simply buy a commodity off the shelf, but enter an ongoing relationship to it. Taken individually, a transformation from buying CDs to paying a Spotify subscription is not a particularly radical change. But in aggregate, these are driving much more fundamental transformations to our economy and how we relate to the goods and services we buy.

As anyone who has listened to any advertising-supported podcasts in the last 5 or so years will know, markets for the most mundane and everyday items are being ‘disrupted’ by start-ups promising hassle-free subscriptions for everything from razors to underwear. Each in itself may be a prosaic response to a demand for convenience in our increasingly busy lives. But it is underpinned by a relationship that is, at its heart, financial. But rather than loading everyone up with debt, the magical point of financial transformation has been moved away from the end-consumer, and onto the company’s balance sheet.

These trends have implications not only for our relationship with the things we buy. They increasingly demand that we engage with financial services and conduct ourselves in ways amenable to these finance logics. We must arrange our economic lives around the regular drip-drip-drip of monthly payments (the ‘calendrics’ of finance), and are inveigled into systems where our actions and behaviour are made increasingly visible to ‘surveillance capitalism’. The value of our custom is not merely each month’s subscription payment, but the extent to which it can be assumed we will continue in the future. This means that companies not only need to attract our custom, but retain it. And by locking us in to specific products and services, this is helping to drive the wave of concentration and monopolisation that is characteristic of the new platform economy.

These trends are incipient, and may yet prove to be unstable, particularly if an economic downturn bankrupts a few firms that had painted an overly rosy view of their subscriber base to investors. But it is also more than just a fad or a gimmick, but something that sheds light on a more fundamental transformation of our underlying political economy, driven by finance. As I show in my New Political Economy article, through interventions like Universal Credit, the state is increasingly trying to make us ‘financial responsible’. This no longer simply means adherence to traditional values of thrift and saving, but of active participation in financial practices that send signals about our intentions stretching into the future, and allows them to be valued accordingly.