The launch of eBook subscription service Oyster has set the proverbial cat among the pigeons in the publishing world. Publishers and authors are frantically trying to work out just what on-demand subscriptions will mean for their business and whether Spotify or Netflix provides the best analogue for them to benchmark against. It is an intriguing turn of events. Five years ago book publishers looked to the music industry for lessons to learn about digital and they studied voraciously. More recently many book publishers have been of the opinion that are making digital work in a way the music industry has not, and that the roles of student and teacher should be reversed. Now we’ve turned a full 360 degrees. Regardless, this is a fantastic opportunity for the book publishing industry to get subscriptions right at first attempt and to skip many of the painful mistakes the music industry made.
Book Subscriptions Offer a Much Clearer Path to Additive Revenue than Music
There are obviously many, many differences between books and music, but some of these differences actually build a more compelling business case for books:
- Books take longer to read: as with any form of media consumption, there are multiple different types of consumer, and if your content does too good a job of attracting the binge eater then your all you can eat buffet will start loosing money. But if, for argument’s sake, we assume that the average book subscription service user reads a title a week then this means that the approximately $2.30 of a month’s $9.99 subscription is allocated to each title (before all deductions and revenue shares etc.). This might not sound a lot but compare that to music: if an average subscriber listens to around 2,000 songs a month and, for argument’s sake, we consider those to all be album listens, the per-title value is just $0.06. (The share is actually even lower because so much of streaming is single track and playlist based). So because books take longer to read than a CD does to listen, authors and publishers will see the $9.99 split into much larger chunks than for music.
- Increasing readership: $2.30 per title is obviously far below a standard eBook list price, but the business case for subscriptions is based upon growing the overall pie, not slicing it. Ideally subscriptions should both increase the number of people paying and increase the amount people consume. Let’s call the combination of these two metrics the ‘Consumption Quotient’*. The current average price of the Top 10 best selling eBooks is $5.41, so the book service Consumption Quotient only has to be a factor of 2.3 to be delivering just as much industry gross revenue as eBook sales.
- Per-reader value versus per-title value: in theory book subscriptions should encourage readers to read more regularly which could push the $2.30 per-title value down. But the key question publishers and authors need to be able to answer is whether subscriptions will make more readers spend more on books per month. If an average engaged reader only buys 1 top ten title a month then a subscription is already double that value. So the per reader value has doubled while the per-title have more than halved. Thus ARPU (Average Revenue Per User) has gone up while ARPT (Average Revenue Per Title) has declined. This is where the oft-mooted scale argument comes into play. If an author or publisher is simply think in terms of 1 sale becoming 1 rental then it is a net-loss scenario. But if just over twice as many people read the book then it is a net-gain scenario. The more people that subscribe and the more that read more books – the Consumption Quotient -the more likely that subscriptions will become additive rather than substitutive.
Simply because books take longer to read, it is possible to see a much clearer route to a net-positive outcome for book subscriptions than for music. This is a great asset that the book industry should embrace and cherish.
Starting With a Blank Slate
The book industry also has another great advantage in that it can learn from the travails of music subscriptions and start with a blank slate:
- Be transparent: instead of getting skewered on the transparency and fairness debate, publishers should work with the services to provide self-serve author analytics right away. It is a case of when, not if, that this will happen with music, so this is a chance to get ahead of the game and to get authors onside in a way record labels have not yet managed to with artists.
- Don’t talk discovery and curation, do it: if book subscriptions are built form the ground up to drive immersive discovery journeys, then they can avoid the current music service trap of struggling how to guide users through unfeasibly large catalogues. Build these services around discovery narratives that create journeys around authors, genres, periods, countries etc and they will thrive.
- Don’t price out the mass market: $9.99 is a great price for book aficionados, much less so for passive readers. Lower price points are needed for those readers who simply do not want to commit to paying that amount a month (obviously usage caps will be needed). And for those who don’t like the idea of being tied into monthly spending (because most people don’t like to spend a set monthly fee on any media other than TV) get Pay As You Go (PAYG) packages into the market as quickly as possible. Beat the music industry to it!
- Don’t ignore product strategy: music subscription services are an e-commerce mechanism, a billing paradigm. If you get curation right they can be a programming mechanism too. But they are not a product, they are simply a means of getting the core digital product to consumers in a frictionless manner. Which is why the books industry should heed the music industry’s lesson and work with subscription services to ensure that the product itself is innovated too. This means that any video and other multimedia e-book functionality is supported native and that publishers prioritize building such content for these services, where they will become a natural extension of the subscription experience, rather than an under-used novelty in an e-book title.
Subscriptions are clearly the best product set media companies currently have for monetizing the consumption era. For the music industry they continue to raise as many questions as they answer, but for books they might just be the ticket to genuine digital prosperity.
*’Quotient’ in the figurative sense, not the mathematical sense
Mark, We cannot teach book industry anything. Subscriptions are are limited income business model that will plateau music revenues at 25 billions instead at 100. You need at least 250 million subscribers (looking at XM in US it will not materialize) to get just 18 billion dollars in revenues ($7 AVG sub.) Do not count for more than 7 billions from all other sources with 250 million streamers around. In the meantime discovery moment monetization will double the business in less than 36 months and we can aim to 100 billions by 2020. Streaming is a poison allowed out of lack of better ideas. There is a room for streaming but with paid discovery services (part of discovery moment monetization) and 5 cents price tag per stream with stream #7 converting you to “owner”
Small correction…250 million subs will bring 21 billions – but it is still far form 40 billions in 2000 and even further from numbers we can generate with natural synergy between music and the web. We need few new ideas and new executors.
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Interesting post as always, and very relevant to me as I now look after digital books (as well as music & radio) at RNIB after years at We7. How book publishers embrace the ownership vs access debate will be very interesting in the next few years and there are lots of innovative things already happening. Notwithstanding that books are a more immersive experience than music because of the time need to invest to consume, I think your comment that most subscribers will read one book at a time may underestimate how many people will dip and browse once the choice is available matched with offline caching etc. For that kind of consumption a different monetisation structure will be needed, and there are a couple of other possibilities already out there :-
1) Ebook service that charges by the page ie total number of pages consumed that month divided by the number from each publisher = prorated share to publisher of total net subscriptions
2) Audiobook service that charges by the minute played ie total number of minutes consumed that month divided by the number from each publisher = prorated share to publisher of total net subscriptions
Fundamental problem with your numbers. You say: “The current average price of the Top 10 best selling eBooks is $5.41, so the book service Consumption Quotient only has to be a factor of 2.3 to be delivering just as much industry gross revenue as eBook sales.” Your “current average price” is the current average consumer price. In some cases a publisher is paid a percentage of the consumer price, but in other cases a publisher is paid a percentage of the list price. Frequently, any discount from the list price is borne solely by the retailer. So, from a publisher point of view, the numbers are not sufficiently comparable to conclude the rise in consumption “only has to be a factor of 2.3.”
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Dean – while it is true that price discounting can create income imbalances down the value chain, we are still talking the same orders of magnitude. For music subscriptions artists, for example, looking at streams being worth close to 200 times less than a download, so the Consumption Quotient required is vastly higher. Artists and labels would give much to be thinking about a multiple of 4 or so rather than 2.3, compared to multiples of 200!
This is not to take anything away from the importance of the underlying point – because it is crucial – but it does point to a much greater opportunity to develop workable solutions.
Technology is avilable. Streaming should go to 10 cents for initial discovey stream and say 10 additional streams @ 3 cents should convert you to owner. You love the tune – total aquisition cost $.40 You do not (been to drunk in the clab) you lost 10 or 13 cents.
This is the only way to go – NO SUBSCRIPTON STREAMING. Pay as you go!
Tune Hunter – I understand your need to promote your business but music discovery and ID apps like Tune Hunter and Shazam are not instead of music subscriptions, they are a complement. Whatever your reservations surrounding the AYCE business model, track ID led purchase is not an alternative. It is a great extension of the a la carte model, but does not meet any of the same user needs as subscriptions, any more than singles replace radio. thanks for your comments though.
Mark, I am just calling for sanity. There is no need for free Shazam, Soundhound or Gracenote. If they become well paid retailers of music most of the piracy will vanish. Are they afraid to go away from free – is there an Amish man with servers and 22 million tunes in the data base to take over? As it is Shazam is very fassionable industry kid, living out of investors money and doing more damage than good to creators. Last I am not promoting any business, I am just independent inventor observing the industry. Patent law changes and caliber of the players in the industry is not allowing for mooney for guys like me.
This article is poorly written and edited even worse. I strongly suggest you get a second proof reader before you publish. The syntax problems and typos are so prevalent that they distract from the content and intent of the text.
While I can see your point, there is something you may have overlooked by just and strictly taking Oyster into account.
Other subscription services exist and… some are providing with a free-account-advertising-monetization offer. Alas, I think this type of account is the doom of the subscription model as we now know mobile/online advertising is quite hard and brings very little money in comparison to the amount of ads displayed and the amount of effort websites, services, etc. have to put in it.
The model is all the more problematic as advertising in books is. Yes, some “anglo” books had ads inside in the past but the European culture has never experienced this.
So we get an “all you can start reading buffet”, which encourages book zapping and triggers a loss in value for books both as a product and a cultural item, especially in some European countries where books are considered sacred before being considered a product.
Sure you can think of this like a read and paid sample, but it hurts anybody in the book industry, including the service which is signing a contract telling that this type of offer will make it lose money. And I personally consider the services doing that quite stupid as they went a route they have not properly explored in the first place. And guess who is investing money in it? Webiness men who actually made money selling their products to a big company on their potential and who failed to turn it profitable themselves.
You completely ignore any kind of actual demand assessment for this business model that you so subtly analyze. Who tells you that people will like to subscribe to book reading vs. buying them? For many people, reading is not ‘real’ unless the own what they read, for future reference. And oftentimes this means paper books, not digital.
Lorenzo – I wouldn’t get too hung up on the ownership factor. The music industry used to think that too. In fact the case for ownership for music is even stronger as you typically go back and listen to a piece of music many times while a book will only be read once or twice in most instances.
Platoonis – the ad supported category warrants a whole different level of assessment. It has been one of the most contentious aspects of the subscription argument for music. It exists as a marketing funnel for the paid tiers but has the unfortunate effect of educating many consumers that content should be free.
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