On January 15, 2015, big 5 publisher Macmillan announced a partnership with two ebook subscription services, Oyster and Scribd. The addition of Macmillan to libraries that already include big 5 publishers HarperCollins and Simon & Schuster pushes Oyster’s ebook count to 1 million, and Scribd’s to half a million (Plaugic). Both Oyster and Scribd continue to add titles rapidly, with Scribd adding publishers at a rate of almost one per day (McCracken). With the recent successes of streaming technologies such as Netflix and Spotify, critics can’t help but wonder how the emergence of such services will affect the book industry as we know it. It will surely affect Amazon, with Kindle Unlimited attempting (and failing) at attracting big 5 publishers (McCracken). It also impacts self-published authors, particularly those published through Amazon who have been forced into Kindle Unlimited (Mitroff). But the most interesting impact to discuss is how the emergence of services such as Oyster and Scribd will affect those they are slowing allying with – traditional publishing houses that find, publish, and market authors. This paper will discuss the business models of such services, the impacts the services will have on the industry, and who exactly has the power to control how these services move forward.
The business model of Scribd and Oyster is relatively simple. Each pays 80% of a book’s cover price to the publisher, once the book qualifies as “read”. “Read” means the user has read at least 10% of the book (Shatzkin). Oyster CEO Eric Stromberg said in summer 2014 that since launching, Oyster has “brought in more revenue from paying subscribers than we’ve paid out on those subscribers each month”, meaning the $9.99 per month model seems to be affording more than the costs of each user’s reading habits (Deahl). Trip Adler, the CEO of Scribd, explains the model by saying, “When somebody reads a book, we pay a publisher as if they sold the book. We have a fairly complicated system to determine if a consumer actually has read the book. The amount the publisher gets is based on the digital list price,” from which we can assume means a very similar model is used by both services (Coker). What’s worth noting is that these fees typically total the same amount that publishers would receive for a single ebook download, meaning there’s no better or worse payment for ebooks between single sales and subscription models for publishers (Economist). However, these financials are not so easy to validate from Oyster’s or Scribd’s perspective. According to Mark Coker of Smashwords, there is a perfect equilibrium of users that must be maintained for the subscription models to succeed.
“If the subscription services sign up millions of people who never read, they’ll earn high profits but will disappoint publishers. Disappointed publishers will bail and subscribers will cancel. If the subscription services sign up too many power-readers, they’ll go out of business, thereby denying readers and publishers the benefit of their service. If the services can strike the right Goldilocks balance of serving readers, publishers and their own business interests, they have the opportunity to build the next generation of successful ebook purveyors.”
If the subscription models of Spotify and Netflix are any indication, that Goldilocks balance will eventually be found, and both Oyster and Scribd will profit greatly from it.
The initial response to ebook subscription services was that such services will kill the book industry. This too was the concern surrounding Spotify, the music streaming app, when it debuted (Wessel). Maxwell Wessel theorized in 2011 that “over time [music subscription services] will displace iTunes,” and wrote that despite Spotify’s lesser library, the convenience and cost-effectiveness of the service would prevail over iTunes. Three years later, Forbes reported Spotify had reached 10 million paying customers, which equals $1.2 billion in subscription revenue (Bertoni). At this scale, it’s easy to see how lucrative Scribd and Oyster could eventually become, despite not having near that number of paying customers currently (Griffith). The difference between these two cases is that iTunes doesn’t hold the power behind Spotify. They really don’t have any control over that system. In the case of publishing and ebook subscriptions, the publishers do have the power. By enabling yet another mammoth technology company access to a cut of the revenue from their own products, the big 5 are willingly allowing Scribd and Oyster the opportunity to completely revolutionize the book industry as they know it.
But what about Netflix? Is it really killing cable TV? The answer, according to Business Insider, in a resounding yes. In an ironic twist, their video “How The Netflix Model is Poised To Destroy Traditional TV” actually uses books as an example for how people want to consume content. Silverstein says,
“Imagine you wanted to read a new book. But you can’t just pick up the book any time you want. You can only read that book on Wednesdays from 8-9 pm. You would be outraged. Because it makes no sense.”
She goes on to explain that consumers want the flexibility of consuming content at their leisure, which is why PVR and other technology is has been successful thus far. She calls out Netflix as being the most disruptive application. With 11 million new subscribers in the last three years alone, Netflix is expected to hit 100 million worldwide users by 2017 (Silverstein). However, she notes that control of the content is key, just as with Oyster and Scribd. She says cable will die, and as time goes on, networks “might be able to hold on to the video-on-demand audience, but that’s only if they can keep control of the content.” Big name content providers like HBO, CBS, and Showtime aren’t joining Netflix – they’re launching their own streaming services, which is what the big 5 should be doing to take advantage of this new revenue stream.
HarperCollins, Simon & Schuster, and Macmillan have already signed up with Oyster and Scribd, and Hachette likely doesn’t have the resources or the library to strike out on their own. But there is an opportunity for super-publisher, Penguin Random House, to compete in the digital sector and begin its own ebook subscription service. As Mike Shatzkin has theorized several times, “only [Penguin Random House] could possibly deliver a general subscription offer on their own”, as they have the breadth of titles and arguably the only truly branded publisher name, Penguin (Shatzkin). The immediate response to this suggestion has been that Penguin Random House has no desire “to turn $1000 a year book customers into $100 a year book customers” (Shatzkin). However, what if those “$1000 a year book customers” stop spending so heavily? Then will the model become more appealing? What about the success of Scribd and Oyster? Their libraries and user numbers increase daily (McCracken). Shatzkin also hypothesizes that perhaps Penguin Random House’s refusal to join Scribd or Oyster will stop the service from reaching viability – however, as time goes on, this begins to look like a losing battle. As Shatzkin says, “How long can publishers refuse to participate in revenue opportunities for their books and authors?” This may offer a unique opportunity for Penguin Random House, the biggest big 5 publisher, to jump into the technology game, and reap the benefits of this new platform and a potential new group of readers, without splitting the profits with a third party.
Regardless of apparent successes of Oyster and Scribd, the biggest concern for publishers in the subscription model is the notorious Amazon. With all of the big 5 holding out against Amazon Kindle Unlimited, it seems the publishers agree. This resistance continues to prevent Amazon from getting a hold on the subscription model. Kindle Unlimited offers over 600,000 titles, but the vast majority of them are from Kindle Direct Publishing, which means they are from self-published authors (Mitroff). As Shatzkin points out, it’s easy for Amazon to remain in the subscription business as a way to retain customer loyalty, since they already have the ebooks and the platform. In typical Amazon fashion, the service is focused on the customer – giving readers as much as possible for the lowest price, with little regard for publisher revenue (Statt). The big 5 are smart to restrict Amazon from gathering any more market share through Kindle Unlimited, as it’s been estimated that Amazon already holds 65 percent of the digital book market (Statt). It’s up to the decisions of the big 5 to prevent ebook subscription services from becoming another huge department within the monopsony that is Amazon.
There are many possible implications of book subscription models, which of course cannot be predicted with certainty. However, it is simple to see the potential of these services – depending on the agreements made between the subscription services, and the publishing houses they need to make their businesses work. According to The Verge, Macmillan’s move to join Oyster and Scribd could mark a turn of events for the success of book subscription services. Just as Netflix and Spotify have changed how consumers watch movies and listen to music, having three of the big 5 on board with the subscription model may mark a major change in how people read books (Plaugic). Considering that Oyster and Scribd are still small in terms of subscription numbers, it’s fair to say that this is still anyone’s game – and the power, whether they realize it or not, lies with the big 5 publishers who still largely cling to their traditional publishing methods.
Bertoni, Steven. “Spotify Sees Jump In Paying Customers With 10 Million Premium Subscribers.” Forbes., 21 May 2014. Web. January 2015.
Coker, Mark. “Examining the Business Model of Ebook Subscriptions Services (Part I).” Smashwords., 29 October 2013. Web. January 2015.
Deahl, Rachel. “Spotlight Falls on E-book Subscription Services.” Publishers Weekly., 25 July 2014. Web. January 2015.
Economist. “Spotify for books.” 24 January 2015. Web. January 2015.
Griffith, Erin. “Simon & Schuster goes digital as two startups score a ‘Big Five’ publisher.” Fortune., 21 May 2014. Web. January 2015.
Mitroff, Sarah. “Amazon Kindle Unlimited vs. Scribd vs. Oyster: Ebook subscriptions battle it out.” CNET., 2 October 2014. Web. January 2014.
McCracken, Harry. “Scribd takes on Amazon’s Audible with All-You-Can-Listen Audiobooks.” Fast Company., 6 November 2014. Web. January 2015.
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Shatzkin, Mike. “Subscriptions are in the news this week.” The Shatzkin Files., 24 July 2014. Web. January 2015.
Silverstein, Sarah, and Alex Kuzoian. “How The Netflix Model is Poised To Destroy Traditional TV.” Video. Business Insider., 4 December 2014. Web. January 2015.
Statt, Nick. “Kindle Unlimited: Good for customers, not so good for authors?” CNET., 19 July 2014. Web. January 2015.
Wessel, Maxwell. “Why Spotify Will Kill iTunes.” Harvard Business Review., 22 July 2011. Web. January 2015.