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Netflix for Ebooks or Spotify for Ebooks?

9 September 2013

From Digital Book World:

Launching an all-you-can-eat access model for ebooks is tough as nails. After all the economics for ebook subscription services are pretty sobering.

New York City start-up Oyster launched its take on the “all-you-can-eat” ebook business model this week. It’s team of eight engineers has put together a slick iPhone app with $3 million in funding from some top technology investors and they have spent a year worth of time trying to figure out the best user experience.

Oyster has also secured some decent content. Most of the big-five are missing, but so what — they have some well-known titles from Harper Collins and other leading publishers.

They got two things right:

– They focused more on back-list rather than recent best-sellers which makes the economics much more appealing for publishers
– They chose a price point low enough at $9.99 per month to be taken seriously by consumers (though many have pointed out that this is higher than the $8.99 Netflix charges)

. . . .

Oyster is of course getting compared to Spotify (music) and Netflix (movies), but the interesting aspect is that these two companies are very, very different role models for Oyster and the book publishing industry in general.

Spotify offers you unlimited access to almost any music single or album you might possibly want. There are some gaps and hold-outs and some singles arrive with a few weeks delay, but overall it is a pretty complete catalog.

Pulling the same stunt in ebook is going to be near impossible. Record labels have embraced Spotify because it makes money from consumers in their teens and tweens who would otherwise take to pirated content. In other words the music industry is financially better off.

In publishing the consumers likely to take up a “Spotify for ebooks” are much older and predominantly female and they spend more than $9.99 a month on books while not pirating anywhere close to the account that a music obsessed teenager would. Thus most publishers would make less money under this model.

. . . .

Netflix on the other hand is (now) quite a different kind of business. It started out as the equivalent of a public circulation library exploiting the “first sale” doctrine, which says once you own a book or DVD, you can do with it what you want, including lending it out. Its DVD-by-mail business has been a huge success, but the shift to digital distribution changed all that. Now the content owners can demand extra compensation for the right to lend their content or can prohibit their content being “rented out” altogether. The legal framework for digitally distributing content is very different to physical distribution (note that the content on DVDs is actually digital, but that doesn’t matter — it is the physical format/distribution that matters). It’s the Internet, stupid!

Thus Netflix has evolved away from a “get any movie you want” model to a proposition of in-house-created premium content, complemented with “long-tail” content of TV shows and old movies. Note the huge gaps in its digital streaming catalog.

Many have commented on how Netflix is becoming more like HBO.

Link to the rest at Digital Book World

Ebook Subscriptions

24 Comments to “Netflix for Ebooks or Spotify for Ebooks?”

  1. I am very worried about this model. Here’s what happened in stock photography: when microstock agencies (stock agencies are distributors – they sell photos – and photographers provide content for them) arrived, there was much excitement about their business model: the photographs would be cheap and photographers would get a much lower royalty rate (i.e., peanuts) than at macrostock agencies but that would be made up for by volume of sales. What really happened was that within a few years the microstock agencies were thriving but the bottom fell out of the market for the contributors: for many (for most, I’d say), the volume of sales never made up for the low rates and the macrostock agencies could not compete on price. So the macrostock agencies cut their royalty rates (Getty used to pay 50%, then 40%, now it’s I think 20%, or 15% if you go via Flickr; Alamy went from 70% to 60% to 50% and coupled that with drastic discounting of images), then microstock agencies cut their already low royalty rates, and now it’s next to impossible to earn your living doing just stock.

    The most worrying thing in this context is the devaluation of photographs in the eyes of the buyers. (Substitute “books” for “photographs” in the following.) Most buyers expect *all* photographs to be cheap, no matter how much effort and money it cost to produce them. That’s why both micros and macros are further cutting prices and those who take most of the beating are the suppliers. I can all too easily imagine a future where (e-)books go the same way and where distributors will race to slash contributor rates to next to nothing. (NB many of those supplying the stock agencies are in fact not even covering their expenses, because they are happy to have their photographs in print. Does that ring a bell?)

    • I’m sorry for them, but grateful because I can’t afford $100s per cover photo right now. It sucks. Hopefully one day I’ll be able to pay them more.

      There was an article similar to your comment. Two photographers in the same newspaper issue: one got a $1000, the other 60 cents, and all because they sought work in very different ways. You get what you ask for/demand. That’s why I’m not joining Oyster.

      You’re right. Higher royalties help us earn a living. We can’t go backwards. I know some readers don’t have a lot of money, but we’ve all got bills to pay.

      • “You get what you ask for”

        Not really, I’m afraid. Big distributors have clout. Most customers go to big distributors first and suppliers of the distributors have *no* power to demand fairer pay (remember the issue is the royalty cut the suppliers get, not (just) the price at which the photo is sold) – because there are a lot more suppliers who will happily settle for peanuts. So if enough authors do go with cut-rate distributors, it’ll eventually undercut the market for those authors who don’t.

    • One doesn’t have to imagine a future where the suppliers of fiction, i.e. the writers, get their rates slashed. Just look at the royalties paid by traditional publishers, and who’s advances to authors have been cut time and time again in recent years.
      And this is not new. In the world of magazines, those that are still left are paying the same rate per word as writers were getting in the 1960′s.

      • Yes indeed, what’s new is that this new development will also affect indies.

        • Only if they put their books in that distribution program. I’ve a feeling it’s going to be more a case of Netflix than Spotify.

          • I wish. But if the perceived value of books (that are in the distribution) drops to nearly zero because of this, all books will be affected.

            • Despite a gazillion free books, that hasn’t happened yet, and I don’t think it will.

              Subscription book services have a long history in romance subscriptions, book clubs, etc. and they are a different market with some overlaps. Additionally, as long as readers have favorite authors not in the program, they will continue to buy the books they want outside of that program. I went with a music subscription service with a good selection for a few months, but I kept on buying the songs I wanted that weren’t in that service.

              • I do hope you are right. I would say the difference is the size of the free/subscription pool, though. If the pool is very large, a critical mass of readers may begin to expect books to be unsustainably priced across the board. (And why shouldn’t they if the offers are there, of course!) Then it will be very difficult to sell books at a sustainable price and most distributors may well in time decrease authors’ cuts so as to protect/increase their own revenue.

  2. I know that this has been asked elsewhere, but have they provided any transparency yet on the royalty rates and/or agency agreements that are being made to distribute the content?

    As long as authors are being given their fair deal, I think it’s a good idea and it has its place. Unfortunately, I think that is far from likely given the subscription rate of $9.99 plus all the middlemen taking their cut.

    In essence it seems as if you (the author) would end up paying your publisher to publish your book elsewhere. I don’t see what role or benefit a traditional publisher brings to the table in this instance at all. You can only shave a penny so fine.

    A great idea if you’re going to directly contribute your backlist however.

  3. I have the same question as Alexandra – do we know the terms yet?

    As for subscription books, I don’t know if it will work. I usually want to read a specific title.

    However, I think this one is coming (obviously) regardless, and we’ll see if it does work.

    • I’ll reply to myself to add something.

      There is a real plus to this for authors in terms of discoverability.

      However, there is a real potential downside to indies. They are being invited in, right now, but I can envision scenarios where people try to control and/or block indies through something like this.

      • “They are being invited in, right now, but I can envision scenarios where people try to control and/or block indies through something like this.”

        It’ll happen when the big 5 buy into the business – if they haven’t already. Major music labels did it on spotify. Suddenly indies faded from the home page.

        • @ Zhane – exactly.

          There are some protections for writers here. I could be wrong, but I think it’s harder to write a good book than a song (hope I’m not offending anyone. It’s just that books tend to be hundreds of pages, etc.). So, it may be more difficult for them to keep indies out, because people may want to read their books – I think indie authors have more access to the market through social media and Amazon than musicians.

          But I’m sure that won’t stop the Big 5 from trying to block indies and playing games with it.

          It’s something to think about….

          It was smart of Coker to jump on this for Smashwords.

  4. I don’t see how a monthly book subscription is going to fly. Unlike music, movies and television shows, books are not consumed in one sitting. As a consumer it’s not going to feel like a bargain unless I consume a lot… accessing and reading the whole trilogy. Alternatively, if I find myself watching too many television shows getting my books read on time is going to feel like homework.

    • I would guess you’re not the frequent reader market they’re trying to tap. I still read a dozen books a month when I have the material. When I have the time, I read more.

      • That brings up the question…what is the average number of books read per month. I try to read at least two. Right now I’m enjoying Wolf Hall which is relatively big.

        • I usually fly through 250 pg./day so it depends for me on how many days I have and how much to read.

          • And do you think your consumption is typical for the average book reader?

            Spotify and Netflix are profitable because they have a lot of subscribers who can take advantage of their products while washing dishes and ironing. Because they can use these services frequently, without a great commitment, they are willing to pay a reasonable fee for subscription. I have my doubts about actual books.

            Audio books might work.My husband likes to listen to books while he walks to work.

            • I think it’s typical for an average frequent reader. There are voracious readers (I’m one), “average” book readers (you’re one), and bestseller/research-only readers (most people).

              A subscription service like this is aimed toward voracious readers, most of which make my consumption rate look piddling. These are mostly readers who inhale 40–60 books/month. Ever since I’ve focused more on writing, my reading consumption is severely down.

              • I suspect this kind of service is targeted at “average” readers–people who might read 2-3 books a month, and maybe an extra if they had it conveniently on tap. By setting up a subscription, they get a set amount of money every month from those readers, and authors get a bit more exposure than they would have otherwise. Readers get the comfort of knowing they’re not losing anything by picking up a book they may not care for; authors get tried by readers who otherwise wouldn’t have read them; middleman company gets a slice of reading dollars on regular basis. Everyone gets a little something they want.

                For voracious readers, especially those who already spend more than $10/month on reading material, they’d lose money. This kind of plan doesn’t work if the majority of the readers are reading $100-$500 “worth” of ebooks (depending on how one counts that) for their $10 monthly fee. Authors want someone to try out their books; they don’t want readers to read the whole series “for free.” (Author royalties are one of the sticking points for this kind of service.) If the author gets paid full standard royalties, the middleman-service is losing money hand over fist from the voracious readers. If the service costs more the more you use it, voracious readers have no reason to bother with it–or not much, beyond the amount they’re certain they’d read and pay for anyway.

                I have my doubts about the success possibilities of the service. Publishers have never liked to acknowledge how many voracious readers weren’t paying list price for everything they read, and this business model seems to be built on that blind spot.

                • Actually I’m fairly certain that voracious readers are why they won’t have a problem tapping a market. N. Scott didn’t understand how it appeals. They are the reason it appeals.

                  Voracious readers don’t necessarily spend that much. Most can’t and libraries and loans from friends are awesome things, not to mention the bargain bin.

                  Additionally, voracious means they don’t have a problem getting a subscription AND still purchasing/procuring books outside of the subscription at the same time, addressing the devaluation issue.

                  What makes it commercially viable is the average readers who will underutilize the service and thus pay for those the service is designed to serve so perfectly.

                  • I agree with you when you say that the average reader will underutilize this service. My point has been that as a consumer of 2-3 books/month, average as you have defined it, THIS is why the service does not appeal to me. I don’t see myself getting good use of it. Of course, I don’t claim to represent everyone.

                    The average cost of a book I read is generally more than $9.99 (new), a lot of the books in my pile are second hand and only cost me $3. If I didn’t have a backlog of books perhaps, for current releases, I’d be interested in the subscription. That would mean that this service would have to offer some very enticing books.

                    • Which is why I suggested they’re going for the premium content model in the long run.

                      In short, addressing your point was my theory that the service itself is aimed at voracious readers, NOT average readers. Addressing Elf’s point was that financials take into account average readers and I agree with yours and have stated the same elsewhere, that they’re going to use content offerings and a good selection to grab some of that market.

                      They need to appeal to a spectrum, but the service’s appeal isn’t to the reader that you describe yourself as: it’s to the bookworm.

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