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)
On the downside, it’s iPhone only (a safe choice to check if consumers take to your idea before spending lots of money on building Android, Windows Phone, Blackberry, Kindle Fire or other versions) and U.S. only (territoriality presumably getting in the way).
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. In other word, trade publishing revenues as a whole would contract. This instantly explains the huge reluctance of major publishers to embrace these services. And for the very same economic reasons publishers are also very cautious in how they make ebooks available to public circulation libraries.
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. It has just enough unique content that consumers must have a subscription, but it does not have everything, so you still keep buying latest releases or keep a cable subscription.
I think Netflix is a much better guide to the future of an “access model” in publishing. Services like Oyster may evolve to being like Netflix with killer content developed in-house, maybe in association with Wattpad (see the Sourcebooks alliance) and a limited catalog.
The Spotify for books model on the other hand is being strangulated by big publishers and they will probably give “Spotify for ebooks” start-ups no oxygen to breathe. The Netflix/HBO model on the other hand is attractive to them for monetizing their back catalog (anything 6-to-12 months old and beyond) or special verticals, like children’s books, where it is the parents and not the consumers (children) who pay the monthly fee.
Whatever the outcome tough, expect Amazon to watch any development with eagle eyes and swoop in and attempt to extinguish any start-up with its sharp talons. I see no case of the “innovator’s dilemma” for Amazon when it comes to “Netflix for ebooks” service.
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