Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.
I must say I was quite surprised when I read Andrew Rhomberg’s article at Digital Book World talking about the economics of a subscription service for ebooks. I hold Andrew in high esteem and we’ve had the chance to spend some time discussing about publishing and startups in different cities around Europe. In fact, I disagreed so much with the post that I needed to read it a few times just in case I was the one missing the point.
Summarizing, Andrew starts by showing survey data about how UK readers would react to a subscription service. Basically, they’d go for it, but paying what people are already used to doing at other subscription services, like Spotify or Netflix. Quite intuitive, but it’s good to see surveys supporting it. Andrew then does some math to apparently show that no subscription service with those prices can ever be accepted by publishers nor authors as it would go against their interest. He shows how a Big Six publisher (a big publisher from UK or US) would not make much money from those consumers. And how a small publisher would make even less.
I fully disagree with how the math leads to the conclusions, and this is my respectful response. As a disclaimer, I am co-founder of 24symbols, a freemium-based subscription service for ebooks. But my analysis, except for a specific piece mentioned below, is agnostic with respect to specific business models.
The discussion about the numbers stops short. Andrew says 0.48 pounds out of the 5 paid by the consumer would go to a Big Six publisher having a 15% share.
That’s fair. But that’s only part of the equation.
What does it mean for a monthly reader to read “15%” out of a publisher? From 24symbols standpoint (but the rest of the example will be mainly agnostic), that means that 15% of the pages read come from books of that publisher. Let’s say the subscription service reaches a price paid to the publisher of of 0.01 EUR/page read. In order to achieve this, and based on the numbers provided by Andrew (subscription price), the average number of pages read by a user to reach that magic number is around 315 (315 pages in 24symbols are actual 240 pages in “real books”, which is about the size of 1.5/2 books).
Following the same numbers Andrew states in his article, the average price of a book in EUR would be 8, which, after discounting 30% of VAT and retail price gives a net revenue to the publisher of 5.6 EUR (I would say the net price would be lower due to some other potential discounts, but let’s just take it like that). With this, and taking an average book size of 200 pages (260 pages for 24symbols), the price per page is 0.021 EUR.
Yes, the price per page is bigger than in the subscription service *for this simulation*. But take into account that
1. The price per page will go up as the number of readers grow;
2. A subscription service binds the reader much stronger than any other type of service, which leads to a bigger lifetime value of their users, which is good for EVERYONE;
3. A subscription service like 24s provides additional readers that would NEVER buy a book; either because they just want to browse a little (and every page view means money for the publisher) or because they would’ve gone to the library. If you talk about cannibalization, talk about this as well; and
4. A subscription service provides other benefits, like being a great discovery tool, a marketing platform, and, in our case, a real-time stats dashboard for publishers to better understand where they stand.
Going back to the beginning of this message, the small publisher with a 1% share means that the subscription service consumers are reading 3.15 pages of that publisher per month per user. With one million subscribers, they are reading 3.15M pages a month, or 12,115 books a month. Not bad for a small publisher in terms of visibility and revenue, isn’t it?
So yes, I think it is a serious commercial proposition. So yes, let’s agree that this requires a mid-term bet from the publishers. So yes, let’s discuss about the economics of a subscription service.