Netflix for Ebooks or Spotify for Ebooks? Spot the Difference!

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

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.

Learn more about the next big thing at DBW’s latest conference, the Digital Book World Marketing + Publishing Services Conference & Expo. Register today!

13 thoughts on “Netflix for Ebooks or Spotify for Ebooks? Spot the Difference!

  1. Robert Child

    Andrew,

    Oyster is definitely NOT like Netflix.

    I am a long time filmmaker and television producer and had gotten healthy royalties from DVD sales of my films until the DVD market tanked in 2007-2008. What many folks do not know about the Netflix model is that they “buy” or license a show ONCE and resell it thousands and thousands of times over (the first sale doctrine – as you mention) and the producer does not see a penny – nothing. And now that they have evolved to streaming they have kept this business model and practice which slams independent producers. In recent years I held my films back from Netflix in favor of Hulu and Hulu should really be more the model for a book subscription site. Producers who have their shows and films on Hulu share in the ad revenue as well as the subscription fees of the users and receive 50% of the gross revenue of sales aka “views” of their programs or films. I don’t know all the details of Oyster but at least the author is being compensated for people actually reading their book. Imagine if it were a model like Netflix where Oyster paid you, the author, say $50 and lent the book out thousands of times.

    Reply
  2. Alexandra Lynwood

    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.

    Reply
    1. Andrew Rhomberg

      Nothing has been shared – publicly or privately – by Oyster as to how their business model works.

      It is very, very unlikely to be the Overdrive model, where the service acquires books like a lending library and lends them out one at a time.

      It is probably based on revenue sharing. Looking at music something like 50-70% of subscription revenue is shared with content providers. The question then is how that “royalty pot” gets divided.

      Spanish ebook subscription service 24Symbols, divides the pot based on pages viewed. How many pages from one title were viewed by all readers divided by the total number of all pages viewed is your share of the pot.

      The limit on how books you can download to your Oyster app (10) hints at a download based model for Oyster, but we don’t know for sure and there are a number of variations how they may be counting this: simply downloads or for how many months the download was present in a user’s app, etc.

      What’s reasonable certain is that you essentially get paid less in the case of a voracious reader compared to a casual reader, because they both pays the same, thus for the voracious reader the pot is distributed more widely making each authors slice thinner.

      Hope this hellps.

      Reply
    2. Andrew Rhomberg

      Nothing has been shared – publicly or privately – by Oyster as to how their business model works.

      It is very unlikely though to be the Overdrive model, where the service acquires books like a lending library and lends them out one at a time.

      It is probably based on revenue sharing. Looking at music something like 50-70% of subscription revenue is shared with content providers. The question then is how that “royalty pot” gets divided.

      Spanish ebook subscription service 24Symbols, divides the pot based on pages viewed. How many pages from one title were viewed by all readers divided by the total number of all pages viewed is your share of the pot.

      The limit on how many books you can download to your Oyster app (10) hints at a download based model for Oyster, but we don’t know for sure and there are a number of variations how they may be counting this: simply downloads or for how many months the download was present in a user’s app, etc.

      What’s reasonable certain is that you essentially get paid less in the case of a voracious reader compared to a casual reader, because they both pays the same, thus for the voracious reader the pot is distributed more widely making each authors slice thinner.

      Reply
  3. Jakob Harden

    Hi Andrew and others
    An ‘all you can eat’ subscription model was launched in Denmark July 2nd 2013 under the name Mofibo.
    The monthly payment by the reader is 99 Dkr. (approximately 17 USD). Mofibo has their main focus on backlist titles, but in their attempt to gain new subscribers they also have a number of new titles. All the major publishers have made a deal with Mofibo. At the moment it looks more like a Netflix model than a Spotify model.
    Jakob Harden, JP/Politiken Publishers

    Reply
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