Revenue Share vs. Breakage: Calculating the Publisher's Cut in Subscription Services
Andrew Brenneman, founder of Finitiv.
The Subscription Revenue Share Model
A straightforward approach used by a number of aggregation services, such as Safari, the Subscription Share Model is an extension of the traditional revenue share between publisher and distributor. In the case of aggregation services however, the revenue is further split among a large number of publishers. For example, if the subscription service provider were to take 40% of revenue, the remaining 60% must be further divided across all of the participating publishers. The split among the various publishers may be based on percentage of page views or percentage of titles to which the subscriber is given access. In either case, if there are a large number of publishers participating, each with a large number of books, then the percentages that result for each book could become very, very small.
The Breakage Model
In an effort to entice the participation of publishers who have been unimpressed by the Subscription Share Model's sometimes-paltry payouts, newer subscription aggregation programs have forwarded a radically different revenue share approach. In the so-called Breakage Model, the aggregator will pay the publisher the wholesale price for the title once the customer has read beyond a specified percentage of the book typically between 10% and 40%.
S&S CEO Carolyn Reidy, in a letter to agents announcing her house's participation in these programs, suggests that authors make even more money on these sales than they do on normal sales However, it is an all-or-nothing cliff based on that percentage. If the reader only accesses 9% of the book? Sorry, no cigar, no publisher share.
This offers more potential upside to the publisher. If publishers feel their title is engaging and can get the reader past that 10% mark, then they can make the equivalent of an ebook sale. This promise has assisted Oyster's impressive achievement of getting 500,000 titles into their subscription program.