Revenue Share vs. Breakage: Calculating the Publisher's Cut in Subscription Services
Andrew Brenneman, founder of Finitiv.
The aggregator in this model assumes significant risk. In a scenario in which most subscribers furiously read up to 10% of many, many titles, the publisher payouts may well exceed total subscription revenues raised. On the other hand, if subscribers to such services are truly "casual" readers and stay safely below the threshold, then the aggregator would end up paying few publisher bounties and generating a very healthy margin.
While the Breakage Model represents a brave, iconoclastic approach to revenue share, it sets the interests of the publisher at odds with those of the distributor. Publishers will desire the user experience of such services to facilitate immersive reading, at least to the point that the reader reaches the 10% threshold. The service provider on the other hand is incented to create an experience that engages and retains the subscriber within the service, but not necessarily immersed within any one title. It will be easy for the aggregator to shape the experience to drive more title-hopping.
The models could not be less alike. If the Subscription Share is akin to a business partnership, then the Breakage Model is more like a casino, with the players (the publishers) trying their skill and luck against the house (the aggregator).
It is far too early to say whether one of these models will come to dominate the field or whether they can peacefully co-exist. One truism that has emerged time and time again, as we enter the adolescence of digital publishing, is that it is exceedingly difficult to make any generalities across all publishing market segments. Each market segment requires solutions that take into considerations its unique characteristics. For this reason, we may well see both of these models -- and others -- continue to be used to support the varying needs of different market segments as the subscription economy evolves.