Decoding the Subscription Economy
The industry is abuzz with talk of ebook subscriptions. Media reports regale the emerging subscription platforms as the "Netflix of books" and a boon for consumers, while industry pundits view the subscription model more cautiously, wary of the potential cannibalization of publishers' retail sales.
Though a well-trod conversation has emerged, actual insight on the worth of subscription models has eluded publishers. In hopes of beginning to fill this knowledge gap, the Book Industry Study Group (BISG) conducted its latest study, Digital Books And The New Subscription Economy. The study presents findings on how publishers regard new subscription models, the utility of subscription across various publishing segments, and the advantages and disadvantages of subscription.Published in July, the study combines extensive background research, over 50 publisher interviews, and an online survey that reached publishers from trade, scholarly, professional, and higher education segments. Below Nadine Vasallo, project manager of research and information at BISG outlines the study's most pertinent findings and explores the trends found within different publishing segments.
What were some of the findings that jumped out after conducting the study?
The biggest thing was that pretty much unanimously, across every group we surveyed, publishers agreed that subscription will inevitably play a major role in their business over the next five years. They almost unanimously agreed that that would have a positive impact on their business as well. That was encouraging to see. There were of course some common points of concern in each segment.
What are some of the advantages and disadvantages publishers perceive in the subscription model?
The most identified benefit was the ability to reach current customers in new ways or to reach new customers who aren't currently reading their books. Publishers identify subscription as "found money," particularly for backlist titles that aren't selling well. Publishers think that they will see revenue they otherwise wouldn't by putting those titles on a subscription service.
Another benefit-especially if you are working with a subscription aggregator or a big subscription service-is that publishers can collect a lot of data on customer usage habits through subscription.
The major disadvantages and concerns amongst the publishers we surveyed were: customers' preference for ownership, difficulties marketing directly to customers, operational difficulties (such as processing royalty payments), and the possible cannibalization of print or digital one-time sales.
Did you notice any trends within the segments that you surveyed?
Subscription is lagging behind the most in the trade sector. One of the questions we asked was, "How are ebook subscriptions impacting your organization's revenue?" We found amongst trade publishers, only 7% said they are seeing significant revenue at this point.
On the other hand, 27% of scholarly publishers said that they are already seeing significant revenue selling subscriptions into libraries. In the higher ed space 33% said they are seeing revenue, mostly from selling to universities things like integrated learning systems, which offer ebook collections, assessments, and interactive features. They are moving more toward seeing themselves as software companies as opposed to just publishers.
What strategies are publishers pursuing to implement subscription models?
The main question we asked there was whether they would be likely to work with something like an aggregator or a subscription service like Oyster or Safari, or whether they would sell ebook subscriptions directly to customers. We saw a split. Most of the professional publishers that we talked to indicated that they have really strong direct-to-consumer sales relationships and most of them would continue that model if they moved toward subscription. They would be likely to create their own subscription service with their content and sell that directly to their customers.
Amongst trade publishers, there seemed to be agreement that they would much more likely work with some kind of service provider to get their content into a larger collection. For example, HarperCollins has been doing a lot of this. They made agreements with Oyster, Scribd, Epic, and Entitle. Amongst trade, those who will get into subscription will likely follow that model. They generally don't have enough titles or enough direct contact with customers to launch anything of their own.
Do you have a sense of how many publishers are using subscription models?
As far as the percentage of the market that subscription holds, I think it is very small. It is hard to get a very clear sense of it. We did see overall about 60% of publishers surveyed said that they have made some amount of their digital book content available through aggregators or subscription services, which is higher than I thought it would be.
What are the different types of subscription models BISG identified in its research?
We identified a number of access models. We've displayed this in the study as a pyramid graph. As you move up the pyramid you move from a large open access collection into things like collections that are behind a paywall, like Netflix or The New York Times. The third level of the pyramid contains models like pay-per-view, where users can choose certain titles out of a collection. The top level of the pyramid is purchase. As you move up, you are seeing increased revenue per title sold, but as you move down you are seeing decreased friction and a wider range of access for the consumer.
One of the interesting things that came up was that publishers could use all four of these models through windowing. You see this happening in the movie industry. First the movie is just in the theater, and then you can buy the DVD. Then you can get it on demand or rent it eventually from Netflix. This is not dissimilar from how publishers release a hardcover title first, then the paperback a year or two down the road. Windowing is something publishers would be more comfortable and familiar with, and if they can figure out a way to adapt that sort of strategy to these access models, it might work well.
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