Coming Unbundled: Media Companies Continue to Adopt Direct-to-Consumer Subscription Models
When I began writing this column six-and-a-half years ago, the industry was embarking upon a period of transformation. It was clear that content delivery revenue models would be undergoing unprecedented change. What was not clear was exactly what these models would turn out to be. Some recent events have shed light on the nature of the sustainable revenue models for the future of media delivery.
Publishing news in the first half of 2014 was dominated by one word: subscription. Subscription-based digital trade book delivery models were announced with much fanfare from Oyster, Entitle, and many others. Such services put book publishing squarely in the digital "subscription economy" along with Netflix, Pandora, and Hulu. In point of fact, book publishers have participated in the institutional subscription market for some time through aggregators that provided a channel into the library market. Nevertheless, 2014 will be remembered in the annals of publishing history as the year in which book publishers acknowledged the fact that many of their customers wish to receive book content via subscription services.
More recent news, which was somewhat unanticipated (by me at least), reveals further characteristics of emerging media models. This news did not come from book publishing directly, yet I feel it has relevance to the business of books. Long considered the jewel in the cable industry's crown, HBO announced that beginning in the first half of 2015 customers will be able to buy standalone streaming service directly from HBO. Consumers will no longer be forced to subscribe to a whole bundle of channels they do not want (and might not be able to afford) in order to see The Leftovers.
For some time, consumers had access to HBO content on mobile devices via the HBO-only HBO GO app. However, the news was somewhat surprising given the conflict this will create with HBO's primary distribution channel, the cable providers. HBO's move was a direct response to services such as Hulu and Netflix, which gave HBO more than a little pause with breakaway hits like House of Cards, Orange Is the New Black, and Transparent. As consumers increasingly sever ties with cable providers, HBO moved to sell directly to these "tether-less" customers.
The truly surprising news was that, one day after the HBO announcement, CBS announced it too would soon be launching standalone subscription services sold directly to customers. CBS's move underscores the fact that we will continue to experience fundamental changes in content delivery business models.
This disintermediation is made possible by consumers' internet services, which usually have bandwidth sufficient to stream or download video programming.
A dedicated effort on the part of HBO and CBS will be required to support these new models, and it will not come without pain. (In October HBO announced a 7% layoff of its workforce.) However, the strategic and financial benefits are significant. It will enable:
- Sales and delivery of content to customers for whom cable content bundles are too expensive, increasing market reach.
- Control over pricing.
- Direct marketing relationship with the customer.
- More detailed usage data, providing clarity on consumer demand.
The benefits of disintermediation also apply to book publishing. Control over pricing and a direct marketing relationship with customers are critical tools for supporting sustainable revenue streams. Book publishers must assess their opportunities to deliver their goods direct-to-customer and to pursue such opportunities with verve.
A common refrain from book publishers is that in order to sell content, they must depend upon channel partners, such as Amazon, Apple, Safari, and Oyster, to improve product discovery. That may be the case for many, but some organizations will have the option to offer direct services.
The ability to go direct hinges on the brand value of the publisher. HBO was able to move toward a "stand-alone" model because its brand had sufficient equity to create a direct relationship with customers. In the past, book-publishing companies generally have not put a priority on developing their brands, and the result is a reduction in the number of viable distribution options. However, those organizations that have invested in creating brand value, such as Scholastic or Harlequin, are in a position to offer services directly to their customers and they have done so with admirable result.
It's not a one-strategy-fits-all world. The future revenue and delivery model that will be most effective for any specific publishing house will depend greatly on the market segment it serves. But it is increasingly clear that when compared to traditional book publishing revenue models, the revenue model of the future will be characterized by three dominant trends:
- First, the content will be delivered digitally. Physical print will continue to play a valuable but secondary role.
- Second, content will be delivered in the form of a subscription service, in which a customer is given access to digital content for a defined subscription period, rather than a purchasing a physical copy or a perpetual license.
- Finally, whenever possible, content organizations, including book publishers, will seek out ways of creating direct marketing and delivery relationships with the reader.
While the path is not fully clear, the clouds have parted enough for us to see the next steps that lie ahead.
Andrew Brenneman is founder and president of Finitiv (www.finitiv.com).
Related story: The Big Ideas Shaping Book Publishing