Will Digital Content Subscriptions Follow the Cable Model?

According to a quick Google search, the typical U.S. household now pays between $80 and $90 per month for the TV component of their cable bill (excluding broadband and phone service). Now compare that to the price of an all-you-can-read digital content subscription service like Next Issue for magazines or Oyster for books. The former is $10-$15/month and the latter is $10/month.

The average person spends a lot more time watching TV than they do reading, so that's one obvious reason for the significant price difference between cable and e-zines/ebooks. Even though services like Next Issue and Oyster are trying to build large subscriber bases by offering the lowest price possible, I expect those rates will increase significantly in the next few years, especially Oyster's.

A recent Nielsen report indicates that the typical American household watches the same number of channels today (17) as they watched back in 2008; this, despite the fact that those same households now have access to almost 50% more channels than they did back in 2008. So we're not really taking advantage of this increased breadth of channels and yet our cable bills are increasing at roughly four times the rate of inflation. Yes, it's one of the main reasons we all hate our cable providers, but it also proves we're suckers for the boob tube.

The cable companies say they're just passing along the higher programming costs from the networks. They also note that networks force them to carry their unpopular channels as part of the package. That drives the price up even higher and, despite the added exposure, the unpopular channels remain unpopular.

Now switch gears and think about Oyster. Today they have one of the Big Five book publishers in their catalog. The other four are presumably waiting on the sidelines for a richer deal. And despite their recent announcement of now having more than 500,000 titles in the service, most consumers will find a lot of holes when only one of the Big Five is available.

How would the model change if they suddenly had all the titles Amazon sells for the Kindle? How much would a consumer be willing to pay for that added breadth? More importantly, would the price have to go up in order for Oyster to offer that added breadth?

Most all-you-can-read ebook services use a pay-for-performance business model: the more a book is read by subscribers, the more revenue that title earns for its publisher/author. What if, like in the cable industry, publishers insisted on getting a portion of the subscriber's monthly payment regardless of whether any of their books are read?

This drives up the price of subscription, but it also increases the value of the service, especially if it ends up bringing the other Big Five to the table. And to steal another page out of the cable playbook, why couldn't Oyster offer multiple tiers of pricing based on the content offered? So today's 500,000 title list remains at $9.95/month, but if the other Big Five titles are included, maybe that subscription option is priced at $19.95/month.

The little guys might complain that they too should get a fixed minimum amount from each subscriber but I'd argue they're benefiting from all the additional visibility the larger list creates. After all, unlike the cable TV model, I believe that a broader all-you-can-read model leads to more discovery and consumption of content that wouldn't otherwise have been read. As an Oyster subscriber I can confirm that this is consistent with my experience; I'm currently reading an Oyster ebook I never would have considered buying from Amazon, for example.

I hope Oyster considers this sort of model to dramatically expand their catalog. And if they do, I'll be the first to upgrade to the $19.95/month premium subscription.