The question of subscription

The question of subscription

Introducing his panel at the Publishing for Digital Minds Conference, Mofibo’s Nathan Hull said he wanted to spark a discussion about the subscription model in order to counter some of the comments made recently in The Bookseller by the heads of Hachette in the UK and Europe, and before that by Penguin Random House UK chief executive Tom Weldon.

Lest we forget, Hachette Livre chairman Arnaud Nourry called the model  “flawed” and “absurd”. UK chief executive Tim Hely Hutchinson said: “I don’t believe in subscription. I don’t see how it would do anything other than cannibalise the business we already have. I know other people take a different view. Within the limits of the law, I hope [HarperCollins UK c.e.o.] Charlie Redmayne will explain it to me, because I don’t get it.”

In a piece running in The Bookseller’s London Book Fair Daily, there are comments from many of the fledging subscriptions companies countering the kinds of views expressed by some of the big publishers. Simon Dunlop, c.e.o of Bookmate, said: “The huge successes experienced by services such as Netflix and Spotify have clearly shown that for content, subscription services are the way forward. Put simply, publishers failing to recognise the growing importance of the subscription model risk consigning themselves to the past.” Blloon’s founder Thomas Leliveld said not keeping up with the way young people read would damage future sales. “Hachette ignores the fact that younger people are reading less. They have plenty of other opportunities to entertain themselves with a device ...So unless the industry offers a reading service they like to use, it will certainly lose steam and revenues 10 - 15 years from now.”

Some of this looks overstated. Book start-ups rarely endear themselves to resistant publishers with threats of extinction. Nevertheless, I tend to agree with Nathan, there is a worry that some of the nuances around this debate are being lost in the to-and-fro.

Hull’s panel consisted of Doug Stambaugh, vice president, global e-book market development and strategy at Simon & Schuster; Gertrude Smith, digital and marketing manager at Danish publisher Lindhardt og Ringhof; and Lisa van den Herik business development director at Dutch publisher Meulenhoff Boekerij en Unieboek.

Stambaugh said it was about “experimenting with new models, finding new audiences, and doing so in ways that protect our authors, and protect ourselves”, a view echoed by his fellow panellists. Van den Herik also mentioned how subscription could be another way of inhibiting piracy. As my colleague Porter Anderson suggests in his report from PDMC, the panel was pretty good at getting to the reasons some publishers had signed up. But the reasons why some are more resistant are equally as compelling.

The big stickler is the worry over cannibalisation. When I interviewed Tom Weldon at the Guardian’s Changing Media Summit, his view had softened slightly from when we spoke at FutureBook, referencing Mofibo by name, and indicating that it would only be interested in such deals if it was genuinely reaching new markets.

That is precisely what companies such as Mofibo believe they are doing. In an interview we published in March, Mofibo’s founder and c.e.o. Morten Strunge said key to its success is to get enough customers who read occasionally or very seldomly. All of Mofibo’s advertising is aimed towards this market. Strunge said he did not believe the target group he wants is the same group of people who buy most of their books in physical bookshops or online. He therefore believes that Mofibo, if successful, will increase the number of readers and reading generally. ”We will only make a profit if we manage to reach the ‘medium’ and ‘almost-never’ readers. And in that case, we will expand the market,” he maintained.

Redmayne said much the same thing to our reporters for The Bookseller Daily. Contrary to cannibalisation, subscriptions opened up new audiences, he argued. “Effectively we are bringing new players into the book selling game - we are making more money for HarperCollins authors per unit sale through this model than the traditional model - whilst protecting the value of their IP,” he said. “I see no problem with that - that is part of what we are here to do.”

Publishers also face caution among agents. HarperCollins’ shift was carefully handled by Redmayne with agents given the option of taking their authors out of the deals. Like publishers, agents worry about how it might cannibalise their clients' sales, but also fret about the loss of clarity in their dealings with publishers. A sale is a sale is a sale, but some agents worry that the new model means their authors must share a pool of generated income, rather than income from an individual book purchase. Some agents also consider that subscriptions should be be a subsidiary right, with the fee paid to authors expected to be higher that the traditional digital royalty.

Agents are rarely in the firing line when it comes to understanding why there can be such resistance to new business models, but their influence should not be under-estimated. At PDMC, Smith warned that international agents in particular tended to drag their feet. Smith said: “Where we see some trouble is with the international agents, they have some wording in their contracts that makes it very hard [to include their authors]. We choose to work with the authors and agents who actively want to be there.”

The irony is that many of the subscription deals so far struck are deliberately designed to mollify author and agent concerns, with each read treated as a sale in order to make sure that authors do not lose out from a "pool" approach, but also (from the publisher's perspective) to limit the level of royalties paid out. This makes the economics particularly tough for the subscription vendor, who really has to hope that the readers they recruit onto the service are happy to pay more than they ever have time to read. As Strunge put it: “The publishers get paid every time a book is read. We’re taking the risk here.”

The third reason why some publishers are cautious is the most tricky to deal with, and that is their relationships with Amazon. It is not well known, but for a long time Amazon has insisted that any new business models agreed to by a publisher, must also be offered to Amazon. This is fine if the terms are so generous that Amazon would likely reject them anyway: less fine if the terms are favourable to the rival retailer. In such circumstances, many publishers will not wish to budge an inch even in the name of experimentation, for fear that the venture becomes irrevocable.

Of course, if the current stand off is maintained we may not need to keep returning to this. Subscription is knocking on the door of book publishing, but there is no guarantee it won't simply find other doors to visit. The big question is how patient the backers of subscriptions companies will be while they wait for publishing to make up its mind. Investors are not blind to headlines such as those put out by The Bookseller recently, and they will know that for them to have a hope of making a return on their investment, the catalogues made available by the big publishers must expand. We have already seen Oyster announce that it will also offer e-books on a standalone basis, and it is difficult not to interpret that as a decision made out of necessity rather than invention.

The slight disappointment about the PDMC panel was the lack of data. Stambaugh refused to disclose any numbers, beyond saying that it was a “meaningful but small percentage of its digital revenue”. The other panellists spoke about how it was helping them re-market their backlist in ways no longer open to them through traditional channels. Hull said that at Mofibo 1.2 million pages of books were being read every day, and 1million minutes of audio listened to.

Hull can consider the conversation sparked, but for the debate to catch-fire someone will need to share their numbers.