"A surprise to us... how much churn there is in that deep catalog." -- HarperCollins' Brian Murray
And who'd have thought we'd all cheerfully chat about subscription models in publishing?
As my Bookseller colleague Philip Jones is writing for us today in Turn up the volume, Frankfurt Book Fair 2014 provided, if nothing else, a look at digital now under sail in early, calm waters.
He writes, "The one common factor is that we have have all become participants rather than watchers. The being dazzled bit looks to have gone. It will be replaced by hard work, and real difficult stuff, and not all of this will play out in a public space."
Our common engagement in working through the disruption -- dealing with the dynamic, not denying it -- may be one reason that BuchMesse might have felt "quiet" at times.
As participants, per Jones, everyone now is heads down. Into the wind. The shouting is over, the work is difficult and frequently not nearly as entertaining as arguing about it was.
If anything, this makes the position and pith of our FutureBook Conference on 14th November all the more pivotal, I agree with Jones on this -- and I hope you'll consider joining us.
We're looking for the flash points on a widening landscape. Best prices close this Friday at 5 p.m. BST / noon ET.
In Frankfurt, subscriptions quickly arrived as one of the signal areas in which we could discern a new readiness to cope, not complain.
Publishers Weekly's Andrew Albanese captured a couple of the more interesting remarks, for example, from HarperCollins' CEO Brian Collins in his Business Club interview at Frankfurt.
The session was ably fielded by our good colleague Rüdiger Wischenbart. And it revealed something that some of us in the room might not have expected to hear: an early vote of approval in the "legacy" regime for subscriptions.
Albanese wrote up the session after serving as one of the reporters who put questions to Murray. As he has it:
Murray said he's been "very happy" with the early returns from the subscription services, and that he plans to expand those ventures. "What we’ve seen in the digital realm is that every time you have a new partner, a new digital partner and a new digital offer, you’re creating new merchandising opportunities. So, while maybe there are fewer tables at the front of bookstore chains for marketing and promotion, when you introduce a brand new e-tailer or a different e-model, or distribution partner, you are picking up new ways to market your books. And subscription has turned out to be a model that is very successful in really merchandising and mining the backlist in the catalog. And that’s been a surprise to us, and how much churn there is in that deep catalog."
There are two points to be teased from that section of Albanese's report.
- First, although HarperCollins is widely seen by many as the Big Five house likeliest to innovate these days, it apparently has impressed even Murray that the company's prodigious backlist holdings might be as valuable in digital sales potential as they are.
- Second, look how positive Murray was about subscription.
Jones had flagged subscriptions, himself, in Cruise control, his "literary autobahn" column on a seemingly unflappable Frankfurt this year: "The chatter," he wrote, "has been focused on territoriality, author care, direct-to-consumer, and subscriptions."
Granted, there were a few typically darker characterizations of Amazon's Fair-opening confirmation of its Kindle Unlimited (KU) subscription rollout in Germany, among them Agence France-Presse's:
Amazon threw a shadow over Germany's book industry on the inaugural day of the Frankfurt Book Fair Tuesday by announcing the launch of a monthly flat-rate offer for unlimited access to e-book titles.
But my Bookseller associate Sarah Shaffi caught the more positive glint in the Europa Room with Murray, as did Albanese. In Murray: surprising success for subscription services, she wrote:
Among the successes have been HarperCollins’ deals with subscription services Scribd and Oyster. The Scribd partnership began in the US but was expanded to the UK this summer. Murray said: “We have been very happy with the results of the subscription services, so we’ve expanded the number of titles and we’ve expanded geographically.”
Shaffi also picked up on what she pointed out may have been a glance over Murray's shoulder at the Amazonian KU effort:
In what some in the audience saw as a reference to the recently launched Kindle Unlimited subscription service from Amazon, Murray added: “Generally, we represent all of our authors and their business interests and we tend not to do business deals that would devalue the royalty and the value of their work.”
Hardly new, definitely inevitable, "mostly positive"
As it happened, Frankfurt's Britta Friedrich and Mathilde Sommain had worked with me to programme one of our Master Class series of events at the Business Club with a 90-minute session on subscriptions.
And this is what we heard:
The biggest costs are when you get a new customer on board and when you lose a customer and you don't understand why.
With that, Dr. Ulrich Hermann, Wolters-Kluwer chairman for Germany, found himself quickly ratified by Jones, our interlocutor for the session.
"The Bookseller is a subscription business so I recognise these challenges," Jones said. "And acquiring new customers is much more expensive than retaining the old ones."
Our session began with a well-organised and focused account of the Book Industry Study Group's (BISG) new research on publishing subscriptions. I was glad that Len Vlahos, BISG's executive director, accepted my invitation to give our opening Master Class presentation on the study, which we wrote up here this summer.
Some of Vlahos' most interesting points:
- Subscription is hardly new, definitely inevitable, and "mostly positive" for business.
- Subscriptions may mean an opportunity for trade publishing "to reach new customers, gain consumer insight, and push the backlist."
- Subscriptions also do bring into play questions about "devaluing ownership" and "contractual complications."
- In higher education, the subscription model apparently most applicable is the "integrated learning system," less about books, more about compilations of relevant source material for course work.
- There are traditions of subscription in scholarly journals, of course. One of the concerns in this area may come from the library sector, which could be concerned that the patron-driven nature of subscription models "may lead to imbalanced collections, with focus on popular subjects."
- In professional books, there's "direct competition from free online content" to consider. This is the mix in which Safari has so successfully established its concept of a subscription base for "chunks" of content. (Safari is the lead sponsor of BISG's study on subscriptions.)
"Loose leaf is the greatest business ever invented"
What followed in Dr. Hermann's commentary was an incisive explanation of how critically Wolters-Kluwer "as a service provider must be sure that we serve our subscribers with the right stuff."
The company's slogan, as he pointed out, is Einfach besser zu Recht finden, or "When you have to be right." Wolters-Kluwer stakes its reputation daily on providing what its clients need.
Wolters-Kluwer's name may not be familiar to many Americans, but it's an international corporation doing as much as 60 percent or more of its business in the United States, and focused on information and publishing, particularly serving interests in medicine, the legal industry, tax and financial services. The company fields more than 19,000 employees in 40 countries, with services in 150 nations, its 2013 revenue reported at €3.6 billion.
"We are serving our customers with a high level of media," Hermann said, "business services, online business that includes the content packages that we once sold in the classic formats."
That's an important point. The content itself, he explained, is not quite the lead element in his company's development of its own subscription models: the serving of that content is. This is what he means by "a high level of media."
With wry humour, Hermann connected modern-day subscription concepts to a predecessor you may have forgotten about -- or never known: "Loose-leaf is the greatest business ever invented," he said, "because that was a business where the service provider decides what revenue he would like to have, and not the customer. What happens? To the customer who subscribed, you are sending updates." Physically, these updates are pages that are added to a loose-leaf binder to update a body of knowledge or procedure, such as tax instruction.
"You are sending updates with a bill on top. If you think in December, 'I need another million in revenue,' you just send another update. And the customer is obliged to pay.
Customers are only willing to pay for this -- the loose-leaf subscription model -- when the information it provides can't be found elsewhere, Hermann clarified. And, similarly, a contemporary subscription model, he said, is an effective but labour-intensive model.
"You can imagine how important data is for us," he said. "Usage data, behaviour data, in order to predict what is happening."
One of the advantages in subscription, Hermann noted, is that "the cash comes up front." But to hear him speak from his longtime experience in the field, truly successful subscription seems to come from using highly efficient staff resources to prioritise customer retention -- and that, as a "core competence," Hermann says, "means that predictive analysis is crucial.
"More and more, technology helps us here....What will happen next for each customer? If you own this, you can drive your customer base."
Predictive analysis, an aggressive use of customer data, becomes the currency of a subscription's realm, to hear Hermann tell it. "To learn from past mistakes, to learn from successes...what to change and what to replicate," Hermann said.
"It's all about understanding the key drivers of our churn behavior, identifying customers with high-churn risk."
In fact, Hermann said, "Running a subscription is really about change management. It's not about getting data onboard, it's about what to do with the data. You have to have the right resources...and it is really discipline. "
"Changing the DNA of business"
"You're really changing the DNA of business," Jones said, in leading our onstage discussion after Hermann had finished his presentation.
What we'd heard was Wolters-Kluwer's ringing example -- and BISG's sharp explication -- of just what Jones would be writing about in Turn up the volume:
The developing themes are around what publishing has become; what business models are working; what the new channels are and how we push these sales mechanisms; and perhaps most importantly who the publishing executives of tomorrow are.
Jones asked Hermann whether today's subscription service was as lucrative as loose leaf had been for his company.
We didn't quite get a head-on answer, but Hermann shared with us how in the 1980s and '90s, the loose-leaf option had been genuinely workable because it solved a logistical issue. An attorney, as he pointed out, couldn't possibly tour all of Germany, continually gathering for himself the various rulings of courts in far-flung locales. A loose-leaf option could do such aggregating for that attorney.
And when the Internet began to rise..."We lost a lot of this [loose-leaf] business at the end of the '90s," Hermann said.
"It was going down the drain. Or, as we said, 'falling off the cliff.' The last 100 subscribers terminated at once. Suddenly we'd gone from x-million to zero. Because the information was free on the Internet."
Len Vlahos pointed out that in our own transition today, while Amazon has online dominance, "there's at least a third of the people" in the US market who are "accessing digital content through apps on tablets" rather than through the Amazon ecosystem. "There's the Nook app, the Google app, the Kobo app. It's going to be interesting to see where that goes over the next couple of years.
Jones drew on Vlahos' own analogy of experimentation in innovation being like throwing spaghetti against the wall to see what sticks. Many publishers, Jones said, have got the spaghetti in the water but have not yet turned on the heat.
So far, Vlahos said, most publishers are making only backlist available in subscriptions. "There's very little frontlist," for fear that putting it into subscription programmes could cannibalise more regular sales.
"Subscription provides a natural place" in the supply chain, Vlahos said, "for windowing to happen. You're not going to make your frontlist available at your less profitable sale right away. You'll make it available when it becomes backlist. We need a tipping point with enough content."
"For trade publishing, subscription is the only way to survive"
Vlahos also flagged the concerns of agents and authors about subscription programmes in which compensation models -- usually triggered by a customer's read of a certain percentage of a book -- are, as yet, under question for their comparison to more standard royalty structures and for their viability in the long term. He mentioned the struggle that many musical artists are having in the subscription-based formats of that industry.
In answer to Jones' questions, Hermann said that, country to country, Wolters-Kluwer sees surprisingly little variation in subscription structure and reception.
"But I think trade publishers, with the content produced by the authors," Hermann said, "will have to change." The flat-fee imperative of the typical subscription, he said, both requires a wider offering to the reader to be competitive and makes it possible for the publisher to learn the reader's preferences and target better that reader's proclivities.
And there simply comes a moment, Hermann reminded us again of loose leaf, "when you're at the cliff. You have to change." Trade publishing is operating cliff-side, he implied.
Vlahos pointed out that STM -- the academic sector -- has a big lead on subscription experience with journals. Maybe trade is nearing not a cliff with subscriptions but "an open expanse of land they hadn't seen before."
But as Philip Jones noted, to date the concept of trade publishing getting into subscription has mean handing content to a Scribd or Oyster or Amazon or other service. Penguin Random House, he proposed, may have the size library to mount a credible subscription model of its own.
Len Vlahos agreed, adding that "not every publisher can manage that on their own, but there are publishers that could go deep" into a given specialty -- a great cookbook publisher, etc. "Publishers could go direct."
As soon as Jones had mentioned the widely orphaned mid-list, in fact, that idea of publishers moving direct to market seemed more palatable, perhaps with subscription models calibrated to float those mid-list books to the well-known customers Hermann had described.
Just as the session was about to close, Dr. Ulrich Hermann delivered perhaps his most decisive comment of all: "For trade publishing, subscription is the only way to survive.
"They heavily rely on bestsellers," he said, blockbusters, while "thousands of books [in the mid-list] don't sell. If you do a proper subscription and deal with data, you gain access to the long tail.
"This is the opportunity that's unexploited."
Main image: Provided by Frankfurt Book Fair 2014 | By Bernd Hartung