Imagine media content, in all its forms, as a carnival shooting range, and the Internet as an air rifle filled with unlimited ammunition. Boom, pow! First the music business duckie falls over. Yaarsh! The movie duck is grazed, keeps moving. Wait! There’s the newspaper duck, down in one clean shot.
And now here comes a little duck holding a book.
It’s no secret that publishers fear following recorded music (revenue down more than 40% since 1999) and newspapers into oblivion. Locked in a mortal struggle with Amazon.com — their most important partner and greatest nemesis — that is now coming to a head in a war with Hachette, publishers have been searching desperately for a new way of selling books.
The latest model is subscription services, offered by Oyster and Scribd. The services seem to be offering publishers some very attractive payments. The big caveat is that they pay publishers when books get read, rather than just sit on the shelf.
I went to see Oyster’s CEO, Eric Stromberg, to understand how Oyster could give readers all-you-can-read pricing and publishers a deal attractive enough to compete with bookstores, a combination almost too good to be true. I left wondering if book publishing was even closer to an existential crisis than the recent Amazon furor suggests.
Oyster (from the “make the world mine oyster” line in Shakespeare’s “Merry Wives of Windsor”) is often described as “a Netflix for books.” The company tends to refer to itself more blandly as an “unlimited subscription service.” For $9.95 a month, members can read as much of Oyster’s catalog of titles as they wish. Two of the Big Five publishers, Simon & Schuster and HarperCollins, and several smaller ones have signed on.
Publishers have gone into the subscription business warily; some seem to be getting progressively more enthusiastic. HarperCollins CEO Brian Murray told the Wall Street Journal that its Oyster deal was generating “real revenue,” and HarperCollins has expanded the catalog of titles it offers. That any publisher should say anything nice about a subscription service is already a wonder, given how little subscription services return to the music businesses.
So what’s different? Music subscription services pay a fraction of a penny per play. Oyster appears to pay meaningful money for every book you read. Underline “read.” We’ll get to what that means in a second.
An author with a book available for reading on Oyster passed on an email from an agent that discussed a deal with one publisher, Houghton Mifflin Harcourt. According to the agent, each time a subscriber reads a Houghton Mifflin book Oyster pays the full wholesale price of an e-book. That’s generally half the list price, or about $7.50 on a book that lists for $14.99, and that may sell on Amazon.com for around $10.99. Authors get a full e-book royalty of 25 percent of the wholesale price, the same as they’d get from a sale on Amazon.com. The e-book publisher Smashwords, whose books are featured on Oyster, also has offered writers a deal similar to what they get from online bookseller.
Oyster seems to be offering publishers a deal that goes roughly like this: If someone wants to read your book, we’ll buy it for the same price at which you sell it to stores. Oyster won’t confirm the details of any of its agreements, and they may vary to some degree between publishers, but that looks like the ballpark.
I came to Stromberg, the company’s young chief executive, wondering how the Oyster model could work. My initial thought was that buying a book every time a subscriber reads it isn’t a sustainable business. Try opening an ice cream parlor where it costs you $7.50 to make a sundae and you offer all-you-can-eat sundaes for 10 bucks a month.
It turns out, though, that readers get through a lot fewer books on Oyster than I assumed. The key here is what counts as reading a book. Again, Oyster won’t confirm details, but Smashwords has said that the tipping point comes when a subscriber has read 30 percent. (Oyster keeps track of how many pages are read in its app.) That feels like a fair number. Looking over my Kindle library, I see a lot of books I’ve read about 30 percent or 40 percent of, and feel like I got my money’s worth.
Now here’s the key to the model. According to Stromberg, for every book that does get “read” on Oyster and triggers a payment, four more get “sampled.” So there’s a lot of reading that subscribers do within Oyster that doesn’t get paid for. Oyster also has classic titles that are in the public domain that the company doesn’t need to pay for. According to Stromberg, even with the substantial payments that publishers get, Oyster has a positive gross margin. “We’re bringing in more money than we’re paying out to publishers,” he says.
With these kernels of information, let’s construct a very rough and speculative model of Oyster’s business: The average subscriber probably triggers a payment for only one or two books a month, while dipping into another four to eight, and perhaps throwing in some classics as well. This seems like reasonably good deal for readers.
For publishers, it’s a different matter. On the surface, it’s way better deal than music subscriptions. And new releases aren’t on Oyster, meaning publishers still get to sell those the old-fashioned, an arrangement similar to movies on Netflix.
But, to put it bluntly, publishers have long gotten paid for books that aren’t read. Any educated person’s library is to some extent a graveyard of good intentions. Books are routinely bought and abandoned at page 40, or bought to place on a shelf and impress visitors, or — most commonly — bought with plans of reading that never come to fruition. Publishers have always been the beneficiaries of this. As the bookshelf goes electronic, it will be increasingly hard to get folks to buy books they don’t end up reading. That’s good for a subscription service like Oyster, and potentially frightening for publishers.
Books are a little bit like houses on the shore, sold largely on their potential. The profits from seaside property would fall a great deal if you paid only for the times you actually swam in the water or stared at the sunset.