Spotlight Falls on Subscription Services

Amazon’s entry into the e-book subscription business has raised some eyebrows, and some hackles.

Oyster, the e-book subscription service with nearly half a million titles, launched in 2013. Scribd, its main competitor, also launched last year. While each generated some interest from publishers and consumers, it wasn’t until the July 18 launch of Kindle Unlimited, Amazon’s e-book subscription service, that pundits and media outlets began parsing what these new business models mean for the future of books.

Many, perhaps not surprisingly, see the Amazon move as an “end of publishing/literature” scenario. A headline in the Oregonian referenced the “coming arts apocalypse.” In the U.K., the Guardian said Amazon’s action would soon bring “howls of protest from publishers and authors on how streaming produces infinitesimal royalties.” And the Economist compared e-book subscription services to Spotify, the music streaming service, but noted that, unlike musicians (who can supplement the infinitesimal royalties they earn via streaming with fees from live performances), “authors have a book to sell and little else.”

For all the debate its launch has stirred, Kindle Unlimited (or KU, as it has come to be known) is quite similar to Oyster and Scribd. Like its competitors, the service, which Amazon is offering for $9.99 per month, does not feature much (if anything) in the way of frontlist titles. And like its competitors, KU pays authors based on the numbers of times that their titles are accessed by customers. But because KU is operated by Amazon, which also runs Kindle Direct Publishing (KDP), one of the largest self-publishing platforms, it has a big impact on indie authors, who have been among its most vocal critics.

Indie authors who publish through KDP complain about the fact that they are automatically included in both Kindle Unlimited and Kindle Online Lending Library (KOLL), giving them less control over the dissemination of their work. Like in KOLL, indie authors in KU are paid each time a customer accesses one of their titles (a customer must access a certain percentage of the given title in order for payment to be issued). And, like in KOLL, the amount of the payment is based on the size of the KDP Select Fund, which varies from month to month (Amazon confirmed that there is $2 million in the fund for July 2014). This means that indie authors can’t determine in advance what their royalty rates will be under KU. Although extensive analysis was published last week attempting to estimate how the rate will shake out, the actual rate is still very much unknown. Many indie authors have said that if Amazon keeps the KU rates at about $2 per read, in line with the current average borrow payments from KOLL, they will be happy.

Indie authors also question whether KU will really boost their discoverability, as Amazon claims when touting the new program. Ted Weinstein, a literary agent with an eponymous shingle, said this is a pipe dream. “I think there’s this notion that ‘I will be discovered because I’m in the [KU] pool,’ ” he said. “But so is everyone else.”

One of Amazon’s most vocal supporters, Hugh Howey, wrote in a long blog post about KU that Amazon has long treated indie authors differently than traditionally published authors. He cited examples like the lack of preorder technology for indies. Howey said that, even with up-in-the-air programs like KU, Amazon is still one of the best games in town: “What advantages do indies have to counter all of these disadvantages? 70% royalties and the freedom to price their e-books below dickish levels.”

Meanwhile, agents are concerned about how publishers will treat these new subscription models, and about what might happen next. Weinstein explained that, because all three major subscription services currently treat each read as a sale, there are no issues over contracts and payments at present. But he and other agents worry this may change. “Longer term,” he said, “when all these services try to find an economically sustainable business model, how do we account for partial reads and partial payments, or full reads and amortized payments?”

Robert Gottlieb, chairman of Trident Media Group, was more forceful in his statements about the potential for trouble if publishers don’t handle subscription options appropriately. While Gottlieb believes subscription services will further degrade already-struggling print formats like mass market paperback, his real concern is how publishers treat frontlist titles with regard to these new programs. “The great danger is that publishers allow frontlist titles to go into these subscription services,” he noted, “because that will be the end of the publishing business as we know it.” Gottlieb also questioned whether indie authors will gain much in the way of sales from services like KU. “With consumers, if they spend a penny [on a product] in one place, they’re not willing to spend a dollar on the same product in another place,” he said, pointing to the unlikelihood of a customer purchasing a second title by an author that he or she had previously accessed via a subscription service.

For his part, Oyster CEO Eric Stromberg said he has no doubt that his company’s business model is viable. “Since launching last September, we have brought in more revenue from paying subscribers than we’ve paid out on those subscribers each month,” he said. Stromberg also said subscription services boost discoverability. “[Oyster] has already proven to be an effective channel for authors and agents to get their titles in front of new readers.”

If Stromberg says the model is working—and companies like Oyster can treat their e-book inventory as loss-leaders—it may be because the models work like gym memberships: everyone pays, but few actually use the facilities. Howey, and a few agents, note that this analogy may be much more apt than comparing e-book subscription services to Netflix or Spotify. The Oysters and KUs of the world can continue to overpay publishers each time their customers access titles—so long as most customers don’t actually use the service that they’re paying for. As Howey put it in his blog post, it’s “hard to get excited about a service that only supports itself if people pay not to use it.” Similarly, Weinstein feels that this comparison is a bit disappointing, if it’s accurate: “It’s really sad to take extra money from customers because they’re not using your service.”

Study Finds Support for Subscription Services

Although there are still some issues to be ironed out relating to e-book subscription services, publishers are generally confident that the business model will be an important one soon. According to the Book Industry Study Group’s latest report, “Digital Books and the New Subscription Economy,” most publishers believe subscription services are here to stay. The report, however, found that publishers’ belief in the value of subscription services varies by market segment. Consumer publishers, who have generated the least amount of revenue from the services so far, are also the least bullish about their potential, while publishers in the higher education space are the most optimistic.—Jim Milliot