Reaching new markets

Over the past week, I've read two posts (one about Spotify, the other about eBook subscription services) that I think illustrate the opportunity we have to reframe our thinking about media business models.

At the Atlantic, Jordan Weissman asked "What is Spotify worth?" Reports are circulating that the firm may raise $100 million in a deal valuing the company at about $3 billion. Spotify does earn substantial revenues (projected to be about $500 million this year), but it has never made money.

Here's why: music labels are said to license their files to Spotify for a minimum payment of $200 million a year or 75% of revenues – whichever is higher. The company says it pays less than that, but their CEO acknowledges that royalties have "historically eaten up about 70 percent of its income."

In a separate piece, Andrew Rhomberg wrote "The sobering economics of eBook subscription services", which appeared on the Digital Book World blog. In his post, Rhomberg outlines how monthly subscription revenues might trickle down to both larger and smaller publishers. His conclusion: there isn't enough money to convince book publishers to support subscription access and risk the sales of physical and digital products.

I think that's true, if we believe that the subscription product is a substitute for product sales. There will never be enough money in the pipeline to justify support for a subscription model.

But as Weissman points out about Spotify:

"As it's become increasingly clear that no number of lawsuits will ever stamp out music piracy, unlimited streaming services with their convenience and variety may be the industry's only long term hope for convincing many fans to pay at least something for their tunes."

Independent of whether we are talking about music or books, this argument divides two ways. Success depends on reaching markets that otherwise would not have paid for a physical or digital product. And, a failure to make a reasonably priced subscription alternative available increases the likelihood that it will get done using extra-legal means.

Applied to the book business, part of the challenge with subscription models starts with publishers themselves. Most eBooks are wrapped in DRM that restricts use and effectively makes them something you don't own, but rather license. To a reader, there's little difference between a purchased book with DRM and one obtained using a subscription service.

But consider Safari Books Online, a subscription service that offers "all you can eat" access to book content. It also offers DRM-free versions of its digital products. Users can sample content broadly. When they find a book worth owning, they can download it free of any publisher-imposed restrictions.

For music publishers, I think the answer comes in taking a smaller percentage of a bigger pie, rather than an overwhelming percentage of what becomes a non-existent pie if Spotify fails to make money. And for book publishers, gaining access to the bigger pie – new subscription revenue, which may still be limited – depends on making digital products more useful to readers who want to actually buy them.

Brian O'Leary

About Brian O'Leary

Founder and principal of Magellan Media Consulting, Brian O’Leary helps enterprises with media and publishing components capitalize on the power of content. A veteran of more than 30 years in the publishing industry and a prolific content producer himself, Brian leverages the breadth and depth of his experience to deliver innovative content solutions.