E-readers, Subscription Models and the Dumbing-Down of Reading

Let's start with a bromide: content owners, be they of music, film or text, continue to search for the Holy Grail of an online business model. One such model is the
subscription, and it has been applied to a variety of content, most notably music. And so the question: can a subscription model work for other forms of content and, in particular, for books? For the Polish start-up Legimi,the aspiration, if not the definitive answer, seems to be a qualified "yes." But there may be a social price being paid here. It may be that. for Legimi to succeed, it needs to rely on, if not encourage, a dumbing-down of reading habits. For those who believe that e-readers might lead to an uptake in reading, this is a matter of potentially substantial concern.

This scenario is conjured up by the December 31, 2012 edition of TechCrunch, in an article by Steve O'Hear, "Legimi Wants To Be The ‘Spotify For Ebooks’ With A Business Model That Relies On You Reading Less" here. In particular, Legimi believes that it can commercially succeed, without altering the pay-per-download framework, on the assumption that people will read less. As reported,

"[p]ut simply, Legimi aims to be the ‘Spotify for ebooks’ in which for a monthly subscription, users get access to a potentially infinite library of reading material, all accessible via the cloud." 

Instead of starting with the assumption that people want to read books on their e-reader from virtual cover to virtual cover, the premise underlying the Legimi subscription model is that people are more likely to be interested in reading only a snippet of a book's contents on their electronic reading device. As explained in the TechCrunch article,

“we [Legimi] pay the whole price of an ebook [only?--NJW] once an end-user exceeds its free sample (approximately 10 percent of the book),” Legimi co-founder and CEO Mikolaj Malaczynski tells me [Steve O'Hear]in an email. The premise being that most readers never make it past the free excerpt, but if they do, the company pays the full wholesale price to publishers. 'We have statistically calculated the average consumption for tablet users and smartphone users, which is lower than one book per month,' he says".

The article continues:

"As long as the number of books read past the free sample remains in line with the overall economics of a monthly subscription, then the model could work, or at least act as a bridge until such time when publishers are more willing to embrace the idea of a subscription model." 

Stated otherwise, at least for the moment, the Legimi business model seem to work only because it relies on "dumbing down" the reading experience in the e-reader environment.

But for how long? Even Legimi is not certain. As the company itself recognizes, the ultimate goal is "to find the sweet spot in terms of what to charge....Legimi is planning to launch in two additional European markets next, likely Germany and the UK. It’s at this point when the licensing ‘loop hole’ and assumptions about consumption will really be tested." The ultimate goal, it seems, is to convince publishers to come up with a pricing framework that may enable Legimi to jettison is primary reliance on the so-called loop hole based on de minimis consumption of book content in a subscription context.

Whatever arrangement is ultimately reached between Legimi and the publishers, the basis for the cloud-based subscription model is that money can be made on the assumption that people will read less, rather than more. Indeed, for the TechCrunch article, such a result is well-nigh a given. “In the end, a ‘Spotify for ebooks’ seems inevitable, as consumer habits find themselves ahead of the market once again. It’s probably more a case of when not if." If the ultimate result is a dumbing-down of reading habits, such a result is a matter of concern, however successful the Legimi business model may turn out to be.

The Elusive Search for an E-Book Pricing Model

Perhaps it was appropriate that, shortly after buying a Kindle last week, I settled down into a transatlantic flight home, with the 12 September edition of the Wall Street Journal in hand. And there it was, staring me in the face on page 1 of the Marketplace section, an article entitled "e-Book Prices Prop Up Print Siblings." Now that I have a vested interest in the e-reader platform, the question of how e-book pricing differs from print books has become a matter of intense interest. The facts and figures as set out in the article make for interesting reading.

First, let's make a comparison between a hypothetical print book retailing at $26.00 and an e-book offering retailing at $12.99. Taking the print book first, from the $26.00 price one subtracts $13.00 for the retailer, $3.90 in royalty payments to the author and $3.25 for shipping and other handling, leaving a gross amount (don't forget returns) per unit sold of $5.85. By comparison, from the $12.99 retail price, one substracts $3.90 to the retailer, $2.27 in royalty payments to the author, and $0.90 for digital rights management, warehousing and prodution/distribution, leaving an amount per unit sold of $5.92 (returns are not a likely problem here).

These figures show that, to the extent that the e-reader publisher can increase the retail price, the greater will be its ultimate margin. Wait a minute, however! Wasn't the whole idea of the e-reader to offer the ubiquitous price of $9.99 per book. Raising the price from $9.99 seems antithetical to that pricing nirvana. What's the story here?

To appreciate these figures better, consider the major change that has taken place in the e-book industry. The starting point is described as "the wild days" of using the most popular titles as a loss leader (i.e., $9.99 or less), which days "are mostly over." In its place is an elevated e-reader price scheme anchored in what the article described as "agency pricing." As adopted by six major publishers and championed by Apple, "[p]ublishers worried about the deeply discounted $9.99 digital best-sellers promoted by Amazon.com Inc. agreed to set the consumer price of their digital titles. Under this model, retailers act as the agent for each sale and take 30%, returning 70% to the publisher."

The article then goes on to state that "[t]he major significance of agency pricing was that it made it impossible for a retailer to discount the price without the approval of the publisher." For discounting, read Amazon and its widespread $9.99 per book pricing policy, described as a means for building market share, even if "it actually lost money on the sale of many of the book industry's most popular titles."

Personally, I am bit disheartened because I had dreamed of using the Kindle platform to purchase book after book at that magic price of $9.99. Those dreams have been shattered. Standing back however from my disappointment, this apparently steady increase in the price of e-books is a fascinating example of a nascent industry seeking to find a workable pricing model.

On the one hand, we have the comment from an unidentified publishing executive that "'[i]f e-book prices land at 99 cents in the future we're not going to be in good shape." Certainly, the e-book platform carries with it the potential for downward pricing of books.

On the other hand, when is the difference in cost between the e-book and print versions of a book small enough to induce me to factor in the non-quantifiable tactile benefits of embracing a print version, the better to dog-ear, highlight and ultimately to place on the top row of my bookshelf? The problem is that, when I find out the answer to that question, the print version alternative may no longer be available. If so, then what will be the pressures on e-book pricing that will prevent an ever-increasing sticker price?

Don't get me wrong. As a published author, I am the last person to begrudge my publisher's bottom line. That said, as a reading consumer, I want to enjoy the benefits of the e-book platform at a reasonable (whatever that means) cost. Finding that balance remains an elusive goal. Something tells me that this so-called "agency pricing" model will not be the last word on the topic.