Amazon Goes Unlimited

Today, the market is talking about the Amazon offer, Kindle Unlimited, which certainly is a smart name as it aims to do exactly what it says on the tin. It should come as no surprise and it was only a matter of time until Amazon entered the ‘all you can read’ ebook subscription arena that services such as Oyster and Scribd have started to open up.

We have long argued that the subscription model is coming and that it starts to change how we relate to books that now can be effectively ‘borrowed on demand’, without having to worry about collecting them on virtual shelves, kidding yourself that you own them when all you own is a limited licence, and also trying to work out how to pass them on to others, share them, or divide the family collection when a relationship splits up.

The greatest challenge to the subscription market is matching the economic model to the reading habits of the members. The book clubs of old used to force feed ‘book of the month’ and expect a regular purchase, but they were dealing with relatively more expensive books and accepted that many people didn’t read on a regular rate. Importantly publishers often had Book Club royalties written into their author contracts. We now have ‘all you can read ‘models which are based on a flat monthly rate with an open to read offer against a digital library. Book s only earn when they are read and ensuing the definition of ‘read’ is a relatively minor but interesting issue.

Unlike other media subscription offers in music and film and even audio the demand and usage patterns of ebooks are very different. An ‘all you can read’ model may appeal to high volume readers who actually don’t need an incentive to read, or buy books and probably read a high volume of what they buy. It doesn’t necessarily appeal to readers who have a more erratic habit, or who collect ebooks today and don’t get round to reading them. So churn rates will be very important both in the early days and within the subscription cycles and will be probably very high compared to other subscription services.

Amazon launched Free Time in the US some 18 months ago. The service was aligned to their Prime subscription model and offered access to several media forms and importantly was aimed at parents for their children. It is not clear how successful this offer is today, but it did have all the right ingredients and if it were extended to align with Unlimited would make commercial sense. Amazon will have learned a lot from this exercise and obviously have a huge volume of customer information and reading habit data to mine and exploit. Unlimited would potentially give ‘family’ offers which cross media, align with Amazon’s core Prime service and effectively lock in customers. Importantly they will be very difficult to compete with as others would appear one dimensional and limited in their potential. However the economics of such an unlimited cross sector offer would be complex and maybe a bridge too far with suppliers today, but Amazon will have learnt much from Free Time that others have yet to discover.

Amazon has aligned Unlimited to their Lending Library and those publishers and authors who opted for this service channel now are automatically lifted into Unlimited. A smart move by Amazon and one that gives them instant traction with both content and users.

So is there room for Amazon, Scribd, Oyster and will Kobo, Apple and the ailing Nook follow? What will Wattpad do now? Can Amazon extend the Unlimited offer to make it even more compelling with premium offers on audio, film, music and even cloud services?

We just can’t see sufficient market for all players as they are position today and it will be interesting to watch the strategy adopted by others. Amazon’s Achilles heel has often been their loner approach and there are many huge subscription services that could be seen as complimentary for others to align with and thereby protecting themselves from being seen a ‘trick pony’.

What’s in it for publishers? What’s in it for Authors? How do digital distributors such as Ingram respond? How does this impact the public library debate and services such as Overdrive? There are many unanswered questions and we are only at the start of a journey which will have many barriers to negotiate, but we now are starting to see a divide between physical and digital which may prove to be healthy. The books may unfortunately remain the same but the divide between ownership and licence, between buying to maybe read or as a gift and subscribing to consume, an incentive to read more as opposed to decorating physical and digital shelves is now potentially up for change.  

This is a good thing for consumers who read. It could be a good thing for digital media users. It may get more people reading. But there are others within the value chain for which this move has many uncertainties.

Related articles:

Amazon Free Time: Give me a child….    Dec 2012

Subscription Is Coming                                  June 2013

eBook Subscriptions Part 3: The future should be significant        March 2014        

Understanding the Subscription eBook Offer      Oct 2013

Authors Need eReward

We read that the EU is now considering harmonising VAT on ebooks across the community and that the likely solution is that they will become zero rated. This would also negate the need for tax to be levied at point of consumption in 2015 and remove one aspect of the Luxembourg magnet for digital distributors and retailers. We also are all aware that a further ratchet twist of UK ebook pricing is taking place between Sainsbury’s and Amazon, with front list ebook titles dropping to 99p. We also read about the emergence of ebook subscription models and services which would generate new revenue streams and services.

Some view the moves as being good for publishing, publishers and readers. However, does this mean that they are good for those key players, the authors?

Let’s look at the 99p best seller. Today any title distributed in the UK incurs a 20% VAT charge. If distributed from Luxemberg it incurs a 3% charge and the distributor effectively buys VAT inclusive at 20% and sells VAT inclusive at 3% and the 17% goes to…. The retailer takes say a 30% levy for the transaction and the rest goes to the publisher. The publisher then pays the agent say between 15 and 25% of their receipts. The agent takes off their say 15 to 20% fee and the author gets what is left. Not bad you may say when the starting figure was around £6 but not a lot when it plummets to 99p.

However, the price war is just temporary you may say, prices will revert upwards and not all ebooks are at 99p. Well we have seen the rapid reduction in prices over a relatively short period and it is fair to assume that when retailers start to create price points- they stick.

Recent figures demonstrated that consumers liked free, 0.99 and 2.99 but were unsure about 1.99 and their interest tailed off as prices rose. We are now seeing price point consumer perception and this will be hard to change. These are licence more than outright ownership sales and the price has to reflect this.

The move towards zero harmonisation is welcome by all, but will the money flow back to the; consumer in lower prices, the retailer through tighter margin negotiation, the publisher in retaining the RRP at zero rate, or flow back to the agent and author? We can’t assume anything other than many of the above will lay claim to it.

Finally, we have the emergence of the ebook subscription model.

Why would consumers commit to a subscription model when the pricing of ebooks is dropping and pricing is unstable? If prices were high and stable then a subscription model based on low consumption may have an appeal, but in the current climate and with relatively inconstant and low consumption rates, it makes little sense for ebooks unless the offer is coupled to other media or service subscriptions. It would make sense for someone like Sainsbury’s to tie subscriptions to other services and cross subsidise and offer a value added consumer proposition. But ebook subscriptions to remain by themselves.

Again the author will only get a slice of revenues generated for the material read. As we have pointed out earlier this week reading habits will could also hinder reads being recorded and paid out on.  

We can only speculate on the outcome of these three options, but we must remember that there are two critical people in the value chain, the reader and the author and that any pricing and model for must work at not just one, but both ends of the spectrum.