The Unbundled Subscription Model: Media Moves to Sell Direct
When I began writing this column six and a half years ago, the industry was embarking upon a period of transformation. It was clear that content delivery revenue models would be undergoing unprecedented change. What was NOT clear was exactly what these models would turn out to be. Some recent events have shed light on nature of the sustainable revenue models of the future of media delivery.
The Subscription Economy
Publishing news in the first half of the 2014 was dominated by one word: Subscription. Subscription-based digital trade book delivery models were announced with much fanfare from Oyster, Entitle, and many others. Services such as these put book publishing squarely in the digital “subscription economy”, along with Netflix, Pandora, and Hulu. In point of fact, book publishers have participated in the institutional subscription market for some time, through aggregators that provided a channel into the library market. Nevertheless, 2014 will be remembered in the annals of publishing history as the year in which book publishers acknowledged the fact that many of their customers wish to receive — and pay for — the delivery of book content in the form of a subscription service.
Direct to Customer
More recent news, that was somewhat unanticipated (by me at least), shed light on some other characteristics of emerging models for media delivery. This news did not come from book publishing directly, but from the world of broadband entertainment. Nevertheless, I feel that it has relevance to the business of books.
HBO, long considered the jewel in the cable industry’s crown, has announced that beginning in the first half of 2015, HBO will launch a standalone streaming service, customers will buy directly from HBO rather than through a cable service. Beginning next year, consumers would not be forced to subscribe to a whole bundle of channels they did not want (and might not be able to afford) in order to see “The Leftovers”.
For some time, consumers had access to HBO content on mobile devices via the HBO-only HBO GO app. Nevertheless the news was somewhat unanticipated due to the resulting conflict this will create with HBO’s primary distribution channel, the cable providers. HBOs move was a direct response to services such as Hulu and Netflix, who gave HBO more than a little pause with its breakaway hits like House of Cards , Orange is the New Black, and Transparent. As consumers increasingly sever ties with cable providers, HBO moved to sell directly to them in order to deliver to these “tether-less” customers.
The truly surprising news was that, one day after the HBO announcement, CBS CEO Les Moonves announced that CBS too would be launching standalone subscription services, sold directly to customers in the near future. CBS’s move underscored the fact that we will continue to experience fundamental changes in content delivery business models.
The moves from HBO and CBS are classic cases of “disintermediation”, of removing the middleman in the delivery chain, in this case the cable services, and were prompted by competing services such as Netflix, that were “born direct”, never going through a middleman like a cable service. This disintermediation is made possible by the ubiquity broadband Internet access: consumers don’t need a coax cable to receive entertainment content — broadband Internet access is enough.
It will require dedicated effort on the part of HBO and CBS to support this new delivery model, and will not come without pain — in October HBO announced a 7% layoff of their workforce. However, the strategic and financial benefits to HBO and CBS are significant:
1) Sales and delivery of content to customers for whom the cable content bundles are too expensive, increasing their market reach.
2) Control over pricing and margin.
3) Direct marketing relationship with the customer.
4) More detailed usage data, providing clarity on consumer requirements.
The benefits of disintermediating from third-party bundlers also apply to book publishing organizations. Control over pricing and a direct marketing relationship with customers are critical tools for publishers in creating and supporting sustainable revenue streams. Book publishers must assess their opportunities to deliver their offerings in the form of direct-to-customer services, and if such opportunities exist, to pursue them with verve.
When Are Channels Required?
A common refrain from book publishers is that that in order to sell content, they must depend upon intermediaries channel partners such as Amazon, Apple, Safari, and Oyster, to provide discovery of the offerings. That indeed may be the case for many. But other organizations will have options of offering services direct. And the benefits are significant.
The key to going direct is the brand value of the publisher. HBO was able to move toward a direct “stand-alone” model because their brand had sufficient equity to create a relationship with a customer. In the past, book-publishing companies generally have not put a priority on developing their brands, and the result is a reduction in the number of viable distribution options. However, those organizations that have invested in creating brand value, such as Scholastic or Harlequin, are in a position to offer services directly to their customers and they have done so with admirable result.
It’s not a one-strategy-fits-all world. The future revenue and delivery model that will be most effective for any specific publishing organization will depend greatly upon the market segment they serve. However, it is increasingly clear that when compared to traditional book publishing revenue models, the revenue model of the future will be characterized three dominant trends:
- First, the content will be delivered digitally. Physical print will continue to play a valuable role but as a secondary mode of delivery.
- Second, content will be delivered in the form of a subscription service, in which a customer is given access to digital content for a defined subscription period, as opposed to purchasing a physical copy or a perpetual license.
- And finally: whenever possible, content organizations, including book publishers, will seek out ways of creating direct marketing and delivery relationships with the reader.
While the path is not fully clear, the clouds have parted enough for us to see the next steps that lie ahead.