Internet economics is relentlessly pulling ebooks and libraries towards subscription streaming.

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Amazon’s hard fought battle with book publisher Hachette has been widely covered, as Amazon brutally squeezes their supplier for lower ebook prices. More here. Despite all the coverage, I think the much less discussed Kindle Unlimited announcement is more important. With Kindle Unlimited, Amazon is charging $10/month for all you can read ebooks. Though the terms differ, it’s similar to other ebook subscription services such as Entitle, Scribd, and Oyster. Om Malik says he’s uninterested, since “These services’ book selection is long of total numbers of books, but is short on the books I really wanted to read. Much like Netflix in the early days, you have a lot of indie-content and old catalog content with some new stuff.” I think the Netflix in the early days comparison is exactly right. Not there yet, but a sign of things to come.

Let’s start by noting the internet economics of all media is much the same. Music, movies, TV, newspapers, magazines and books all have a very high creative and human fixed cost to produce. But once created have essentially zero cost to replicate and distribute. So we should expect all types of media to wind up with roughly comparable internet distribution models. A point I made here. Since music is the farthest down this path, let’s use it as a guideline for where books may be headed.

An Economic History of Internet Music:

  • 1999 – Napster digital music piracy takes off.
  • 2001 – Napster is shut down.
  • 2003 – Under pressure from piracy, music publishers agree to let Apple open the iTunes store. Music tracks are sold a la carte with digital rights protection (DRM). Most tracks are sold at the same $0.99 price point.
  • 2008 – As DRM locks customers into Apple’s ecosystem, music publishers are forced to drop DRM to avoid an Apple music monopoly. Amazon and Rhapsody start selling mp3 files without DRM protection.
  • 2008 – music subscription services such as Pandora and Spotify start to go mainstream.
  • 2010 – Apple finally gets The Beatles into the iTunes store. This is notable as an example of how hard it is to get the rights to important artists.
  • 2014 – Subscription streaming continues to take off. Music has never been more accessible, easy to discover or share. Yet this very ubiquity has made it a table stakes commodity for large internet consumer companies. Once an exciting tech battleground, music is now utterly boring. At least from a market/economics perspective. How this plays out is superstars like Beyonce are doing just fine, while mid-tier musicians are getting brutally squeezed in the long tail. Notably a lot of artist revenue still comes from CD sales, though the demographic clock on CDs is winding down.

So the question is how closely will books follow the music narrative. The first thing to note is publishers made their catalogs available digitally without going through a piracy phase. Excellent decision. But of course the DRM temptation was too strong to resist. So now we have Amazon reprising Apple’s monopoly role, using DRM as a monopoly lock-in. Something science fiction author Charles Stross has been warning about for a long time. Book publishers will now be forced to fight Amazon’s monopoly by allowing Apple (and others) to offer DRM free books. This is right out of the music playbook, though ironically with the roles reversed for Apple and Amazon. If the music timeline holds, around this same time we’ll start to see subscription book services take off. Superstar authors like J. K. Rowling will do fine in this new world. Just as Beyonce does. But midlist authors will suffer accordingly. The up side of course is that it becomes easier than ever to self-publish, so there will be more great books published than ever. It will just be far harder to break through and make a living. Like music, growing a grass roots hard core fan base will be critical. For musicians, playing live has become a key source of income to supplement decreasing music sales. Undoubtedly the lecture circuit, the author equivalent of playing live, will play a similar role for authors going forward.

Of course the devil is in the details, and books are different than music. The legal rights are different. The cost structures are different. Consumer behavior is different. In particular nearly everyone listens to music but very few people buy books. Here’s Benedict Evans on twitter:

The analogy would be people pay for a music service which only provides country music. This is definitely possible. The market for books is narrower and more specialized than the one for music. Publishers will also prefer sticking to selling books one at a time rather than get squeezed by subscription streaming. Like for music, single sales will undoubtedly continue. But as a mainstream model I don’t buy it. The economics of the internet are clear and brutal. With zero economic cost to distribute more widely, on the margin subscription streaming exerts a relentless pull. Exactly how streaming will be priced is a much harder question. But streaming itself seems inevitable. Speculatively the base subscription would be advertising supported and free, and get you maybe 1 book per month plus trying a few first chapters. Beyond that there may be several tiers, offering more books/month, no advertising, plus special editions. Just as for music streaming, at first the services will struggle to get key authors or the latest releases, but over time this will become less and less of a problem. Eventually books will become a tablestakes commodity offered by all large consumer internet companies. Perhaps longer term we’d even see a single media subscription combining books, music, TV, movies together. Call it Amazon superprime.

While the downside for midlist authors is clear, the upside is also clear. More and cheaper books for everyone. This will help the least fortunate most of all. Everyone can try a book out and read a chapter before deciding it’s worth their time to continue. Everyone will have the privilege of having an unread copy of Thomas Piketty’s 696 page tome Capital in the Twenty-First Century. Books will no longer be just for the rich to buy, have strong opinions about, and sit unread. That path will be open to all.

Furthermore, it’s important to note that older technology tends to get entangled in regulatory capture. New technology tends to (partially) wipe the slate clean. And books are an old technology. So there’s been plenty of time to capture lawmakers. Most recently this happened with the 1998 Sonny Bono Copyright Term Extension Act, also known as the Mickey Mouse Protection Act. This law extended the copyright of books an additional 20 years, and in practice froze the date at which books come off copyright to 1923. I’m still annoyed about it. This law has had the odd effect of making books published before 1923 more widely available than many recent ones. Paul Heald published a study on this, which Rebecca Rosen wrote about in the Atlantic. There are two key charts, reproduced below. The first shows unique titles by decade available on Amazon. Note the hump just before the 1923 cutoff. The second chart shows book editions available. This makes the effect far more dramatic since once books come off copyright, different publishers create multiple editions of the same title.

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So what does this mean? Well, once all books are subscription streamed, then this copyright problem becomes invisible to the consumer, as all books whether or not in copyright will have the same zero marginal cost. This is a good thing. A plethora of books available to anyone who wants to read, regardless of publish date. My point here is that while publishers and authors will fight to keep the status quo, and suffer from this change, it will also be a good thing for readers at large. As such I think subscription streaming, possibly subsidized for students or the poor, will have enough popular political support to work itself out.

Who are other winners or losers? Well, libraries for sure will be losers. Let me quote an old MG Siegler post:

I’m sorry I have to be the one to write this. I have nothing but fond memories of libraries from my youth. Of course, I also have fond memories of bookstores. And we all know how that has turned out…

Who are the winners? Well certainly people who like to read but currently can’t afford many books. Or people who might read more books if they were simply easier to stream on impulse.

All this said, I think there’s one portion of the book market that will be remain relatively immune to the ebook revolution: children’s books. For my own kids, having physical books around has been essential. A tablet is not even close. As an example, I recently bought The Complete Calvin and Hobbes. Ostensibly this was for my kids, ages 6, 9 and 11. But in reality I thought I would enjoy C&H even if they did not. Fortunately (whew!) all my kids liked it. Such a classic. My older two enjoyed them for few read throughs. But my youngest is liking them well enough to use C&H to learn to read. So before bedtime we’ve been working on important vocab words like transmogrifier, duplicator box, spaceman spiff, stupendous man, calvinasaurus. Such goodness.

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5 thoughts on “Internet economics is relentlessly pulling ebooks and libraries towards subscription streaming.

  1. “2008 – As DRM locks customers into Apple’s ecosystem, music publishers are forced to drop DRM to avoid an Apple music monopoly. Amazon and Rhapsody start selling mp3 files without DRM protection.”

    I think the thing that actually forced music publishers to drop DRM was the need to compete with widely-available DRM-free pirated music. DRM is inconvenient.

    Remember that Apple actively fought against DRM in online music sales. On February 6, 2007, Steve Jobs published his open letter, “Thoughts on Music,” strongly criticizing DRM. He also pointed out there that, on an average iPod, only 3% of the music came from the iTunes store, so this didn’t provide significant lock in for their hardware. Apple reached a deal with EMI that year to drop DRM on all their music in iTunes. The other big players then agreed to license their music without DRM, but not to Apple. They only tried to wield this club against Apple for about a year, before they gave in and also allowed Apple to drop DRM.

    I agree, though, that even without piracy Apple’s growing share of the overall music market would have encouraged the music publishers to abandon DRM. Doing this hasn’t helped much to reduce Apple’s dominance, though.

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