Digital reading platforms: publishers’ friend or foe?

By Giulia Surace, Carmen Arroyo

Last week the Swedish Publishers’ Association and the Swedish Booksellers’ Association released their annual Book Sales Statistics report for 2019, which covers 80% of the Swedish trade book consumer sales. The findings, in line with the previous years, are nonetheless astounding. Although the book market grew 1.1% in value, sales in brick-and-mortar bookstores, online bookshops—not counting Amazon, which does not actively operate in Sweden—and supermarkets declined by 4.4%, 5.2%, and 9.9% respectively. The growth has been, in fact, entirely driven by digital subscription services such as Scribd, where users sign up for unlimited online reading content (presented on many occasions as online PDFs). These services increased by 36.2% in 2019.

According to Erik Wikberg, the researcher at the Stockholm School of Economics who compiled the report, in 2020, the digital subscription channel may overtake the second biggest channel in value—brick-and-mortar bookstores. In terms of volume, digital subscription leads by far, accounting for 48% of all books purchased. Digital subscription platforms are changing an industry, long controlled by traditional publishers. And that is not likely to change soon.  

Book publishing has not been spared from the streaming revolution that has already changed the TV and music industries. In fact, publishing was among the very first industries to be massively disrupted by digitization, with Amazon releasing its first Kindle in 2007 and effectively making ebooks mainstream. At the time, ebook sales revenues were averaging high double-digit growth year on year in the US. So, commentators were quick to draw the conclusion that the ‘book’ as we knew it was dead and that shortly everyone would only be reading on digital devices. This prediction, which sent shivers down every publisher’s spine, turned out to be incorrect. Ebook growth in the US and the UK trade publishing market stabilised in 2015. Around this time, several platforms offering subscription reading services—such as Scribd, Oyster, Entitle, and, of course, Kindle Unlimited—were launched, promising to be the “Netflix for books” and allowing consumers to read as much as they wanted for a fixed monthly fee. After the first boom, many died off, and today only Scribd and Kindle Unlimited are still around.

The business model that Scribd, Oyster, and Entitle adopted involved the publisher getting paid the ebook’s full wholesale price when a reader completed a specific portion of it. In theory, this works well, but what these platforms failed to take into account was the fact that there are very few readers who read more than one or two books per month. These subscriptions were not naturally attractive to consumers the way services like Netflix or Spotify can be. We do listen to multiple songs on any given day and watch a few episodes every week (we also binge-watch, few people binge-read). Worse, big publishers refused to share their content, which frustrated people who signed up only to find out that the ebooks they were after were not available. When the target audience did not materialize,  these services either shut down or, in the case of Scribd, pivoted their business model from an unlimited subscription platform to a credits revenue strategy.

And just as TV streaming services, anticipating the content war, have been ramping up ‘originals’ production, Kindle Unlimited has created a self-reliant model where content is provided mostly by self-publishing authors, Kindle Unlimited—which pays over $240 million a year in royalties—mostly carries self-published authors who make their ebooks exclusive to Amazon for the period that they’re included in the program. This makes big publishers’ support not as necessary. But Amazon’s self-publishing strategy is for another post.

 While trade ebook growth slowed down and start-ups going ‘beyond the book’ developed and boomed (e.g., Wattpad, Hooked), a (new) rising star in publishing emerged. The audiobook has become the fastest-growing format in publishing, and it is tailored for smartphones. Their convenience—according to Edison Research, nearly three-quarters of audiobook listeners do so while in the car—and ability to powerful illicit emotions has made them a choice not only for diligent readers but also for people who did not use to read. Soon publishers went entirely on board, pouring investment into audio divisions and experimenting with audio-only productions read out by celebrities and actors.

Still, content is not the only thing that matters; distribution is also vital for a product’s success. That’s especially the case for audiobooks. Audible, the Amazon-acquired company and US’s largest audiobook producer and retailer, is mainly responsible for the boom of audiobooks. The audio producer offers a credit-based subscription that, in pure Amazon fashion, puts the consumer at the heart of it, offering a free audiobook and stellar customer service. For example,  immediate and free replacement of audiobooks. 

In 2016, in a move resembling the efforts of the likes of Netflix (and indeed of Amazon Prime Video), Audible introduced Audible Channels. The division offered original audio series to its subscribers while acquiring audio rights for published books, competing directly with publishers. Audible has grown undisturbed with none or little competition in the US and the UK, but a string of audiobook platforms has emerged in territories where Amazon has not expanded. It is the case of digital subscription services like Storytel, BookBeat, and Nextory, which drive the growth of the entire Swedish book market. These platforms offer unlimited ebook and audiobook streaming for a fixed monthly fee, proving that unlimited subscription services in trade publishing do work. Partly because these services are still not big enough to threaten the status quo, publishers have also been willing to experiment by distributing their content through them in certain markets only. Far from being small players, all three platforms have grown exponentially since their launch and have increased their presence beyond Sweden. Storytel, in particular, is currently operating in twenty markets and is targeting 1.5 million subscribers and $200 million in revenue by the end of 2020. In a heavily oversubscribed share issue last Thursday, it raised SEK 948 million ($96.5 million).

Despite their aggressive international expansion, all three platforms have primarily stayed away from markets where Audible holds control, notably the US and the UK. BookBeat, owned by Swedish publishing group Bonnier, attempted in the UK. However, it was immediately halted by publishers’ refusal to give up their content to BookBeat in their home turf. The unlimited streaming model has always been a touchy subject for content producers. They are afraid of relinquishing too much control to distributors and of a general devaluation of the product due to the—generally lower—average revenue per unit and the issue with author royalties. Just last January, Penguin Random House, the world’s largest trade book publisher, announced it would withdraw all its content from unlimited subscription services, including Storytel, BookBeat, Nextory, and Scribd in the US. The pull from Scribd might be understandable as there’s a real risk of cannibalizing regular sales. However, the complete withdrawal from the rest of the platforms, where there is no risk of cannibalization, has prompted speculations that Penguin Random House is planning to launch its streaming service, inspired by Disney+.

As the way we consume media changes, business models have to change too. Two of the biggest media business success stories in the past ten years, Netflix and Spotify, prove that it’s possible to succeed in changing environments. Sweden gives us a glimpse of a book market where digital subscription is now the preferred consumption channel. We will see whether publishers in other markets are fully willing to ride on the wave of subscription frenzy, or the time of peaceful cooperation is over.