Subscription models for eBooks

One of the things that I propose in Information Wants to be Shared is a move away from a ‘book ownership’ model and towards a ‘book access’ model. Basically, that the library model is the natural state for books as opposed to what we have had in book publishing for the last couple of centuries. The reason is that the underlying demand for books will shift back from display to reading. (If that sounds strange, calculate the total fraction of books you are storing in your house right now that you are reading at this precise moment. Then try to imagine the imputed rent on that storage. It is somewhat scary). With reading, you want people to choose to read based on the marginal cost of getting that information to them — that is, zero — and you want them to be unencumbered by such cost considerations when they recommend what others should read. This lends us towards an ‘all you can eat subscription’ model for books just as we now have in movies, television and music.

The issue, of course, is how to get publishers on board with all of this. Several approaches have looked towards licensing deals that allow for revenue sharing. But those have yet to secure the necessary content from somewhat reluctant publishers. A new approach is proposed by Polish start-up Legimi.

Legimi thinks it’s found a way to change the consumer offering without having to tear up the legal or commercial framework that already exists for ebooks on a pay-per-download basis.

“Our approach is different; we pay the whole price of an ebook once an end-user exceeds its free sample (approximately 10 percent of the book),” Legimi co-founder and CEO Mikolaj Malaczynski tells me 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.

Or maybe another way of looking at it is that the business model relies on a tl;dr generation (my words, not Malaczynski’s) where multiple content and services are constantly vying for a user’s attention, and that this is especially true when content is consumed on an always-connected tablet or smartphone. Whether or not consumers are reading less long-form content or not, however, perhaps misses the point. As long as the number of books read past the free sample remains inline 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.

Legimi is going to pay for books that are accessed. In other words, they offer cost shifting for consumers. They ask consumers to pay up front for books but then they do not have to worry about price when they access a book. That sounds like it is providing a service but, in reality, there is a problem.

To see this, suppose that over the next three months, I will read three books in total and expect to pay $10 for each. But suppose that there is some chance that I will have a false start — buy a book that I don’t like and so want to read another. In that case, there is a chance my book reading costs will be $40 rather than $30. Suppose that probability is 50%. Then my expected budget is $35.

Now if I sign up with Legimi, what will their costs be. If I keep with the plan, their costs are $35. If they are risk neutral and I am risk averse, then I am purchasing a little insurance and so will be willing to pay a premium. But will I keep to the plan. While sunk costs are sunk costs, if I buy a bad book, I have to consider the costs of buying another book when I choose whether to stop reading it. If those costs are not there, then I will switch more often. So while I may have a 50% chance of switching when I face that cost, it may rise when I don’t. That will increase Legimi’s expected costs.

Now you might think: that’s fine, given that you will economise on your time, you’ll pay even more for Legimi’s service that allows you to manage your attention properly. While that is true, it is still the case that given the costs that you and Legimi face together, it would be efficient for you to consider those costs whenever you choose to switch books. So the premium you are willing to pay is unlikely to justify the extra costs Legimi will face. And this is nothing compared to the issue Legimi faces that it will, in fact, by higher than average intense readers that will find the all you can eat model attractive. So their realised costs will be higher still due to selection effects.

The problem is that a true library model for eBooks actually has to solve the cost issue. That means it has to have deals with publishers that reduce the marginal cost of consuming an additional book. Without this, there may be a few minor benefits in terms of insurance to what Legimi is proposing but the bigger issue remains unsolved.