Publishing Hears Echoes of Netflix Business Model; Digital Startups Prepare to Offer E-Book Subscription Services

September 2, 2013, 6:59 p.m. ET

Publishing Hears Echoes of Netflix Business Model

Digital Startups Prepare to Offer E-Book Subscription Services

JEFFREY A. TRACHTENBERG

Offering unlimited television shows and music for a flat monthly fee has worked forNetflix Inc. NFLX +1.06% and Spotify AB. Will it work in the book industry? It is a question of intensifying debate in the publishing industry right now, as two digital startups plan launches of rival e-book subscription services this fall. If successful, the new services could pose fresh challenges for brick-and-mortar bookstores already struggling to cope with the growth of e-book sales and low prices of physical books offered online.Still, both services face plenty of challenges, starting with persuading publishers to make their books available. One of the startups, privately funded North Carolina-based eReatah Inc., has signed up one of the major publishers, Simon & Schuster, as well as such independents as Sourcebooks Inc. and Kensington Publishing Corp. EReatah, which proposes a limited-subscription offering, expects to launch in the next few months with more than 80,000 titles.

The other startup, Oyster, won’t talk about deals it has struck. It doesn’t appear to have any deals with the five biggest publishers, although several publishing executives said they were aware of the company and would watch its progress. Oyster, which has venture-capital backing, plans an all-you-can-read unlimited books model, it said.

Industry insiders express skepticism whether consumers, who tend to read only a few books a month, will embrace subscription plans that don’t offer all the hits—particularly given the discounts available on e-book sales. “Success comes when you solve a problem, and from a consumer point of view, I don’t see the problem,” said Amy Rhodes, a former publishing executive who is now a partner in consulting firm Market Partners International Inc. “You’ll need very attractive prices for people who read a lot of books, and even then you’ll need all the big titles.”

Resistance also reflects uncertainty about the impact of a new business model on the industry, including on bookstores that now sell lots of books. “There’s a general fear of the unknown,” said Matt MacInnis, chief executive of Inkling, a San Francisco developer of interactive e-books.

“Publishers have operated their economic model for 100 years,” he added. “They don’t know how to model this.”

Some publishers and author representatives have embraced eReatah’s limited offering. Subscribers can choose among paying $16.99 a month for two new titles; $25.50 for three books; and $33.50 for four. Subscribers to eReatah will keep their books and authors will get regular royalties on each download.

The eReatah model “preserves the value of the content, which is important to us,” said Doug Stambaugh, vice president of global e-book market development and strategy at Simon & Schuster, a unit of CBS Corp. CBS +3.82%

But eReatah’s pricing levels might not persuade many consumers, others say, given that it is effectively charging about $8.50 for a book. “The value of most subscription models, be it cable or magazine, is the perception of getting more than you paid for,” said Forrester Research Inc. analyst James McQuivey. Consumers might be less willing to embrace a model where they only get several books a month. “Going unlimited is the only way this will work for books.”

Bryan Batten, eReatah’s founder and CEO, said more than 75% of the site’s titles cost more than $8.50 at regular sales outlets. He said he never formally pitched an all-you-can-consume model to publishers because he expected complications with author contracts. He also said he sensed that publishers were apprehensive that an unlimited model might further devalue books to consumers.

Some agents, as well as publishers, are clearly disinterested in an unlimited offering.

“The fastest way to be shown the door in my office is to propose a Netflix-like e-book subscription,” said Simon Lipskar, president of Writers House.

“The problem with an all-you-can-eat model is that authors stand to make pennies, not dollars,” said Evan Schnittman, chief marketing and sales officer at Lagardère SCA’s Hachette Book Group. “I love the idea of different business models, but don’t forget the author.”

Mr. Batten said there is a difference between reading and watching a movie or listening to a song, which are typically consumed in one sitting. “Reading a book is a much more engaging experience that often spans several days and up to weeks of interaction,” he said. “We feel that not putting a time limit on how long they hold that book is more beneficial for readers.” Mr. Batten said that he is in active discussions with “several other leading publishers.”