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Calculating the Publisher’s Cut in Subscription Services: Revenue Share vs. Breakage

Blog, Revenue Strategy, Subscription Services

“The Subscription Model” got a lot of airtime at BEA this year, as book publishers explored delivery models that have the ability to generate recurring revenue through subscriptions. The buzz was so pervasive that it was difficult to escape the discussion. Not only did BEA’s sessions cover subscription, the topic was also covered during the IDPF Digital Book and BISG’s Making Information Pay conferences, the later of which recently completed an industry study on subscription. In an effort to stand out from the crowd, some sessions advertised the fact that they were NOT discussing the subscription model.

There are three factors at work that has driven this focus of interest on subscriptions. First, the launch of a number of high-profile initiatives, such as the consumer-oriented Oyster service, has gotten the attention of the industry since the beginning of the year. Second, there is increased clarity among publishers as to the level of revenue they can expect from ebook sales. And while ebook revenue is clearly a welcome and significant new revenue source, for most publishers, it is insufficient to fully replace lost print sales—something else must fill the gap. Finally, there is the observation that, broadly speaking; the digital media economy is increasingly shifting to the subscription revenue model, as opposed to discrete transactions for individual products. HD Netflix subscription is far more indicative of the road ahead for digital media delivery than Blu-Ray disc sales, or even pay-per-view. As fellow members of this digital media landscape, book publishers are contemplating what significance the “subscription economy” has to their strategy.

Many players in the subscription game are aggregators. Companies like Oyster and Safari create, market, and deliver subscription services that provide access to digital content from many publishers. One of the interesting aspects of the subscription marketplace is the emergence of two contrasting models that address the manner with which publishers participate in the revenue generated by such aggregation subscriptions.

The Subscription Revenue Share Model

A straightforward approach used by a number of aggregation services, such as Safari, the Subscription Share Model is an extension of the traditional revenue share between publisher and distributor. In the case of aggregation services however, the revenue is further split among a large number of publishers. For example, if the subscription service provider were to take 40% of revenue, the remaining 60% must be further divided across all of the participating publishers. The split among the various publishers may be based on percentage of page views or percentage of titles to which the subscriber is given access. In either case, if there are a large number of publishers participating, each with a large number of books, then the percentages that result for each book could become very, very small.

The Breakage Model

In an effort to entice the participation of publishers who have been unimpressed by the Subscription Share Model’s sometimes-paltry payouts, newer entrants to the subscription aggregation field, such as Oyster, have forwarded a radically different revenue share approach. In the so-called Breakage Model, the aggregator will pay the publisher the wholesale price for the title once the customer has read beyond a specified percentage of the book—say 10%. It is an all-or-nothing cliff based on that percentage. If the reader only accesses 9% of the book? Sorry, no cigar, no publisher share.

This offers more potential upside to the publisher. If publishers feel their title is engaging and can get the reader past that 10% mark, then they can make the equivalent of an ebook sale. This promise has assisted Oyster’s impressive achievement of getting 500,000 titles into their subscription program.

The aggregator in this model assumes significant risk. In a scenario in which most subscribers furiously read up to 10% of many, many titles, the publisher payouts may well exceed total subscription revenues raised. On the other hand, if subscribers to such services are truly “casual” readers and stay safely below the threshold, then the aggregator would end up paying few publisher bounties and generating a very healthy margin.

While the Breakage Model represents a brave, iconoclastic approach to revenue share, it sets the interests of the publisher at odds with those of the distributor. Publishers will desire the user experience of such services to facilitate immersive reading, at least to the point that the reader reaches the 10% threshold. The service provider on the other hand is incented to create an experience that engages and retains the subscriber, but keeps the user flitting from title to title to stay below the threshold for any given title. This will be extremely easy for the service provider to do by creating an interface replete with competing distractions. The models could not be less alike. If the Subscription Share is akin to a business partnership, then the Breakage Model is more like a casino, with the players (the publishers) trying their skill and luck against the house (the aggregator).

It is far too early to say whether one of these models will come to dominate the field or whether they can peacefully co-exist. One truism that has emerged time and time again, as we enter the adolescence of digital publishing, is that it is exceedingly difficult to make any generalities across all publishing market segments. Each market segment requires solutions that take into considerations its unique characteristics. For this reason, we may well see both of these models—and others—continue to be used to support the varying needs of different market segments as the subscription economy evolves.

Session Description: Driving Value and Revenue Through Digital Collections (IDPF/BEA/Digital Book 2014)

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Session Description: Digital Book 2014 (IDPF/BEA)

The whole is greater that the sum of its parts: Creating reference value by providing access to collections of related e-book titles.

Description

Publishers and distribution partners have opportunities to create profound customer value by providing access to curated collections of related titles. A curated collection of thematically related and authoritative works represents a unified information resource of significant value to many customers segments, including researchers in academic settings and knowledge workers in professional environments.

This lively roundtable discussion will explore some of the aspects of provisioning collections:
• Customer Value Creation: What are some of the customer segments that find value in collections versus single titles. What is the nature of the new value created by defined collections to these customers?
• Collections Curation: What is the process of defining collections? What are the implications of the curation process in terms of authority? Will this be a new profession? How and when should collections be revised?
• Publisher’s Role: When should the publisher be the point of authority for defining and selling collections? What role do marketers and editors play in the definition, delivery, and management of collections? What might be the role of the crowd-sourced curation and of algorithmic analysis?

 

The Roundtable

Chris Parton West Academic is CEO of West Academic Publishing, the leading publisher of casebooks, treatises, study aids and other legal education materials in the United States. Next month, West Academic will begin delivering new high-value services to customers and opening new opportunities through the delivery of reference services based upon curated collections of West Academic titles.
Prior to West Academic, Chris was Vice President & General Manager of Thomson Reuters’ Academic division. Chris has a twenty-year track record leading commercially successful professional and academic publishing initiatives. He holds a JD degree from The University of Texas School of Law.

Corey Pressman is founder of Exprima Media, a software strategy and design consultancy based in Portland, Oregon. A former anthropology professor, Corey brings together deep understanding of interaction between between people and digital media, seen through the lens of cultural anthropology. Corey’s observations are backed by years of experience guiding organizations through the digital landscape.

Corey authors Ancient Marginalia, a popular Digital Bok World blog about the history and future of reading. He also hosts Exprima Talks, an interview series for Publishing Perspectives that focuses on developments on the edge of digital content delivery. Corey has recently contributed a chapter to the forthcoming IGI Global title Examining Paratextual Theory and its Applications in Digital Culture.

Jeff Dean is Publisher at Focal Press, an imprint of the Taylor & Francis Group. Focal publishes materials for creative professionals and students in the media arts, including photography, film, gaming, animation, audio, web design, theater, and mass communication. Jeff manages the editorial group at Focal’s offices outside of Boston, also guiding market strategy and business development. Prior to Focal, he was an Executive Editor at Wiley, responsible for acquisitions of text, reference, and academic titles in philosophy and related fields.

Jeff studied German and philosophy at Oberlin College, and went on to receive his doctorate in philosophy from the University of Wisconsin—Madison. He has published research in ethics and philosophy of art, and taught at both the college and high school level in these fields.

Andrew Brenneman (moderator) is President of Finitiv. Finitiv partners with publishers in the professional reference marketplace to deliver digital subscription services. In 2012, Finitiv launched PCSbeacon®, the industry’s first turnkey hosted subscription service platform for book publishers.

For over twenty years, Andrew has led digital media initiatives with organizations that include Thomson Learning, University of Chicago Press, and NETg. Many are familiar with Andrew through his column in Book Business Magazine, “Digital Directions”, that he has written since 2008. He holds a Master’s degree in Technology and Communications from New York University, has been awarded U.S. Patents for digital media innovation.

Improving Ebook Data Quality: A Frank Assessment and the Path Forward

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Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives.

–WILLIAM A. FOSTER

The level of data quality in EPUBs is generally low. This is true whether the EPUB is generated in house or through a service provider. Publishers give ebooks short shrift. The quality of publishers EPUBs is far lower than of their print products. While this does not come as a surprise to production managers and publishing services organizations—those involved in the nitty-gritty of data conversion—it often is a shock to senior management, who thought that EPUB creation was a problem solved long ago.

EPUB data quality is an issue that includes a number of aspects including:

  • Standards Conformance: Does the EPUB file conform to the IDPF standards? Does it pass validation?
  • Consistency of Data: Are a publisher’s EPUB titles implemented in a similar way or is there variability from title to title?
  • Robust Metadata: Has the publisher consistently implemented Dublin Core bibliographic metadata, subject-specific subject terms, and structural tags?
  • Quality of CSS: Cascading Style Sheets file in the EPUB package determines how the ebook will look on a device or in a browser. Was the CSS created with precision and with a sensitivity to design best practices, as well as the design standards of the publisher?
  • Cross-browser/device behavior: Different devices and browsers may handle display in different ways. Does the CSS and other EPUB components include the requisite information to optimize the appearance of the EPUB in these varying scenarios?

In order to validate my observations, I turned to friend and colleague, Joshua Tallent, chief ebook architect at eBook Architects. Joshua is one of my gurus for all things EPUB. Joshua echoed what I am seeing in terms of shaky EPUB data quality. “Publishers are either unaware of the issues of data quality in their EPUB files or unable to make changes needed to improve it. Publishers who outsource their work to vendors are at the mercy of the vendor’s practices and tools. Publishers who create their eBooks in-house run into other problems if they are relying on one-button conversion tools (as found in InDesign) without first defining well-formed manuscripts. These tools tend to be garbage in, garbage out, so the quality of the EPUB files coming out the other side is usually not very good.”

Publishers must start to raise the level of data quality of their EPUB titles. If not, they will find it difficult to hold to price points in the market place, as customers become savvier and their expectations rise. Further, the quality of EPUB data will increasingly be a competitive differentiator, not only for customer sales but also for author acquisition. Authors will sign with publishers that can create the best EPUB experience for their title.

The EPUB quality status quo appears untenable. Change is required.

It starts with the organization itself.Anyone involved in the creation or distribution of eBook files needs to learn more about the formats and best practices,” says Tallent. “That is true regardless of whether they are a developer, a manager, or the person doing QA. The more you know about what EPUB can do the better your eBook files will become. That means digging in and learning. It means reading the specs, taking classes about ebook development, and testing how these things work.”

“I have been impressed by some movement in the past year or so on this front. Production managers at some publishing houses are becoming more knowledgeable about the need for quality code, and are starting to implement standards for their EPUB files. Some are moving to EPUB3 with the goal of re-thinking their processes and taking their quality to the next level.”

Book publishers are a fortunate lot benefiting from a robust, digital formatting standard in EPUB. The EPUB3 specification is a comprehensive technical standard for digital book content that defines a standard way for formatting book content (HTML5), and a comprehensive set of specifications for metadata to define book structure and label its subject matter. EPUB 3 is a tremendous asset for publishers of all sizes in most market segments. However, the strategic value a publishing organization derives from EPUB will be determined in large part by the level of data quality of the EPUBs they produce.

A Recipe for Success

 Publishing organizations can improve the quality of the EPUBs they produce by addressing the following issues in the following sequence:

  1. People: EPUB quality rests on the quality of the publishing team. Starting with training is a great idea, as Joshua described. Joshua’s own eBook Ninjas a good place to start. The IDPF can provide additional options for ramping up the EPUB chops of the publishing teams.
  2. Standards Definition: Publishers must define and document their own EPUB standards to include the detailed specifications for CSS, subject tagging, structural tagging. These standards can be used as acceptance criteria for external EPUB service providers. All EPUBs produced must conform to these standards.
  3. Defined Workflow: A well-defined, documented production workflow assists the creation of high-quality EPUBs.
  4. Automation Platforms: An organization that has an EPUB-savvy team and well defined and documented EPUBS and workflow may be in a position to use an automated approach to create many of their EPUB titles directly from source manuscripts. Those organizations that embark on automation initiatives without first putting in place a team, standards, and workflow will find themselves on a more lengthy and painful course. A caveat: as Joshua points out there are limits to this approach and it may not be suitable for all titles.

For many publishing organizations, there is much to do order to raise the bar on EPUB quality. But there is a bright side: the path forward is clear, far clearer than it was even a few years ago.

We have robust digital book standards. We have identified opportunities in the marketplace. Now is the time to put the two together.

Intelligent Content Delivery

Blog, Delivery Solutions, Subscription Services, Technologies

When new communications media emerge, the typical pattern has been to simply put old content into the new format. The filming of stage plays in early cinema or the reading of newspapers over the radio are two oft-cited examples.

However, I would argue that the most effective use of any medium is achieved only once the unique characteristics of that medium are fully grasped. This process takes time—but when the uniqueness of a medium are understood and exploited, a profound shift takes place.

Reporting On The Hindenburg

Such a ground shift occurred when filmmakers stopped filming theatrical plays and used the capabilities that the camera and editing provided to make something new, as D.W. Griffith found in Birth of a Nation. A shift also occurred in radio when broadcasters realized the medium could do more than transmit the voices of announcers in a studio and took the microphone out into the world. The live report from the site of the Hindenburg disaster demonstrated the powerful experience electronic media could provide.

Publishers who have traditionally focused on the delivery of books on paper are in the midst of a similar shift. While publishers are grateful for the additional revenue the ebook market contributes, most also acknowledge that they are essentially treating this new medium as the old: single book titles are sold in (digital) stores, and read on devices and applications designed to emulate the traditional book reading experience.

Book publishing today is analogous to early cinema. Today we have a new digital, mobile, connected medium but we have yet to discover how to fully exploit its unique capabilities for customers. One way that publishers (along with their development and distribution partners) can break new ground and create additional customer value is to harness the computing power available to them and make their content delivery offerings more intelligent.

The Connected-Mobile Platform

The digital media delivery platform that has emerged over the past five years has been empowered by:

  1. Mobile devices operated by the user with the ability to display a wide array of content types (textual, audio, video, etc.), run applications, collect and store data about content and user behavior, all with ubiquitous internet connectivity.
  1. Web services that a device connects to via the internet which enable the device to access media assets (images, video, ebooks) and provide application functionality to the device. Such web services include Gmail, YouTube, Facebook, Oyster, and Spotify

The power of this delivery platform is woefully underutilized. A mobile device is, above all, a computer. In fact, processing capabilities of these devices are increasingly significant. The processing power of the Apple A7 chip used on the iPhone 5S was found on only the most bleeding-edge desktop machines ten years ago. These mobile devices rock.

Web services are also built on arrays of computers (servers) with vast computational capabilities of their own, and which can add more relatively easily just by adding more servers.

Sadly, these computing resources are lying fallow today and are not employed to add value to digital content delivery. The mobile device is typically used only for display (which it does quite well) and for the storage of data (which it does relatively poorly). Web services in the world of digital publishing have few duties other than access control (password protection) and the storage and delivery of data.

So much more is possible. Computing power can generate significant value to the user by applying logic, or rules, to vast arrays of data to help the user reach a goal. The users’ goals vary depending upon the specific offering. For example, the goal of a Google search is to find the most relevant search result. The goal of a shopper is to find the right product. The dizzying level of computational power in Google’s and Amazon’s respective infrastructures allows these goals to be met with a surprisingly high level of success.

Bringing Horsepower to Publishing

Publishers and their distribution partners can tap the computing power of the connected-mobile platform in a variety of ways, depending upon the specific goals of each market segment:

Consumer/Trade: In the consumer marketplace, a key goal is to efficiently and elegantly connect the most relevant offering (book or service) to a customer. The art and science of presenting purchase suggestions is well recognized for both adding value and driving revenue. This is typically done through the real-time analysis of purchase history, browsing history, and the behavior of similar customers. This process will surely become more sophisticated as the data that drives these suggestions expands to include user analytics data (data based on actual reading behavior) as well as activity of the user in social media. The ability for systems to respond quickly to such vast data sets requires computing power by both the device and the web services.

Education: Learning technologists aspire to create a more efficient and more engaging learning experience through the delivery of educational content through services that can dynamically adapt delivery based on the mastery and performance data of the individual learner. The adaptive learning (or prescriptive learning) model attempts to ensure that the material presented at any given time is the most relevant to the individual learner. Adaptive learning software applies a set of rules for the interpretation of data collected from the learner, and using metadata related to educational content, increases the likelihood that the most appropriate learning experience is presented. While much work needs to be done to make this vision reality, services such as Knewton, Aleks, and Lrnr have illustrated the promise of this approach and how the computing power of the platform can be harnessed to create significant value for learners and teachers.

Professional Publishing: A user of professional reference content often seeks specific information to support their work. They need to identify information that is relevant, current, and referenceable as efficiently as possible. The problem is usually not too little information, but rather too much of it.

A connected mobile device is not limited to reading a single title, but has the capability of accessing huge arrays of content from web services. Publishers must support the competing priorities of providing access to vast arrays of content while at the same time creating a service that supports efficiencies. A delivery service that enables the user to find the most relevant information as efficiently as possible will add significant value.

Identifying relevance within a professional research service shares some goals with Google’s approach to ranking search results. However, it can do so with a higher level of specificity by also analyzing data pertaining to the users industry, role, and organization.

 Intelligent Delivery

When a computer-based system creates user experiences that are dynamically adaptive to the user, it is often referred to as exhibiting “intelligence.” This unfortunately anthropomorphic term is probably as good a label as any to describe this characteristic. Intelligent delivery of digital media has been shown to drive such diverse success metrics as user engagement, subscriber retention, learning efficacy, and sales volume.

Publishers and their delivery partners who seek to take advantage of the untapped capabilities of the connected-mobile platform should explore ways that intelligent delivery can increase the value and effectiveness of their digital offerings. And where value and effectiveness lead, customers and revenue are not far behind.

It’s all about the Data: How Metadata and User Analytics Add Value to Online Subscription Services.

Blog, Delivery Solutions, Publishing Strategy, Technologies

One of the my favorite bits of cinematic absurdity is from “The Graduate”

Mr. McGuire: I just want to say one word to you. Just one word.

Benjamin: Yes, sir.

Mr. McGuire: Are you listening?

Benjamin: Yes, I am.

Mr. McGuire: Plastics.

(As ridiculous as the scene may be, it is interesting to consider the value of this advice 47 years later. Those who invested heavily in plastics the year “The Graduate” was released (1967) become wealthy. )

To update the dialog, and make it relevant to publishing in 2014, change the word “plastics” to “data”.  Any organization attempting to create value and profitability in the digital media ecosystem must develop the ability to collect, maintain, and derive value from large sets of data. The use of data allows the publishing organization to better understand and meet the demands of its customers, and also to significantly add value to the manner with which content is delivered.

Types of Data

Two types of data have the greatest strategic value for publishers.

  • Content Metadata contains information about subject matter contained in the content, (sometimes referred to as semantic data), and also can bibliographic information, data that facilitates distribution, and, ideally, rights information.  A publisher’s metadata is most effective when it supports a set of data fields that confirm to a standard schema, such as ONIX. Metadata is also made more effective when the data values are selected within a prescribed set of values and terms, a so-called “controlled vocabulary”.   BISAC subject categories are an example of a controlled vocabulary. Standard schemas and controlled vocabularies allow the publishers digital content to be more effectively delivered by any channel, application, or technology that also conforms to those standards.
  • User Data contains what publishers have historically managed in a customer/prospect database, or CRM system: personal and demographic profile information, and sales transaction history.  But in the context of digital content delivery user data also includes actual usage data: data that describes the actions taken by the customer (or prospective customer) while interacting with a publisher’s content and the applications that deliver them. Usage data might include information regarding what content was accessed, what features were used, how the user navigated through content. Usage data can collected on an aggregate basis or individual basis.

Insight can be gleaned from usage data through a number of methodologies and data processing applications that are collectively referred to as user analytics. User analytics can identify behavioral trends in behavior at both an individual level or on an aggregate level. User analytics, or customer analytics allow publishers to understand their customers better, which can drive decisions related to both product development and marketing.

The digital publishing ecosystem is increasingly driven by technology-based systems that support the discovery, sale, and delivery of content.   Content metadata and user data allow these systems to perform these processes with greater precision and efficiency, leading to greater business results.

Creating Value in Subscription Services

Metadata and user data can be dramatically increase the value and effectiveness of online subscription services. Many publishers have found subscription services that provide access to collections of content to be a meaningful way of serving the needs of their customers and generating new annuity revenue streams. In any web-based subscription service, the user interacts with a web-based delivery application. When a delivery application has access to content metadata and user data, the application has the ability to identify what content might have the greatest value to the user. The application can display more “intelligence”, selecting that which is most relevant that user.

Intelligent Delivery

The online delivery application can use this data-driven intelligence in powerful ways:

  • The application could suggest content that may be of interest to the user, based on both user analytics as well as detailed semantic descriptions in metadata
  • Delivery applications could provide more valuable search features within an online subscription service by having usage data and metadata drive the search ranking (which result comes first), to make the most likely relevant search results come out on top.
  • Subscription services could also make meaningful suggestions for additional offerings that may be of interest to the user, creating additional revenue opportunities for the publisher.

Some of these capabilities are familiar to most of us in the guise of “recommendation engines” within the world of e-commerce. The intelligence of recommendation engines is driven by both product metadata and user analytics. Publishers and digital distributors can do well to take cues from established practice in the world of e-commerce to explore how these data can be used to make delivery “smarter”.

What is most profound about digital publishing is not that it is delivered in bits instead of atoms, but rather that the delivery is performed by a software architecture that has the capability analyze large data sets and modify the characteristics of delivery based upon patterns in data – intelligent delivery.  It gets smarter the longer the user interacts with it. It gets more powerful with greater content metadata, which allows the right content to be presented to the right user at the right time.  The intelligence that these systems can acquire provides greater value and efficiency to the user, and also enables the publisher to increase subscriber retention. Publishers who grasp and leverage this essential dynamic are in a position to generate new, significant and enduring revenue streams.

Publishers who want to strengthen their understanding and position in such a data-driven world should support two ongoing initiatives:

  • Content Metadata Program: Managing bibliographic and semantic metadata (using standard schema and vocabularies, please) is a core task for publishers. Value is added to metadata when it is uses standard schemas and vocabularies, is detailed, and is consistently applied. Metadata management is a new though critical role in the publishing organization of 2014, to which investment should be made.
  • Usage Data Acquisition: Publishers should strive to collect and manage as much usage data as is practicable from all of the systems that control the discovery, sale and delivery of their offerings. If publishers manage their own in-house systems, this is a fairly straightforward IT task (although it is important to define how much data should be collected). However, third-party distributors or service providers manage most discovery and delivery platforms. The publisher should collect as much detailed activity data as possible from every digital service with which their customers interact, such as Kindle Cloud Reader, Apple/iBookstore, Google Play, Inkling, and Oyster, to name a few. Ideally the usage data to be provided to the publisher should be clearly stated and contractually documented.

Getting user activity data from online service providers is sometimes difficult. Tales of publisher agony in trying to get more usage data from the likes of Apple and Amazon are legion. The reluctance in providing user activity data to publishers ulimately lies in the fact that whoever has the most meaningful user analytics data is in the strongest position to solidify and monetize the customer relationship.   The tech companies know this, and drag their feet.

This is a true turf battle here. Those with the deepest insights are in a position to control the customer and therefore the marketplace. If publishers wish to create meaningful enduring, and profitable relationships with customers, they must demand access to a significant level of activity data from their online service platform providers.   This is high stakes poker. Don’t blink.

In closing, I just want to say one word to you. Just one word. Are you listening?

Data.

Subscription Service Readiness Checklist: A Planning Tool for Book Publishers

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The overarching question all publishers must ask, the existential über-question, trumping all others, is: Where will revenue and earnings come from in the future?     The answer to this question is fundamental: all other aspect pertaining to digital media – whether it is asset management, metadata solutions, or social media strategies – are dependent upon these future revenue dynamics.

For many book publishers, future revenue will be significantly derived from the delivery of subscription services that provide access to collections of a publisher’s content, delivered directly to individuals and groups of individuals. The attractiveness of publisher-branded subscription services is the consistency of the annuity revenue streams they generate, the percentage of revenue retained by the publisher, and the strategic value of having a direct relationship with the customer.

Are subscription services an opportunity your publishing organization should pursue as part of its future revenue strategy? If so, what are some of the issues that need to be tackled before a successful subscription program can take wing? Let the Subscription Service Readiness Checklist initiate the discussion.

Subscription Service Readiness Checklist

  1. Content Focus

Does your current book offerings have one or more key areas of subject matter focus? Do acquisitions and product development take place within the context of a publishing program, with strategic areas of focus or is the front list – or is it serendipitous, based upon editorial whimsy? In subscription services, book publishers deliver value by providing access to collections of thematically related works.   Subject matter focus is an absolute requirement.

Not only should there be domain focus to the list, there should also be an ongoing investment and product development commitment to these key subject areas. One critical success factor to retention of a subscriber base is the regular and ongoing addition of new materials to the subscription service.

  1. Critical Mass

If there are particular areas of content focus, do one or more of these areas of content represent a critical mass of content, a collection that represents sufficient value by itself?  If a publisher does not have critical mass of focused content, then it cannot offer a viable subscription service. Without critical mass, a publisher must be resigned to throwing titles over the wall to institutional or consumer aggregation services and hoping for the best.

  1. Market Segment Viability

Not all market segments can sustain a subscription program with strong earnings and lasting power.   The target customers must place value on having access to content collections sufficient to justify ongoing renewals. Among the strongest value propositions for collections-based subscription services can be made to customer segments in the area of professional reference: the knowledge worker for whom time is money. Healthcare, legal reference, energy and environmental fields, and engineering content are some of the areas that are especially suitable. Another customer segment ripe for opportunity is the enthusiast or “prosumer” marketplace. Enthusiast/prosumers often display a huge appetite for information and an ongoing commitment to the area of interest.

  1. Sales and Marketing Readiness

Congratulations: you have a critical mass of content that customers value. Now: are you ready to sell to them? With publisher-branded subscription services, publishers sell directly to individuals and organizations. This carries many benefits:

  • First you don’t have to give the lion’s share of revenue to a middleman.
  • Second, you don’t lose control of the customer relationship to an intermediary – you can create and maintain a direct relationship with the customer.
  • Finally, the insights gleaned through the direct interaction with customers, and the analytics data this interaction creates, allow you to revise and enhance your offerings – something impossible to do when going through most distribution intermediaries.

Sadly, many publishers get the deer-in-the-headlights look when thinking about selling direct, entrenched as they have been in their legacy channel relationships, lo these many decades. Carpe diem, folks, and say hello to your audiences. If you don’t create a relationship with your customers, someone else will.

  1. Content Readiness

In order to support content-based subscription services, content must be prepared in a markup-based format to support the efficient ingestion of volume of content without a lot of elbow grease. You likely already have your titles in EPUB2 or EPUB3 (I hope so), in which case you are all set.  What is most important however is not necessarily the supremacy of one data format or another (EPUB2 vs. EPUB3 vs. NLM vs. TEI) but rather that is in A structured, markup-based format, and that standards are applied consistently. The consistent application of data standards are the key to automation, which in term is a key to cost containment in the deployment of content services.

(One point on content readiness: No, Virginia, PDFs are not a markup-based format. The use of PDF seriously compromises the manner with which content can be managed, transformed, and delivered. While there are some inventive solutions in place that try to leverage PDF-based content in digital service delivery for publishers that have no other option, these do not represent long-term delivery solutions.)

  1. Organizational Commitment

The final, and perhaps most important, ingredient for success is the level of organizational commitment to the program. The promise of annuity revenue streams is attractive, yet requires management buy-in to support ongoing commitment from across the organization.

  • From Sales and Marketing: ongoing commitment to create and maintain relationships with customers.
  • From Editorial and Production: Ongoing commitment to continue to add to collections within defined subject domains to support renewals
  • From Finance: Understanding and commitment to the dynamics of subscription-based revenue models, which deviate significantly from the revenue trajectories of traditional book offerings.

This cross-organizational commitment is essential for success. No matter how clearly the opportunity may be seen by some, the success of subscription programs are significantly compromised if the organization does not strive with a shared sense of purpose.

The creation and delivery of subscription services represents a significant shift for book publishers. It is a vastly different financial model, as well as a significantly different relationship to the customer. However, for those organizations that have such opportunities, and are able to profitably pursue them, subscription services will figure prominently in their emerging revenue strategies and play a significant role in ensuring the sustainability of their organizations for a long time to come.

Subject-Specific Solutions: A Path to More Effective Learning Technology

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The advent of digital media has presented educational publishers with not only opportunities for the delivery of effective teaching and learning solutions, but also significant challenges that are well known by readers of this column. These challenges include the need to acquire within the organization’s new competencies, the creation of new partnerships with service providers, and the need to sort through a range of technical issues.

However there is one challenge that is discussed less often, a challenge that may prove especially vexing: the need for fundamentally different approaches for different subject areas in the application of educational technology.   This was less of a problem in the past, when the same product model could be applied to most subjects: the textbook. However, the new capabilities of digital media require publishers to think in terms of subject-specific approaches.

Over the past few decades, some of the most effective applications of learning technology have been specific to the subjects they address. A few examples include:

  • Aplia entered the field with a learning model that allowed students to interactively and graphically explore and manipulate mathematical functions required for the mastery of economics and other quantitative fields.   It is a powerful way to master difficult concepts.   Thomson/Cengage acquired Aplia in the hope of extending the platform to all subjects. However, the Aplia model was proven to be most effective for the subjects for which it is originally intended.
  • Adaptive learning platforms such as Aleks and Lrnr take math students through individualized and prescriptive sequences of math problems based on their mastery of concepts. As effective as this approach is, it is clearly most appropriate for math in which the student is attempting to efficiently progress through large arrays of problems.
  • Discussion and social interaction has long been an approach for exploring humanities and social sciences. This is natural fit for community based learning platforms such as Blackboard or Moodle that support a group of learners or researchers in asynchronous (discussion threads) or synchronous (IM, chat) modes.
  • Alexander Street Press and History IT are two organizations that provide resources for fields in the humanities by providing access to well-curated collections of historical documents. Such approaches are also beneficial for such fields as archeology or material culture, that are supported by access to documents and other artifacts.

A pattern emerges: learning technology is most effective when it is oriented from the ground up around a specific subject area. The subject domain should drive the requirements of how the technology will be best used.

Educators and publishers have wasted precious time pursuing a vision in which technology adapts to different learner styles. In other words, if a student is determined to be visual learner, they would have a different experience than one that is more responsive to a narrative-driven approach, and from a third student that benefits from “social-constructivist” project-based work. The pursuit of this Holy Grail has borne little fruit. The time would have been better spent creating effective approaches for different subject areas than pondering the nuances of individual learning styles.

Subject-specific learning technology presents a challenge for large educational publishers. (And in this present area of consolidation, that would include most). Large publishers leverage their market reach and capital resources by acquiring, integrating or developing technology delivery platforms that they can use for all of their subjects. However, if the most effective use of technology is subject-specific, this one-size-fits-all platform approach is less competitive. In fact, this allows smaller, new entrants (the Aplia’s of the future) to successfully compete against larger incumbents with more effective subject-specific approaches.

If history repeats itself, these new entrants will continue to get acquired by larger players (in order to take both technology and the competitive threat of the new players) who will then unsuccessfully attempt to apply this approach to subject areas for which they are not intended. Far better to leave such programs alone to continue the pursuit of teaching and learning excellence within their specific domains.

Educational publishers can improve the efficacy of their educational offerings by avoiding the trap of attempting to use a common technology platform or delivery model for all subject areas. Publishers must understand at the outset of product development the potential scope of a delivery model, and to not attempt to apply the model outside of that scope. For example, an adaptive learning platform may be well suited for a range of courses within mathematics, but be less effective outside of math.

Second, publishers must observe, engage with, and if appropriate retain leading educators within each subject domain, to help develop not only the scope and sequence of course content, but also to capture and reflect the most relevant engaging modes of delivery for that subject area.

Leading educators will typically be the first to see and understand the most relevant ways to use new modes of technology-based delivery to support teaching and learning within their given domains. Educators will have this understanding before publishers or technologists do. The strategic value of the acquisitions function for educational publishers is to establish relationships with such leading educators and reflect their approaches in published offerings. While this may require different approaches, platforms, and delivery models for different subject domains, the result will be more successful and effective offerings.

Transformation’s End

Tags: , , , Blog, Publishing Strategy


Transformation’s End

 

2008 was the most significant year for print publishing in the past 40.  That was the year that ebook revenue took off, coincident with a decline in print sales.  An inflexion point was reached.  According to Price Waterhouse Coopers, by 2017, ebook sales are expected to eclipse print and audio books.

http://www.statista.com/topics/1177/book-market/chart/1159/ebook-sales-to-surpass-printed-book-sales-in-2017/

Print publishers have long dabbled in a variety of digital enterprises, including interactive courseware, CDROM products, online marketing, free companion web sites, course-packs for learning management systems, and more recently mobile apps.  These activities were largely peripheral, and done primarily to answer competitive threats and to bolster the publisher’s brand, as opposed to creating new value and revenue.  Revenues generated by works on paper supported most of these programs.

But 2008 was different.  Real customer dollars were moving from traditional revenue sources to digital delivery formats, and represented a watershed event in the industry.   A few years before, a similar pattern was seen in the shift of retail activity to online commerce, and the shift of advertising media budgets to digital.  These shifts demanded a strategic response from those who wish to continue to engage in the marketplace. And so in 2008 it was with book publishers: lead, follow, or get out of the way.

Publishers heard the clarion call for change.  The Transformation Era was upon us.      Many publishers saw that strategic changes of core business practices were required in order to to respond to the new opportunities and anticipated threats in the increasingly digital marketplace.

To fully realize these digital opportunities, every aspect of the organization needed to be examined:

  • Sales and marketing teams must create and maintain direct, digitally mediated customer relationships, and use that dialog to better understand the needs of the marketplace and increase customer value.
  • Production must evolve from a print-centric to a cross-platform production approach, in which design (presentation) is separated from content so it can efficiently be delivered in a variety of ways, to a variety of devices.
  • Editorial teams must evolve editorial processes to support more continuous publishing and greater frequency of updates than can be supported by digital delivery.
  • Financial managers must architect the P&L structures of the organization, as the creation and management of dynamic content services are far different from the established P&L structure of traditional book publishing.
  • Technology teams and their partners must bring online new systems to support digital content creation, management, distribution and delivery.

Many publishers have embarked on the path to digital transformation, and learned a lot along the way.  One of the key lessons learned is that the course of transformation may need to be adjusted from time to time, as assumptions are tested and proven or disproven, and as new understanding of the marketplace emerges.

On the other hand, other organizations have resisted fundamental change, despite the clear impetus for doing so.  Some reasons why they have resisted change include:

  • (Perceived) Lack of Resources: With print revenue down and margins thin, organizations – particularly smaller publishers —  feel squeezed.  Publishers that do not have access to investment resources believe they cannot entertain efforts of digital transformation that may require investment.  (Unfortunately vendors often overstate these capital requirements.)    More significantly is the pressure on internal resources: people are already stretched doing their “day jobs” and cannot take on any additional work that transformation may require.
  • Incentive:  Many who hold positions of responsibility are often not give the incentives to pursue change, even though the long-term viability of the organization depends upon it.  P&L leaders commit to their boards the execution of the financial objectives of the current model, not investigation of new ones. And for that they are richly compensated.  One level down in the organization, functional managers have grown dependent upon the relationships they have built with third party service providers.  These relationships become strained when new models are contemplated.

2013 will be known as the year in which the current cycle of digital transformation will draw to a close.  Those organizations that will execute significant changes to core business functions in order to realize new digital opportunities have already done so, or at least begun.  Those that have not begun these changes are unlike likely ever to do so.

A number of recent events signal the end of the Transformation Era:

  • O’reilly’s popular Tools of Change conference, the annual touchstone for publishing transformation, is no more.  The rallying cry for PUBLISHING CHANGE is no longer such an intriguing draw.  As Tim O’reilly said when TOC was shuttered “Seven years on, ‘digital publishing’ is well on its way to simply being ‘publishing.’ ”
  • MarkLogic’s XML database platform, once thought to be a requirement for any serious cross-platform publisher, is little mentioned.  Publishers now realize that digital success cannot be found within a magical software project, such an XML database or “a DAM”.    MarkLogic has clearly signaled an end to their wooing of the publishing industry:  their annual Digital Publishing Summit, like TOC, is no more.
  • At BookExpo this year, there was neither the deer-in-the-headlights fatalism that publishers displayed in years past, nor the unbridled optimism and daydreams of endless ebook sales trajectories, as seen last year.  Publishers are viewing opportunities in the digital publishing marketplace in increasingly rationale and realistic way.   Digital publishing is indeed “publishing”.

 

The impetus for change has been replaced by steadfastness of execution by those publishers with committed courses of digital change.   For them, it is a time of execution.

In those organizations that have not adopted a program of change, complacency prevails.  However, without having executed some fundamental changes, without the means to engage with customers directly and without the ability to support platform-agnostic content creation, these organizations will have a difficult time maintaining their momentum and autonomy in the digital marketplace.

Most significant for the growth of the industry will be the new entrants.  The “born digital” publishing organizations, with a publishing mission – as opposed to technology companies like Apple or Inkling — focused on the creation and delivery of information and media services but unburdened by legacy business models and processes.   Companies like Knovel and Atavist.  While they face the challenges of any new company, they need not concern themselves with transitioning from the past.  They can hit the ground running with new modes of delivery.

The Transformation Era will be followed by the Consolidation Era.  This consolidation will not only consist of the acquisition of small publishers by large ones, but also the acquisition of publishers unprepared to engage in a vastly different publishing landscape by those that are.