Book Publishers Stick a Toe Into Streaming Waters

Long after music, movie, games, podcast and television producers and rights owners made the leap to all-you-can-eat streaming, the Big Five trade book publishers in the U.S. have kept their audiobook releases off subscription platforms. Though subscription access to audiobooks is widely available in Europe, South America, the Middle East and Asia, through services like StoryTel and BookBeat, the most the major houses have allowed streaming platforms like Spotify and Amazon’s Audible to offer in the U.S. is for their subscribers to earn credits toward the purchase of single-title, a la carte downloads.

The publishers’ reluctance to embrace streaming is born largely of a fear of cannibalizing single-unit audio sales or, worse still, hardcover book sales, in what is their largest market. But there are signs the ice may finally be breaking up (and not because of global warming). The Wall Street Journal reported last week (gift link) that Spotify is in discussions “with some of the largest publishers in the U.S.” about a pilot program that would allow subscribers to listen to up to 20 hours of audiobooks a month as part of their existing subscription.

According to the report, the streaming service intends to offer the program for a limited time to gauge subscribers’ interest in audiobooks.

Spotify’s interest in testing the program is clear. It needs to achieve sustainable and sustained profitability — something it is yet to achieve from its music service, due in no small part to the unfavorable terms of its licensing deals with the major music labels and publishers. It has already invested heavily to develop the non-music part of its business, sinking more than $1 billion into podcasts and podcasting, and is obviously keen to find other sources of non-music audio it can license on more favorable terms than it gets from its music suppliers.

The book publishers’ interest is more surprising, given their long-standing policy, but not a complete mystery.

While book sales in the U.S. have come down off their pandemic highs of 2020-2022, they have for the most part remained solid through the first half of 2023. But book publishing has long been a slow-growth business. What growth the major houses have achieved over the past decade has come largely through increasing market share via consolidation.

Total U.S. Book Publishing Revenue

After the U.S. Justice Department put the kibosh on Penguin Random House’s $2.2 billion bid for Simon & Schuster last year on antitrust grounds, however, the consolidation avenue to further growth is likely closed off for the foreseeable future. Paramount Global ultimately ended up unloading S&S to private equity giant KKR for far less than PRH had offered.

As it happens, audiobooks are currently the fastest growing segment of the publishing business. Although they represent only about 12% of overall book sales, audiobooks have been growing by double digits for more than a decade. If you’re looking for sources of organic growth in the absence of M&A options, exploring ways to nurture the fastest growing part of your current business would be a good place to start.

Paramount’s eagerness to wash its hands of S&S illustrates another factor likely driving publishers’ interest in streaming. While literary assets may carry a certain prestige, the actual business of publishing increasingly is out of step with the rest of the media industries. While the music, movie and television industries have all but abandoned transactional unit sales in favor of licensed access, the book business remains mostly old school. It’s an odd fit within the media conglomerates that today own the major houses.

With divestment at distressed prices the most viable, if unappetizing alternative currently on the table, looking to bring at least some parts of the publishing business more in line with the rest of the parent company’s balance sheet and earnings statements has a certain logic.

The rush into streaming in both the music and video industries has caused its own problems (looking at you, Disney), and the spoils certainly have not been equitably distributed. But the licensed access model is not going away anytime soon, because its benefits are too obvious. It has transformed IP assets from static, quickly exhaustible resources into reliable, recurring sources of revenue. It’s the kind of revenue that can attract outside investors other than bottom-fishing private equity buyers. The sort of institutional investors and asset managers that continue to gobble up music publishing rights.

If book publishers are serious about exploring audiobook streaming, of course, they have a lot of catching up to do. While streaming has transformed for music, movie and television industries, none of those businesses were new to licensing. Music public performance rights have been licensed for more than a century; movies and TV series were licensed for syndication and other forms of distribution long before streaming came along.

The book business, in contrast, has relatively limited experience with licensing. English-language books are licensed for translation and distribution in other territories, but those deals typically involve a large upfront payment with little in the way of backend royalties. It’s essentially a one-off. The same with adaptation rights for stage and screen. Though many books get optioned for film and television, relatively few ever make it through the development machinery to reach the screen, thus producing little or no revenue beyond the initial option.

According to the Journal report, Spotify has discussed a range of compensation models with the publishers. But the industry mostly lacks the systems and infrastructure to manage recurring revenue streams at scale and the royalty collection, calculation and payouts that come with them.

Spotify has those systems in place, of course, but they were built for music and literary rights work differently.

It will be an interesting experiment to watch.

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