Scribd, HarperCollins try out Netflix model for e-books

Online document-sharing site Scribd is taking a page from Netflix's success story as it sets out to create the world's largest subscription service for digital books.

The opening chapter in Scribd's quest begins Tuesday with the introduction of an e-book subscription service that will boast thousands of titles published by HarperCollins before July 2012. HarperCollins, which is owned by News Corp., becomes the first of the five largest U.S. publishers to join a service vying to create an alternative to buying individual titles.

Scribd will charge $8.99 US per month for a service that offers unlimited access to most of HarperCollins' back catalog, as well as an assortment of other books from smaller publishers. Recent best sellers from Harper Collins aren't included in the subscription service, although customers will be able to buy new titles individually on Scribd's site.

"I feel we are moving into new uncharted waters, but that's what innovating and reading is all about," HarperCollins CEO Brian Murray said in an interview.

"I feel like this is the right deal with the right partner at the right time and we are going to learn."

With their personal log-in, subscribers throughout the world will be able to browse through books using Apple Inc.'s iPhone and iPad, mobile devices running on Google Inc.'s Android software and any personal computer with a web browser. As long as they are logged in, subscribers will be able to stop reading a book on one device and pick up where they left off on another.

"For power readers, this is going to be like a dream come true," predicted Scribd CEO Trip Adler. "We think this could really change the book publishing's business model and change people's reading behavior."

In the process, Scribd could help publishers cultivate an alternative to the electronic books stores run by Amazon.com Inc., Apple Inc. and Google Inc.

Unlike those technology powers, Scribd is still small. Adler, 29, has raised $26 million US in venture capital since he started the San Francisco company six years ago to help his father post a paper about neurosurgery online.

Began with small publishers

Scribd began testing its subscription service with a few small book publishers earlier this year. Since then, Scribd says the number of subscribers has been increasing by about 60 percent each month, although it won't disclose how many paying customers it has. Scribd says it has 80 million users who visit its site to read an eclectic mix of books and documents that include research papers, essays and legal briefs.

HarperCollins and authors will be paid based on how much their books are read under a complicated formula, Adler said. He declined to provide more specifics about the financial arrangements.

Scribd is trying to create the book industry's version of Netflix Inc.'s online video service, which has attracted more than 37 million subscribers who pay $8 US per month to watch a wide selection of movies and TV shows on any device with an Internet connection. Digital subscriptions also are winning loyal fans on music services run by Pandora Media Inc. and Spotify.

The popularity of those services has made it clear that subscriptions are one of the most powerful ways to hook consumers and create a recurring stream of revenue, said Forrester Research analyst James McQuivey.

[Book-lovers] are people willing to spend a tremendous about on books...These are people who will stay at home to read a bestseller instead of going out with friends on a Friday night- James McQuivey, Forrester Research

Digital subscriptions also open a valuable window into people's preferences and habits, information that can be used to tailor and market other products. Scribd is sharing the data gathered about its subscribers with HarperCollins.

"This is going to help us make even better publishing and marketing decisions for our authors," HarperCollins' Murray said.

Although a relatively small percentage of the population are book lovers, McQuivey said those that are tend to be college graduates with above-average incomes — a compelling demographic for a subscription service that is also looking to sell content to own, too.

"These are people willing to spend a tremendous about on books," McQuivey said. "These are people who will stay at home to read a bestseller instead of going out with friends on a Friday night."

Adler said he believes Scribd's subscription service eventually could produce $1 billion US in annual revenue, particularly if other big publishers sign on. HarperCollins' major rivals are Hachette, Simon & Schuster, Macmillan, and Penguin Random House.

Book publishers have so far shied away from subscription services, partly because they fear the amount from the monthly fees won't be enough to offset the money lost from reduced sales of printed copies.

But the advent of electronic readers and tablet computers are making book publishers more receptive to exploring new ways to bring in revenue from digital devices.

"I assume if this subscription model works, other publishers are going to eventually join us," Murray said.