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Oyster to sell ebooks, goes after Amazon and Barnes & Noble

Subscription services for movies and songs have decimated sales, as many consumers no longer feel the need to own the latest Rihanna album or "Parks and Rec" DVD set. Subscription book services are at a much earlier stage than the likes of Netflix or Pandora, but the end result could be the same, with avid readers finding a new equilibrium between what they buy and what they rent.

Oyster, launched in 2013, was one of the first ebook rental services, offering subscribers a Netflix-like (NFLX) model of all they can read for $10 a month. But after 18 months in the market, Oyster plans to expand in a surprising direction: ebook sales. While the company offers only 1 million mostly older titles for rent, the sales effort will include virtually every available ebook from all the big publishers, including the latest best-sellers. Subscribers and non-subscribers alike will be able to buy ebooks.

Ebook selling is an incredibly crowded market, led by Amazon (AMZN), Apple (AAPL) and Barnes and Noble (BKS). And it's not exactly growing like gangbusters anymore, either. Ebook sales have slowed dramatically since publishers pushed through big price increases a few years ago, increasing just 5% last year (not including self-published titles), according to the American Association of Publishers.

No doubt there are plenty of challenges facing Oyster, one of which is that last July Amazon added a subscription component to its already market-leading Kindle ebook store, leaving Oyster at a disadvantage with customers who might want to switch between buying and renting on a regular basis.

But the larger issue for Oyster and all the other ebook rental services, including Amazon's Kindle Unlimited and competing startups Scribd and Entitle, has been that book publishers have stuck to a disciplined approach to segment which, if any, books they make available for renting.

Oyster claims 1 million ebooks, but most are older titles, like the "Harry Potter" series. The promotional page for Oyster's library features a 2013 collection of "The Best American Short Stories," Chelsea Handler's six-year-old comic memoir and two much older classics, Paulo Coelho's "The Alchemist" and Ernest Hemingway's "The Old Man and the Sea."

The ebook rental service Oyster offers customers all they can read for $10 a month.
The ebook rental service Oyster offers customers all they can read for $10 a month.

Its borrowing library includes titles from only three of the five major publishers, Macmillan, News Corp's (NWSA) HarperCollins and CBS's (CBS) Simon & Schuster. None of the three make their latest and greatest best sellers available for rent, though they will be available for purchase. And Hachette and Random House Penguin, the largest of all five, will have ebooks for sale but are sitting out the subscription service completely for now.

"We are not convinced it is what readers want," RHP CEO Tom Weldon said at a publishing conference last November. That's why renters won't find top Random House titles like "Fifty Shades of Grey" or "Gone Girl" on subscription platforms. Hachette CEO Arnaud Nourry says the entire Netflix model for books is flawed. "Offering subscriptions at a monthly fee that is lower than the price of one book is absurd," he told The Bookseller web site last week.

Oyster CEO Eric Stromberg, a Duke University graduate who co-founded the company after a stint at eBay (EBAY), emphasizes that publishers can expand their markets by participating in subscription services.

"Really what it comes down is to working with them to figure out how we can grow their business while also growing our business," Stromberg says. Pointing to the billions of people getting online for the first time with smartphones, Stromberg says: "It really presents an unprecedented opportunity in book publishing."

The private company, which has raised almost $20 million of venture capital, won't disclose its revenue or subscribership numbers. Customers are reading more than 100 million pages a month, up from 8 million at the end of 2013, Oyster was willing to disclose.

Oyster's new sales effort also comes as the ebook market is getting much less competitive on the retail level.

Once upon a time, Amazon attracted customers with $10 ebook best sellers, even taking a loss on some sales to attract a bigger audience.

But publishers banded together in a price-fixing conspiracy, according to settlements they made with the Department of Justice, and put an end to ebook price slashing. In its most recent deals, Amazon granted publishers the right to set all ebook prices themselves. That means an ebook at Amazon will likely end up no cheaper than the same ebook at Apple, Barnes and Noble and now Oyster.