According to extremely well-placed sources, CEO Trip Adler is making it widely (and loudly) known that the primary purpose of his trip to Kara Swisher’s CODE conference is to find willing investors to help Scribd get to the next level.
We’re told Adler is attempting to raise cash for a very specific purpose: To pay hefty guarantees to publishers wary of license their intellectual property to book rental services. Sources tell us that many publishers are holding back their books unless they are guaranteed a certain amount of royalty cash.
In other words, rather than building their own services, the famously Luddite publishing industry is letting Scribd, Oyster et al take all the risk (and raise all the cash), safe in the knowledge that those services can’t exist without licensing popular books. And so Scribd’s CEO is reportedly roaming the halls of CODE looking for someone to pay the ransom.
Leaving aside Pando's hyperbole, I think they probably have their facts correct. I can't find any indication that Adler is in NYC, and it is entirely plausible that he needs to raise more funding.
Update: Scribd confirmed that Adler is flying in today.
But bribes? That part, however colorful, can be ignored. I don't think these payments to publishers are bribes, not when they are more likely advances against royalties.
Scribd currently carries around 400,000 titles, but so far they have only scored deals with 2 of the major trade publishers (HarperCollins and S&S). Scribd's next target (aside from Perseus Book Group, which is being announced tomorrow) could be holding out for an advance.
Yes, I can believe that publishers are asking for upfront payments, and that Adler is raising the funds to pay the advances. It makes a fair amount of sense from the viewpoint of publishers to request an advance; this is an untried business model (and if the advance never earns out, the publisher can pocket the excess).
As Mike Shatzkin pointed out yesterday, we still don't know whether the economics of Scribd and Oyster's pay-per-loan business model will work in the long run:
I’m sure Scribd and Oyster have data and analytical skills that I don’t have. But, intuitively, this seems like a tough proposition. Subscription services are attractive to consumers because they’re bargains. If you normally read a single ebook or month or fewer, the $8.99 monthly subscription charge would not seem attractive. But if you read an ebook or two a month or more, the services will likely lose money on you.
I am keeping my fingers crossed, but even I think the viability of subscription ebooks has yet to be decided, so I can't blame publishers for being cautious.
Unfortunately, the question of viability might never be answered, not of Scribd can't raise more funding.