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Not sure that's necessarily true. Just because someone pays for a subscription doesn't mean they won't have favourite authors that they want to read and are willing to pay for.
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While I agree with you, you have to first look at who the audience is that is selecting the subscription model long term and what are they now NOT buying because they have a subscription? Are they buying something else? I agree with you - people who have favorite authors will still purchase their books, but will that substantially reduce other books that they may have otherwise purchased as well?
I think it will go the way the Whispersync audiobooks are going. As contracts are expiring, copyright owners of audiobooks are not allowing their audios to be substantially reduced in price as loss leaders any longer. $12.99 instead of $1.99. I think the same thing will happen with large groups of KU titles as their contracts expire.
All that said, I've found that the offerings for science fiction and DECENT mysteries/crime novels are pretty limited. But it does have Lord of the Rings with Whispersync and I've been enjoying that!