Amazon's Netflix-Style Book Rental Is Good for Publishers, Who Are Still in Denial

According to Publisher's Weekly, Amazon (AMZN) is talking to publishers about a Netflix-inspired book rental service. Their concern, of course, is that customers might stop buying their books. But the real problem is that customers are already not buying their books -- and, like the music industry, publishers are merely delaying the inevitable while technology reshapes their business without them.

Only a few (million) customers
The program will reportedly give Amazon Prime members access to thousands of back catalog books for a set monthly fee. Users wouldn't have access to the latest John Grisham novel, but maybe one of his less-popular titles or one of the many knockoffs available.

How is Amazon approaching publishers? The same way Apple (APPL) got the music industry -- convincing them that the audience is small. Amazon head Jeff Bezos obviously took some lessons from Steve Jobs.

Here's MocoNews on Amazon's hustle:

Amazon has also told these publishers that only about 10 percent of Prime members own Kindles, seemingly as a reason that publishers shouldn't be nervous about too many people being allowed to read their e-books for free. It's unclear whether that 10 percent figure includes not just device owners but also Kindle app owners or whether it's limited to the actual devices.

Apple said virtually the same thing to the major music publishers. At the time, iTunes was only available on Macs -- less than 10 percent of the total PC audience. The record labels signed on... and Apple quickly expanded to the PC, launched the iPhone, and, by 2008, became the biggest music distributor.

Publishers don't have a choice
Unfortunately for publishers, this sort of buffet-style model isn't simply going to go away.

First, nearly every other pop culture industry offers a successful all-you-can-eat option. The music industry has Last.fm, Spotify, and a handful of others. Television has Hulu and its competitors. And, of course, movies have Netflix, Blockbuster (BBI), and Amazon itself. Even if book publishers don't play with Amazon, it will only be a matter of time before a major start-up or, more likely, an Amazon competitor responds to the public's need -- and it won't likely be offering them "a lot of money".

Second, publishers need the cash. E-book revenues may be up 161.3 percent in the first half of 2011 -- $473.8 million compared to $181.3 million a year earlier . That's a nice bump, but not enough to make up for the big drop in adult hardcover and paperbacks, to $1.23 billion from $1.65 billion -- a 25.9 percent decrease. We're talking a $292.5 million increase compared to a $420 million decrease.

Show us the money
In other words, even record-breaking e-book sales are not making up for plummeting publishing income. With the loss of Borders and other factors, traditional book sales will probably plunge even faster for the remainder of the year. (The ultra-low e-book pricing certainly doesn't help, but it's too late to raise cover prices -- now there's yet another soon-to-be-outdated publishing term -- much beyond the $9.99 ceiling.)

If Amazon is offering significant use royalties each time a book is read, a la Pandora and songs, the book rental service could be a nice new revenue stream for an industry that desperately needs it. Publishers are rightfully concerned that book rental will hurt their sales, but it's clear that their sales are already hurting -- and that e-book sales alone won't even begin to make up for its traditional book losses.

Photo courtesy of Guerrilla Futures - Jason Tester


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• Beyond Borders: How the Failed Bookstore Chain Hastened its Demise
• Steamy Novels Drive E-Book Sales. No Wonder Amazon Can't Fully Ban Them!

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