Amazon e-book subscription? Publishers should join

The online bookseller apparently is more enthusiastic about a subscription plan for books than are publishers. But they should be seeking allies, not enemies, in the Digital Age.

Stephen Shankland principal writer
Stephen Shankland has been a reporter at CNET since 1998 and writes about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
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Stephen Shankland
7 min read

Once upon a time, you might tell your children, there were buildings called libraries. A resident of a city or town, you would explain, could walk into one and borrow books--for free!

Libraries aren't likely to fade into history just yet, of course, but the possibility is more plausible given Amazon's discussions about offering an annual subscription plan for e-book access described in a Wall Street Journal report yesterday.

Amazon's library option would be part of Amazon Prime, the gradually broadening subscription plan, Larry Dignan at CNET sister site ZDNet expects.

As I see it, the move makes perfect sense for Amazon. Plenty of people would probably rather rent e-books through an all-you-can-eat plan rather than purchase copies they might well never read a second time. And with e-books, selling used copies isn't allowed, and lending is constrained if it's allowed at all, so the value of a book that's been read drops dramatically.

But, of course, Amazon isn't the only party in the discussions. Publishers are a critical part of any such service, and that's where things get messy. Here's how I see the changes in the industry shaking out. (Amazon didn't immediately respond to CNET's request for comment.)

Amazon hauls publishers another step into the future
Random House promotes e-books--but hands off the actual purchasing to other companies. Screenshot by Stephen Shankland/CNET

Digital disintermediation
Increasingly, digital technology is radically transforming the old ways of exchanging information--on paper, on CDs, on DVDs, on TV, in movie theaters. There are three reasons.

First, the underlying information now can be encoded in digital form. Second, digital data can be copied with trivial ease. Third, those copies can be distributed globally over the Internet with trivial ease.

Of course, that's just the mechanics that underlie the digital revolution. Higher-level factors keep the industries from transforming overnight: how do you build a business around digital distribution of media by getting customers to pay? Should data be wrapped with digital-rights management (DRM) encryption to curtail uncontrolled copying? Who finds, cultivates, edits, and pays the content creators that generate the actual product?

Gradually, though, a few companies such as Amazon, Netflix, Google, Spotify, Hulu, and Apple are settling those questions, for good or ill. Apple's iTunes has led the music industry into the Digital Age; Spotify is accelerating it with subscription plans; Netflix probably has the best chance of any company to bring movies along, too; Hulu is following suit with TV; and Amazon jump-started the e-book industry with its Kindle reader and apps. With Google Music, Google Books, and YouTube, Google is working the angles, too.

Do you see a trend here? Few of these companies are the ones actually in the business of generating the content. The exception is Hulu, whose investors include NBCUniversal, News Corp., and Walt Disney, which run the NBC, Fox, and ABC TV businesses, respectively. Going the other direction, Google and Netflix have dabbled with the idea of coming up with their own premium content, but not with much effect so far.

Simon & Schuster offers direct sales of e-books, but getting them to a reader isn't simple.
Simon & Schuster offers direct sales of e-books, but getting them to a reader isn't simple. Screenshot by Stephen Shankland/CNET

Here's the thing, though. The Internet is famously good at disintermediation--a useful bit of jargon that means taking away the middleman. In the book business, the middlemen are bookstores. They're essential for getting the product into the hands of customers, because distribution of physical books is hard--trucks, inventory, paying the rent for a spot in the mall.

With the Internet and digital books, distribution is vastly easier, of course. There's no inventory problem. People can buy a sequel on impulse moments after finishing a can't-put-it-down page-turner at 3 a.m. The arrival of e-book apps for smartphones and tablets has reduced the difficulties of providing people something besides a PC as a vessel for the book. People will still browse bookstores of some sort, physical or online, to see what strikes their fancy, but now that process comes with the ability to even read an excerpt.

Go direct?
So if it's so easy, why aren't book sellers supplying them directly to the buyers?

For one thing, they have a sales, marketing, and support staff geared toward selling wholesale to middlemen, not retail to the vast number of potential customers. Distribution may be easy, but getting people to buy stuff isn't, and publishers' don't have consumer relationships and brands the way Ford, Kraft, and Timex do.

For another, it's a classic innovator's dilemma: how much of a difficult transitional period can a publisher endure making a transition to direct sales while angering the bookstores that, while fading in importance, still are essential to today's revenue?

Last, customers don't just want to buy books from one publisher any more than they want to buy an MP3 and video player that only will play music from Sony Entertainment's music and video catalog. Middlemen can consolidate offerings from multiple suppliers--as indeed Hulu does in the TV business.

A look at the e-book business today shows how things are changing. Random House touts its e-book bestsellers, with links to six different online bookstores. Simon & Schuster (disclaimer: it, like CNET News, is a part of CBS) offers direct sales--but then requires a complicated installation process for readers to get their books onto tablets, phones, or Sony e-reader. HarperCollins lets people read some of the book online, then hands transactions off to retail bookstores. It's getting more direct, though, for example with its Bookperk site to drum up reader enthusiasm with promotions to buy physical books from the publisher.

Bookish is an effort by three publishers to provide an online hub for people to discover and buy books. It's set to launch in the summer of 2011.
Bookish is an effort by three publishers to provide an online hub for people to discover and buy books. It's set to launch in the summer of 2011. screenshot by Stephen Shankland/CNET

Change, yes, but small steps compared with what's going on with the online specialists. I'm sure negotiations between Amazon and the publishers are tense at times as one side works to create something that's priced to move and the other side works to keep it from undermining individual e-book revenue. Amazon would have to pay enough to compensate for the fact that the customers who buy the most e-books are the ones for whom a subscription would hold the greatest appeal.

But it's probably better for the publishers to get on board with a subscription offer. The pride of ownership is already much reduced with e-books--pulling out the Kindle just doesn't compare with an imposing, well-stocked bookshelf when it comes to showing off your erudition when the dinner party guests arrive. E-books lack the "furniture factor," as one publishing executive phrased it to me. Books are becoming an entertainment service, and publishers' catalogs are becoming live assets, not inventory to be shifted out of the warehouse.

One wild card is Bookish, a site backed by publishers Hachette Book Group, Simon & Schuster, and the U.S. arm of Penguin Group with some advertising and sales support from AOL. The site was announced in May and is scheduled to go live this summer. The announcement describes Bookish this way:

Designed to answer the question "What should I read next?" as well as to deepen the reading experience around books, authors, and genres, Bookish will feature exclusive content covering a wide selection of titles and formats. It will also offer readers the convenience of purchasing print and digital books directly or through other retailers. Bookish is dedicated to working closely with book retailers, and in the coming weeks will reach out to explore ways to complement the retailers' efforts and enhance all reader experiences.

It's not clear how well the effort will fare. One person in the publishing industry said Bookish is designed to accommodate other publishers besides the named backers--something that's important to create critical mass.

No doubt publishers are reluctant to hand any more power to Amazon, the premier online bookseller already. But Amazon is a company with lots of paying customers already, and they come to Amazon for much more than just books. Bookish will have a lot of work to do to catch up with Amazon--might it not be better to have it as an ally than an enemy in building the future of e-books?

Which brings me back to libraries.

Digital libraries
A couple decades ago, it wasn't a big deal for libraries to buy some small fraction of books that went into circulation as a freely lent copy. Probably many people who checked a book out of the library wouldn't have bought it in the first place. The used-book market was probably a worse devaluation of a book's cover price.

With digital content, I've seen some libraries move to the electronic era with e-books, though I haven't seen any options for streaming music, movies, or TV. But library e-books raise awkward problems: libraries tend to serve a geographic region, but e-books are downloaded from the global Internet. People typically need a local library card to use a library's services, but relatively few e-books are intrinsically local.

So maybe libraries should band together to offer a unified e-book service. That would make the technology easier, and the scale could make it easier to obtain rights to a broad range of e-books. But it could be expensive to operate, especially when it comes to obtaining e-book rights, so perhaps the libraries would want to charge a fee--the way some do today for lending DVDs, for example.

Hmmm. A large-scale service for lending e-books for a fee. Sounds an awful lot like what Amazon is apparently trying to do.

I have no idea how relevant libraries will remain, but certainly the Internet has somewhat undermined their utility as a community resource, and I'd say the private sector is well on its way to supplanting some of libraries' raison d'etre.

Sounds like a good time for the publishers to hammer out that Amazon deal.

Updated 10:03 a.m. PT to add discussion about the Bookish project.