New Netflix-Style Amazon Library Could Stunt Growing E-book Market

by Anthony John Agnello | September 12, 2011 12:55 pm

AmazonAmazon (NASDAQ:AMZN[1]) makes everybody nervous. The online retailer makes brick-and-mortar businesses like Barnes & Noble (NYSE:BKS[2]) wake up in cold sweats. It makes music distributors like Sony (NYSE:SNE[3]) shake while watching the last remaining CD sales filled as Amazon orders. That’s to say nothing of book publishers like News Corp.‘s (NASDAQ:NWS[4]) HarperCollins — since Amazon’s book publishing operation is growing by leaps and bounds[5], what’s to stop Amazon from just taking over? It already has a huge chunk of the growing e-book market thanks to the Kindle Store.

Now it looks like Amazon is going to control yet one more crucial piece of the publishing market. According to a Sunday report in The Wall Street Journal, sources familiar with company’s plans claim that Amazon is planning to open its own e-book library. The report says[6] the service will work something like Netflix‘s (NASDAQ:NFLX[7]) movie streaming: Customers will pay a flat fee to Amazon that gives them access to a selection of e-book titles that can be accessed rather than purchased individually. Amazon will in turn pay licensing fees to major publishers that would provide books for the new library.

It’s believed the service will become a part of Amazon Prime, the $79-per-year premium subscription service that provides a number of services through Amazon, including free two-day shipping and access to an archive of 10,000 streaming movies and television shows.

Unsurprisingly, “several publishing executives” expressed concern over the new e-book library, worried that it would further diminish the value of their books and strain relationships with other retailers, most like the aforementioned Barnes & Noble, and other prominent booksellers like Wal-Mart (NYSE:WMT[8]). On the one hand, publishers’ fear that the service might be just one more step toward a world in which e-books are “free” is well founded. The library model through Amazon would at least see publishers collecting licensing fees from Amazon, which could ultimately be more profitable than merely sharing the cost of each individual e-book sale.

It’s really Amazon, though, that should be concerned about introducing this new library model into its successful e-book business. While the Kindle device and its attendant digital storefront have become widely used by consumers over the past four years, the e-book business still is not the earnings giant it could eventually be. In 2010, 114 million e-books were sold — a 1,000% increase since 2008[9]. E-book revenue over the entire industry totaled $878 million in 2010 — growth of 1,300% since 2008. Impressive growth or not, the sum still only represents the tiniest piece of the overall publishing industry, whose book sales came to $28 billion last year.

With growth as steady and dramatic as it is, it seems foolish for Amazon to deviate from its current course, especially considering the overall success the Kindle has enjoyed. Including sales of the Kindle device, e-book sales, e-magazine and newsprint sales, and game sales through the Kindle store, Amazon is expected to pull in $5.42 billion in revenue[10] before the end of the year. The library could divide users fueling those earnings, disrupting an otherwise healthy business by providing an alternative that diminishes sales.

Publishing doesn’t need a Netflix. It needs a strong sales model — something Amazon already has.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[11] and become a fan of InvestorPlace on Facebook[12].

  1. AMZN:
  2. BKS:
  3. SNE:
  4. NWS:
  5. since Amazon’s book publishing operation is growing by leaps and bounds:
  6. The report says:
  7. NFLX:
  8. WMT:
  9. a 1,000% increase since 2008:
  10. Amazon is expected to pull in $5.42 billion in revenue:
  11. @ajohnagnello:
  12. InvestorPlace on Facebook:

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