Amazon e-book subscription? Publishers should join

• 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.)

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.

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.

Posted in: amazon, free, news, now