Amazon.com Inc. is launching a service that it hopes will encourage readers to obsessively devour books by best-selling authors such as Michael Lewis and Suzanne Collins the way Netflix Inc. users binge-watch House of Cards and Orange is the New Black.
On Friday, Amazon announced a subscription program where avid book readers can download from a selection of more than 600,000 books for $9.99 a month. The service, dubbed Kindle Unlimited, is modelled after Netflix and could give Amazon more control over the e-book industry.
Colin Gillis, an analyst who covers Amazon for New York-based BGC Partners, says it reflects a broader shift for the online retailer. “This is a pivot from their initial core business. Because their core business – selling physical objects – isn’t where the growth is,” Mr. Gillis said in an interview.
Amazon releases its second-quarter earnings next Thursday. While the Seattle-based company traditionally has strong revenue, it has struggled with profitability: It had a net income of $108-million (U.S.) on $19.7-billion in revenue last quarter; its price to earnings ratio is a stratospheric 562, reflecting low earnings and high expectations for growth.
The market responded well to Amazon’s Kindle announcement and its share price jumped 1.8 per cent Friday on Nasdaq. The shares closed up $6.21 to $358.66. Mr. Gillis, who has a “hold” recommendation on the stock, says it shows Amazon is continuing to adapt to trends in how people purchase and consume media.
“It’s a logical extension of the subscription offering that is part of the media landscape now. We see it it video, we see it in music and now we see it in books,” he said. “It’s a rent economy rather than an own economy.”
While Kindle Unlimited starts off with an impressive number of books and audiobooks available from from Audible, a company owned by Amazon that sells audiobooks online. The company lacks deals with some of the publishing industry’s biggest players such as Simon & Schuster, HarperCollins Ltd. and Penguin Random House Inc.
Among the popular titles available are Yann Martel’s Life of Pi, Margaret Atwood’s The Handmaid’s Tale, and J.K. Rowling’s Harry Potter series.
Amazon has had an increasingly fraught relationship with publishers, including a recent pricing spat with Hachette SA, the world’s third largest publisher. In May, Amazon made Hachette’s books unavailable for preorder after a dispute over e-book pricing and the share the publisher could expect from each sale. Amazon was widely criticized within the publishing industry for using its clout as an e-book platform to negotiate what were perceived to be unreasonable terms. In July, an Amazon executive defended the practice in a comment to the Wall Street Journal, saying that the company is acting “in the long-term interest of customers.”
While terms of the Kindle Unlimited content relationships with publishers were not released, authors can opt in to receive a share of royalties based on how often their book is read.
Amazon is joining an already established market with its e-book subscription service. Online digital library Scribd launched a similar service for $8.99 a month in October, 2013. With a HarperCollins partnership among 900 other publishers, it offers more than 400,000 books. New York-based Oyster Books offers more than 500,000 books for $9.95 a month.
Mr. Gillis said Amazon is well positioned to be competitive in the category, and Kindle Unlimited fits their strategy. “It’s about the platform. Amazon is a media platform now.”
Amazon will not offer the service in Canada for now. An Amazon spokesperson was unavailable to comment on when it might become available here.
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