Image from Flickr user John Blyberg.
With Kindle Unlimited, Amazon.com (AMZN -1.11%) has made 600,000 books (and 8,000 audiobooks) freely available to those willing to paying $9.99 per month. The service will be available via Kindle devices or the Kindle app, and it signals a new era for e-books. Amazon's share price came within sight of $360 on the news, its highest recovery point since back in March when it came within a similar distance of $380.
If the recent settlements and publisher/provider conflicts push e-book prices to low levels, Amazon's strategy looks like timely insurance: The company is guaranteeing itself a stream of revenue from readers even if it becomes hard to make a profit in the traditional e-book space. By being the first major service to make this leap, Amazon also has a chance to corner the market and speed past rivals like Apple (AAPL -0.81%).
A new era of e-book revenue
Fresh off its $450 million settlement over fixed e-book prices, Apple is a bit late to the subscription model, beaten by both Amazon and services like Oyster and Scribd. The settlement news may have something to do with the latest share price slip, too: Apple stock rose to $97 on the news of its IBM partnership on July 16, but then descended back to around $94 in the following days. The stock continues to court a new, post-split height of $100. While Amazon is trying to guarantee a future stream of profit from e-books, Apple still risks losing money on sales as prices fall, and Amazon has the head start on alternatives at this point.
Apple has several potential responses. It could launch a Netflix-like book service of its own, perhaps undercutting Amazon on that monthly price. It could also let the market pull e-book prices down until they are more competitive. Or, with minimal changes, it could start highlighting some strengths of its own e-book services, such as access to newer titles or textbooks that Unlimited can't offer yet.
The other primary player in the field is the Nook from Barnes & Noble (BKS), but it is unlikely that B&N will shift to any type of subscription model. The company plans on spinning off the Nook early next year to widespread investor approval, and the Nook faces an uphill battle to survive against other e-reader competitors. If Nook Media does switch to a subscription service in an attempt to continue, it is unlikely the announcement will hit before next year, giving Amazon plenty of time to gain market share.
Publishers will survive
The subscription nature of Kindle Unlimited may seem like especially bad news to publishers and writers, offering books to readers on-demand and at such low costs. However, a closer look shows that publishers and major authors are safe for now. No long-term contracts with the big five publishers have been confirmed for Unlimited, and there does not seem to be many new best-sellers: The books most often discussed (Hunger Games, Harry Potter, etc.) have been out for years, and publishers have a clear interest in keeping the newest titles off the list as long as possible to guarantee sales for both them and their authors. It comes as no surprise: Netflix content works the same way.
The state of smaller publishers and independent authors is less certain, but Amazon probably holds the upper hand. Its payment structure for indie authors that participate in Unlimited is a little murky, but it appears to oscillate based on overall reading levels and how much of the book readers complete. Contracts probably vary from publisher to publisher as well, based on how much negotiation power they have -- and Amazon's struggle with Hachette shows just how aggressive it can be.
The subscription model rises
A final note about Unlimited: While it may have been a good move against the Nook and Apple, Unlimited still faces competition from services like Scribd and Oyster, which both offer similar libraries at similar prices. However, deals with major publishers like HarperCollins and Simon & Schuster -- which Unlimited does not have -- could make those alternatives even more attractive to readers who do not already use Kindles.
Watch how Amazon fairs against this lesser-known services, but make no mistake: Unlimited still shows a paradigm shift in how e-books are monetized.
