The business model should look familiar to anyone who's binged on "House of Cards" and "Orange is the New Black." But it's now being applied to a very different industry. And if it takes off, Amazon would be the perfect company to extend it to even more retail sectors. (Amazon chief executive Jeffrey P. Bezos also owns The Washington Post.)
All this is happening against the backdrop of a larger struggle between Amazon and publishers, who disagree over how much Amazon should pay its suppliers for e-books. Question is, will Kindle Unlimited drive e-book prices even lower? Or could this alternative help drive more money to companies like Hachette?
To understand what might happen, we have to look at how the revenues are determined. Typically, once a subscriber has read a certain percentage of a given book, it's considered a "sale," and the company that runs the subscription pays the publisher for it — at retail prices, not wholesale, according to Robert Gottlieb, chairman of the Trident Media Group.
"That percentage can be anywhere from 20 percent to 25 percent," said Gottlieb.
That the retailer pays a slightly higher price for the books could be a boon to authors and publishers. But it could undermine the trade paperback business, Gottlieb added. That's because books from services like Amazon Unlimited are typically older titles. If people begin reading more of those on their e-readers, the industry that produces paperback reprints of hardcover books could suffer.
The e-book subscription space is already pretty crowded; my colleague Hayley Tsukayama reviewed three other services here. With Amazon now joining, it'll be a surprise if it doesn't wind up dominating the business over time. Amazon's sheer size means that, just as with the normal e-book business, it'll have a lot of power to set that percentage that determines when a book has been "sold."
"Amazon can leverage whatever percentage they want," said Gottlieb. "They can say, 'We're not going to take your books if you don't do this.'"
Could Kindle Unlimited have been a factor in the ongoing dispute between Amazon and Hachette? It's unlikely; the disagreement has more to do with how to sell books that are just coming on the market, rather than how to sell books that have already been available for a year or more. A Hachette spokesperson didn't immediately respond to a request for comment.
One other advantage Amazon has over other e-book subscription services? It's got its hands in so many other industries that it could easily export it to other areas of its business.