• Print

The problem with Amazon's Kindle Owners' Lending Library

The Kindle Lending Library needs a pay-for-performance model, not a flat fee.

Amazon Kindle logoIt’s no secret that I’m a big Amazon fan. In fact, I recently took the Amazon side in a debate about platform superiority. (I won that debate, by the way …) That’s why a lot of people are surprised that I’m such an outspoken critic of Amazon’s new Kindle Owners’ Lending Library. The program is great for Amazon and maybe even for consumers, assuming they’re willing to live with the many restrictions, but it’s awful for publishers and authors.

Why? As Amazon stated in its press release, “For the vast majority of titles, Amazon has reached agreement with publishers to include titles for a fixed fee.” So no matter how popular (or unpopular) the publisher’s titles are, they get one flat fee for participation in the library. I strongly believe this type of program needs to compensate publishers and authors on a usage level, not a flat fee. The more a title is borrowed, the higher the fee to the publisher and author. Period.

Even if a flat fee made sense, how can a publisher try to estimate a fair amount? One key factor is the number of Amazon Prime subscribers. There are a variety of estimates on this figure, but those estimates only apply to this specific point in time. How can you possibly know the number of Prime subscribers Amazon will have in six months? In 12 months? Don’t assume you can simply extrapolate this number from historical trends. When the Kindle Fire comes out later this month it will include a 30-day Prime trial, and I expect the Fire’s availability and the upcoming holidays to create an enormous surge in Prime subscribers. When will Prime double today’s levels? It’s impossible to say, which means there’s no way to estimate how many times a book might get loaned out. That also means it’s impossible to come up with a reasonable estimate on a flat fee for a publisher’s list.

I hope Amazon reconsiders and switches this program to a pay-for-performance model. That’s the only way I’ll ever support it as a publisher.

What’s your take? Please weigh in through the comments.

TOC NY 2012 — O’Reilly’s TOC Conference, being held Feb. 13-15, 2012 in New York City, is where the publishing and tech industries converge. Practitioners and executives from both camps will share what they’ve learned and join together to navigate publishing’s ongoing transformation.

Register to attend TOC 2012

Related:

tags: , , , , , , ,
  • http://www.magellanmediapartners.com Brian O'Leary

    It might be helpful to view the announced program as an experiment. Although Amazon is not well-known for its willingness to share data, an alternate stance might be to ask for information on demand (your titles and in adequate) before deciding whether new terms are warranted.

    My concern with refusing to participate unless new terms are set is simple: you can kill a lot of new business models that way. If some limits were set and data is shared, some interesting and perhaps unexpected solutions might be found.

  • http://adamgurri.com Adam

    This is like arguing that Netflix is bad for studios because it doesn’t pay them based on how many times the movies are streamed. Publishers aren’t fools–they have a good idea of what their bundles are worth, based on how they’re performing in the market individually. Figuring out the pricing is not some mysterious, impenetrable problem for them.

  • http://www.joewikert.com Joe Wikert

    Hi Brian. I totally agree with you that we shouldn’t kil new business models. That said, if both parties aren’t careful from the start, one might find themselves at a significant disadvantage. So my concern isn’t about creating a lending program but rather the terms associated with one.

  • http://www.flatleaf.com Mogens Nielsen

    As a competitor to this service I am concerned. Not by the competition with Amazon, because competition is good, but because of how this might be perceived by authors and publishers.
    At FlatLeaf we believe that our subscription service is a great addition to the traditional revenue model, and we certainly expect authors and publishers to get their share. No fixed price in our model! We believe that there are lots of good books out there deserving to be read, even if they no longer appear on the bestsellers charts. We believe that no matter how you enjoy the material the author and publisher should get compensated.
    In this case it is unfortunate that Amazon is a market leader. As more and more books becomes available digitally we need a way to deter piracy. It is well documented that if the material is easily available and accessible, people are less likely to pirate the content.
    If Amazon doesn’t leave a bad taste in the mouth of authors and publishers, I believe a subscription model is an excellent model for all involved. Hopefully I will be able to convince this to publishers and that there are alternatives – and better ones – to Amazon’s model.

  • http://www.joewikert.com Joe Wikert

    Adam, with all due respect, I couldn’t disagree more. As I mentioned in the original post, one of the key factors in a publisher’s determination of a fee is the number of potential customers. Unlike Netflix, which has a more predictable customer growth (and now shrinkage!) rate, I firmly believe Prime is set to take off like a rocket when the Kindle Fire arrives. I wonder if Amazon even knows what sort of impact the Fire will have on Prime subscriptions. What if a publisher’s calculations were off by a factor of 2 or 3? I wouldn’t want to have to explain that to my authors who are faced with a capped income regardless of how successful their titles are in the program.

  • Grant McAllister

    Because of the limitations of the service (only 1 book at a time, and only 1 book a month), if I fall in love with a book, I’ll buy it instead of forfeiting additional months to try new books. It’s a try-before-you-buy model. I think it’s a a great promo tool for authors. Readers will try more books, be exposed to new authors. And even if the authors are in the pool of books getting flat fees from amazon, I’m sure those rates will be re-negotiated periodically to reflect actual use and subscriber counts. Maybe the current titles were negotiated too low based on the explosive growth prime will receive this fall — but if Amazon wants to keep those titles a year from now, won’t the authors be compensated appropriately?

  • http://adamgurri.com Adam

    Joe, I guess it boils down to whether you think that you have a better idea of what Amazon’s Prime subscription growth is going to look like post-Fire than publishing houses that have skin in the game and plenty of resources at their disposal to run the numbers.

    And Netflix’s customer growth is only predictable in hindsight–moving forward, you never know when there’ll be a big discontinuity. Could be that one day everyone switches to Amazon Prime, or it could be that one quarter there is a big unexpected jump.

    I guess the bottom line is, is there any reason for you or I to care about the particulars of how the publishers get compensated? In the long run they will figure out the most profitable arrnagement, even if it takes some trial and error in the short run. Whereas for consumers, plans like this are a win in the short and the long run.

  • http://www.joewikert.com Joe Wikert

    Grant, you raise an interesting point about the discoverability aspect of this. I wonder how many people like you will try before they buy? If that rate is high it’s a winning model for everyone. As a publisher though, I’m not willing to bet our revenue stream (or the author’s revenue stream) on the number of try-before-you-buy customers. Perhaps Amazon will track this sort of thing and provide the details to skeptical publishers like myself at some point.

    Adam, I’m not saying I have a better estimate of Prime growth rates. Not at all. In fact, what I’m suggesting is that *nobody* knows what that rate will look like. Regarding your final question, there are plenty of reasons for me as a publisher to care about the particulars of how this compensation model is structured. I also want to represent our authors appropriately in these discussions. I don’t think you can assume that the publisher will be able to rewrite the terms to better suit their needs once a precedent is set. I wonder how easy it would be for a record label to renegotiate their cut with Apple in iTunes at this point.

  • http://www.y42k.com Ray Charbonneau

    Amazon’s payments to publishers using a model that pays per read is no more likely to be “correct” than flat fee payments. What is correct? What is the fair price for a digital good? No one knows yet in any market.

    As an author, I prefer the pay-per-read model myself, because I believe that scales more easily to a world that includes publishers other than the big six.

    As a reader, I lust after my Netflix-for-books. As long as it has the books I want, of course.

  • http://adamgurri.com Adam

    Joe, I agree with you that the growth rate cannot be predicted. But I think the iTunes renegotiation example is telling–don’t you remember a few years ago (when iTunes was already the dominant music retailer in the world) when the labels, did, in fact, renegotiate their pricing?

    Also, going back to Netflix again, the studios are constantly renegotiating. They may stick to one particular arrangement for a year or whatever the duration of a particular deal, but come renewal time they have shown a definite ability to renegotiate the terms and up the price.

  • http://www.joewikert.com Joe Wikert

    Ray, I struggle with the same split view on this that you do. I’m looking forward to getting my Fire and will take advantage of the free Prime trial. I’m pretty sure I’ll end up being a paying Prime customer and try out the lending feature. So as a consumer, yes, it’s attractive. But I’m trying to keep the interests of publishers and authors in mind as well.

    Adam, I guess I didn’t follow the iTunes/label deals close enough to know that Apple gave points back to the labels. How much more did the labels get in that deal? Btw, it seems like this sort of renegotiation would be required to address the problem with a flat fee model; if a pay-per-use program were in place there would be far less need to renegotiate.

  • http://www.24symbols.com Justo Hidalgo

    Joe,

    thanks for the article. My take is very simple: Amazon is testing, and the future is obvious: a subscription service, possibly a freemium one like the one we offer at 24symbols. So the question is, as Mogen said before, whether the impact of Amazon on the publishers’ mentality will affect other related-but-not-equal offerings related to subscription. Against the “do not share data” approach, I think a subscription model must offer the opposite: clear, simple data that can be used to improve the reading experience and, therefore, user satisfaction.

    Justo

  • http://www.joewikert.com Joe Wikert

    Hi Justo. I love your point about data and sharing that data. It reminds me of call earlier this week where I got a sneak peek at the publisher’s dashboard for the soon-to-be-released ValoBox platform. They’re all about selling content piecemeal but what’s particularly interesting is the data they’re able to collect and share with publishers. We’re going to have all our editors connected to that publisher dashboard so they can keep a close eye on book usage. Amazon is gathering the same information, I’m sure, but I wonder if we’ll ever be able to gain access to it.

  • http://www.flatleaf.com Mogens Nielsen

    Justo, glad to see you joining the discussion (and nice meeting you at BiB11 btw).
    I am sure Justo would agree, that what both 24Symbols and FlatLeaf is trying to do is enable content exploration while adding an additional revenue to authors and publishers.
    Regarding the sharing of data I am taking a little more precautious approach. The recent deal between Amazon and Overdrive has shown that it is easy to suffer a backlash from information sharing.
    However it is obvious that a subscription service offer some other options that you will not find in the traditional sales model. These options should be explored to the benefit of all and the harm of none.

  • http://kateharperblog.blogspot.com/ Kate Harper

    Let’s face it – O’Reilly needs to move with the times. You should be one of the leaders – not the fighters.

  • http://www.joewikert.com Joe Wikert

    Kate, I think you’re missing my point. I’m not suggesting the lending model isn’t an interesting one. I just feel the financial model isn’t appropriate. Is it really wrong to stand up for what I believe is a more reasonable revenue model?

  • Michael Harris

    I don’t think this is about generating revenue / selling these books under a new subscription model. Take $80 per year and split it between use of free shipping, free movies, and free books. The actual money per book would be tiny.

    I view this as more of a promotional endeavor by authors and publishers. Put up early series books or previous editions to get interest into current stuff. In a way, it’s just Amazon listing a bunch of free books all in one category.

    Following this logic, the one per month lending limit morphs its meaning into something else. It’s purpose may not be to limit the cost of providing books, but to encourage purchase after sampling. Read a ‘free’ book and now you have to wait several weeks before you can check out a new one. You might be tempted to buy during the wait, and you might buy the follow up books to the one you just read,

  • http://www.nerdmonk.com/ Pat

    Amazon’s Lending Library is a step in the right direction. I would primarily use it to look at a book before I bought it. The book previews generally fall short for most of the technical books I purchase. What can you really learn about a book by seeing the table of contents and the index? If they were to have a time limited preview of the entire book, I know I would buy more. That model would be closer to going into a book store and thumbing through the pages to get a real feeling for the book.

  • http://keypulp.com Joe

    The publishers agreed to the program on flat-fee terms, so I say let’s let it play out and see what happens. For discussion’s sake, though, it probably wouldn’t be that hard for Amazon to estimate how many “borrows” each book would get, based on active Kindle owners, book sales, and some other factors. So, I think we should think about a flat-fee for the first x borrows and then a reasonable per-borrow pro rata on top of the flat fee. Thoughts?

  • http://www.joewikert.com Joe Wikert

    Hi Joe (love your name, btw). Although I don’t agree with your point about it not being hard to estimate how many borrows each book will get, I think you’re heading in the right direction with the hybrid revenue model you describe. For me it all depends on what “x” is, what that flat fee looks like and what the per-borrow rate is above that level. Interesting concept though!

  • http://www.24symbols.com Justo Hidalgo

    Hi again Joe and Mogens,

    Julieta Lionetti just published a very interesting post about Amazon’s lending program (in spanish now but I hope she translates it to english) where she very basically exposes this move as part of an overall strategy: do you just want to “consume” (lending) or want to take maximum advantage of the book (i.e. marginalia, link to other books, …) by purchasing it?

    Extremely interesting, and it matches my (our) impression that there is no single business model, but a mixture of several, all of which work. But still, a subscription model has all the advantages from a technical standpoint; so once the business/legal constraints are leveraged and solved (and they will), the Book as a Service approach will make most sense.

    Mogens (a pleasure meeting you too at BiB!), my comment re: data was broader than “data for publishers to exploit”. I think data is the first steps towards knowledge in all areas and for all stakeholders, readers included. This will have to be done with care. But just as fundamental research in science poses ethical questions but, nonetheless, it’s in everyone’s interest for the state of the art to keep on advancing, we all need to agree that knowing more about how we read, how authors write, etc., will be a benefit for everyone.

    Sorry for the digression… it’s sunday you know :)

  • http://www.flatleaf.com Mogens Nielsen

    I agree with your view and I agree it is only a matter of time before the legal issues will get resolved and we can move forward.
    Justo, I like what you are doing at 24Symbols, and I am sure you take great care of the data you share. I couldn’t agree with you more that there are much to be gained from sharing the right kind of data. As you pointed out my concern is targeted towards the use of the data on the publishers side. What I am concerned about – and this is really a discussion for a different thread – is the supermarket type of releases. I know it is naive but I prefer my books to be written the way the author intended and not what reaches the highest common denominator.
    But Justo, please let us know if the article you mentioned gets republished in English, as I would like to read it.

  • http://www.24symbols.com Justo Hidalgo

    Hi Mogens,

    totally agree. Data needs to be properly used. But data needs to be provided.

    Of course, I will let you guys know about the article. Otherwise you can always use google translate and give it a try :) : http://librosenlanube.blogspot.com/2011/11/aun-no-hemos-visto-nada.html

  • John Adkins

    This is just an extension of the library lending model. Amazon or a library pays for X number of digital copies and these can only be used by one person at a time. I cannot see why authors should object.

  • http://www.publetariat.com April L. Hamilton

    Joe – Maybe I’m missing some crucial element here, but how is this Amazon lending library any different from a physical library with paper pulp books, from the publishers’ and authors’ perspective? I’m pretty sure authors and publishers don’t get more money with each physical library check-out of their books, so why should they get more money with each virtual check-out of a digital book?

    I’m both an author and a publisher, and think the discoverability and try-before-you-buy factors in this are huge considerations. Test after test has shown that when a book is pirated its legitimate sales also tend to go up. Given that the lending library concept removes readers’ guilt and hassles from the free download equation, yet still allows them free access to books they might subsequently recommend or even opt to buy, I can only see this as a good thing.

  • http://www.joewikert.com Joe Wikert

    Hi April. I’m glad you brought this up. It’s an important point to consider in this discussion. You’re right that the Amazon model is very similar to the traditional library print book lending model. The key differences, as far as I’m concerned, are the scale and the financials.

    Regarding scale, when a publisher sells a copy of a print book to a library it can only be loaned to one person at a time. With Amazon’s model, of course, the ebook can be loaned out to every single Prime subscriber. Most libraries loan a book out for a 2-3 week period, which means any given print title can only be loaned to about 25 people over the course of a year. Again, the ebook doesn’t have the same limitations. This could all be addressed by offering a different financial model between Amazon and publishers, which is my other point.

    Since there’s no way to estimate the number of Prime members we’ll see 6 months or a year from now, I feel a pay-per-use model is more appropriate. A flat fee assumes we publishers know a lot more about the likely usage patterns of this program in the future. Any publisher making that assumption is taking a huge gamble.

    The situation becomes even more problematic when it starts to cannibalize traditional sales. We don’t see that with print library lending, or at least no so much that it worries anyone. A major ebook lending program from someone like Amazon *is* likely to impact other sales channels though. If so, as a publisher, I’m not willing to trade my pay for performance sales (from Amazon, B&N, etc.) for a flat fee model.

  • Stephen Bronstein

    Netflix originally did deals where they paid per stream but then they came back to a number of rightsholders a year or two later and said “people are streaming way more than we expected, we are losing a ton of money on this!” and then they moved to a flat-fee model ala what Amazon is doing with the Kindle Lending Library. Thus we see a particular type of content on Netflix, since the flat-fee model is much less attractive for rightsholders.

    So the problem for the subscription service is that you are charging the consumer a fixed fee and they may consume more media than you expected, thus putting you in the red. The problem for the rightsholder is that, as you state in the post and comments, you don’t know how much the subscriptions and thus views/book reads will increase, so you may end up under-selling your content, and at a minimum you have lost at least some traditional sales.

    There is a middle ground here, and one that the music industry has explored extensively (for better or worse), and that is payment per user. For example, a major label might receive $0.50/month for each user of a particular music subscription service. These deals were generally done as a minimum of a certain amount per user or a certain amount per stream, so in fact there were direct payments per use as well. But you could potentially do this as a way to limit the risk to the retailer while providing more upside to the rightsholder. The main disadvantage to this type of deal is that they are extremely complicated and they favor existing rightsholders, and in particular the rightsholders who are the largest and have the most market power over smaller, less-powerful, and/or up-and-coming rightsholders/publishers.

    Since Amazon is unlikely to do payment per user for any particular publisher (you never know, but it seems unlikely), I think the key thing to keep in mind is that if you do one year flat-fee deals, you will be renegotiating very frequently with a much better idea as to the market growth in the interim. So it’s not like you did a one time deal and paid the price forever, the worst case is that you left some amount of money on the table for a matter of months. That could be too much money for certain titles, but there are likely others for which it’s a risk worth taking.

  • Tim Dawson

    Here’s what’s fundamentally broken about Amazon’s lending library, Nook’s equivalent, and pretty much any author or publisher controlled model: people are used to being able to take a physical book that they own and loan it to ANYBODY they want, WHENEVER they want, and for HOWEVER LONG they want.

    And yet with this ability for people to read a book without paying someone for the privilege, or – gasp – resell your work without giving writers and publishers another cut, they still manage to make a living and stay in business. Amazing.

    As a reader, if I buy a book, when I’m done reading it I want to be able to loan it to a family member or a close friend, someone I trust to give it back to me. Or not – maybe I don’t care if I ever get it back!

    None of the lending schemes today have this level of reader control. In the real world once the book is sold, there is NO author or publisher control. In both the Kindle and Nook world, the ability to lend a book is up to the copyright owner to grant to someone rights they should already have for something they paid for.

    This is fundamentally broken.

    If you’re worried about the scale of distribution, don’t allow multiple checkouts/sharing of the same copy of the book. Let people share their e-books with another person with no time restrictions, but leave them vulnerable that the other person may never get around to returning it. Let me be mad at my friend for not returning my book. Let the library charge me the same fee for not returning a digital library book that they charge if I don’t return a physical book.

    The only think you ‘lose’ in the equation is that e-books books don’t wear out, and you might sell a few more copies years down the road if someone cares enough to replace their tattered copy of your book. But you make up for that in lower production costs. Each new copy you make is essentially free, no cost to spin up another printing.

    It’s not that hard people. I know you think you have this wonderful opportunity to gain more control than you’ve had in the past, but I will not give it to you. I will continue to use public libraries and buy physical books until you figure this out.

  • http://www.detectiveanderson.com/ John Darling

    One week one of my Kindle books made .36, then I enrolled it in the Kindle Library, the next week it made $22.05. So who cares about how the fee came about? Not us authors.

  • Real talent will take a powder

    @ADAM,

    Please stop bringing up NETFLIX, okay? Netflix PAYS studios millions of dollars to have access to their films UP FRONT (based on terms negotiated by the two entities: NF & studios). Amazon Prime Lending Program DOES NOT PAY authors up front, just this “fixed pot of money” they offer. And as far as I know, most traditional publishers turned Amazon DOWN & refused to let Amazon “use” their books (as always) to try to promote anymore of it’s Kindles (ie Fire).

    What Prime offers now is a bevy of self published works in it’s lending library, with maybe 1 or 2 traditionally pubbed hits like The Hunger Games & another book. This is just for show, to make the library look professional & legit, which is not because it’s all self pubbed slush up there.

    Also, another difference between Prime Lending & Netflix is that Netflix & studios (content providers) NEGOTIATED on how much Netflix would pay studios for content. Amazon did no such thing with self pubbed authors & just dictated exclusivity terms along with a fool’s pot of gold for them to share.

    Amazon is constantly using author’s & publishers hard work to try to promote it’s devices. They want ebooks to be free & exclusive to THEM (IMO). I wonder what’s going to happen when they run everybody else in the world out of business. Usually what happens is that the company that is the only one left standing in a niche market like ebooks will jack the prices up or charge what they want because they know people will have no place else to go.

    I do NOT want Amazon to dominate the ebook market at all because frankly, they suck. IMO, of course. And authors will end up in a Spotify-type situation where they’ll earn a fraction of a penny per ebook download. This will eventually hurt consumers as professional writers-seeing they can’t make any kind of living- start to walk away & find other work. Only novice writers will be left. Real, trained talent will take a powder.

  • Foxdogs

    If the publisher and author are happy who are you to complain other than someone who needs words for an article?