Amazon Launches E-Book Subscription Service

Jul.18.14 | About: Amazon.com, Inc. (AMZN)

By Bill Ashton

Amazon.com, Inc. (NASDAQ:AMZN) launched its newest service today, Kindle Unlimited, for a monthly subscription fee of $9.99. Through the service, users can access 600,000 e-books and a few thousand Audible Inc. audiobooks, as Amazon looks to launch a business model for e-books similar to that employed by the streaming giant Netflix, Inc. (NASDAQ:NFLX) for video content. According to The Wall Street Journal, the service will boost Amazon’s revenues by around $1 billion annually.

The move further expands Amazon’s ecosystem, through which the company aims to lock in its users and offer maximum services. The subscription service will result in massive savings for avid readers as they will be able to access thousands of books for $9.99 per month, instead of paying the same amount for each of these books.

Titles available under the subscription include “Lord of the Rings” and “Diary of Wimpy Kid”, among several other popular titles. Amazon may be leveraging this service as it battles with Hachette Book Group over profit sharing in the e-books arena. Amazon has been delaying orders for Hachette’s e-books, while offering authors 100% of the revenues generated from the sale of their e-books.

Given the growth in e-book revenues globally as physical book sales decline, the new subscription service will further broaden the e-book market since Amazon is the largest player in the arena. However, the launch of the latest service marks the e-commerce giant’s entry into another low-margin business. Amazon will be competing against services like Scribd, which offers less titles but at a lower monthly cost.

Amazon will have an edge over competitors, not only because it has a larger selection of books, but also because it will be paying publishers upfront in addition to a per-read fee. Given Amazon’s larger user base, authors and publishers will be more inclined to get there content distributed through the e-retailer over other avenues.

Amazon is up over 1.76% during trading as of 12:30pm EDT. The stock is down 9% year-to-date, primarily because Amazon expects losses in the current quarter.

Disclosure: No positions.