Thursday, November 3, 2011

Amazon Launches Lending Library Without the Big Six

As rumored for months, Amazon is getting into the digital book lending business, announcing the launch of Kindle Owners Lending Library for Amazon Prime members. Amazon Prime members—who pay $79 a year for free shipping on products and streaming movies—can now borrow one book a month for free. But there’s a hitch: none of the big six publishers, all of which use the agency model to sell their titles, are participating in the program.
Nonetheless, the model isn’t quite the all-you-can-eat lending subscription service many observers had rumored. Amazon Prime members can only borrow one book at a time, even though the service claims to have “no due dates” for finishing the book. While Amazon touts that the service offers “thousands” of books to borrow and at least “100 New York Times bestsellers,” none of the titles in the program are from the largest trade publishers--Random House, Simon & Schuster, HarperCollins, Macmillan, Penguin and Hachette. The program features titles from a variety of mid-size houses that continue to sell their books using the wholesale model, including W.W. Norton, Scholastic, and titles by well-known self-published authors such as Seth Godin.
Publishers using the agency model have complete control over the pricing of their books and, as some have noted, the model does not allow for the price to be changed or discounted. With the wholesale model, publishers cannot dictate final retail pricing. Amazon's statement in launching the lending program said it is either paying a flat fee to publishers to feature its titles, or paying the standard wholesale discount for each book that is borrowed.
Nevertheless, PW has learned that some non-agency houses have declined to be a part of the lending program. One mid-size publisher that sells wholesale said the “fee” Amazon mentions is a “lump sum” payment that the publisher must allocate to its authors. The fee is said to be determined by Amazon by looking at the 12 month sales history of the titles in question. And according to our sources, some agents are starting to complain about the payment plan.
Houghton Mifflin Harcourt, which is testing several titles in the lending program, said in a statement: “Of course these days we are testing many things and many programs. When Amazon first approached us about prime lending, the terms were not something we could accept. Our position is, our authors need to be protected, we do not want lending to replace selling in the retail environment if our authors lose out. We are not at liberty to disclose the terms of our agreement for this limited test of eight titles, but rest assured, our authors are protected.”
Several big six publishers contacted by PW either declined to comment on the Kindle Lending Library or did not respond to our calls. One industry insider, though, questioned the soundness of a model in which publishers allow retailers to give away their premium content as a loss leader.
Bloomsbury USA, a publisher which sells it titles wholesale, and has books featured in Amazon's Lending Library, said its involvement in the program has less to do with choice, and more to do with its current sales model. 
In a phone interview from London, Evan Schnittman, Bloomsbury managing director of group sales and marketing, print and digital, said that since Amazon buys Bloomsbury titles on the wholesale model, he and other publishers like Bloomsbury, really have no say in how a book is ultimately priced—or not priced—by Amazon. He said the Kindle Lending Library can be classified as a "promotion," which is allowed under the Bloomsbury contract terms. However, Schnittman said Bloomsbury was in the process of examining their contacts to make sure that giving away a book for “free” is allowed. But as long as Bloomsbury receives its wholesale fee, Schnittman said, Amazon can offer the book for what it chooses. “If Amazon, or B&N or anyone who buys from us using the wholesale model wants to sell at a loss, we have no say,” Schnittman said.
Schnittman called the lending program “a classic loss leader.” He said, “If you’re Amazon, your view is to make the Kindle as attractive as you can and to enhance Amazon Prime for its customers. They’ll lose money on every sale simply to promote more Kindles. Amazon PR says that it will increase sales, so we’ll have to see.” But Schnittman was quick to add, “I woke up this morning answering questions about a giant promotional push for my books that I had nothing to do with!”

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