How Amazon Can Afford to Give Away Books, Free

Amazon’s new “Kindle Owner’s Library” allows any Kindle owner who is a member of Amazon Prime to check out one book a month and keep it as long as they want. It joins Amazon’s video streaming service as one of the perks of Prime membership, which, at $80 a year, also grants members free two-day shipping on anything to come out of Amazon’s warehouses.

But how can Amazon afford to give away all this free (albeit digital) media? As Slate Technology columnist Farhad Manjoo pointed out, Amazon customers who join Prime increase their spending on the site on average $500 a year, presumably because of the free shipping.

But that’s just one of the many interlocking dynamics behind the business strategy of this announcement. Here are the rest.

1. The Netflix-ization of books.

The move to an ownership to a “rentership society” has been proceeding apace, and nowhere more rapidly than in media. Books have been a holdout, but that’s just changed. The Wall Street Journal reports that many publishers refused to participate in Amazon’s Kindle Owner’s Library for fear it would debase the value of their existing catalogs, and they’re right.

Just as Netflix has come to represent a threat worth doing something about for cable companies, a subscription-based lending library for e-books has the potential to turn them into a commodity for readers, who might opt for the “free” books rather than buying new.

First movies (Netflix) then music (Spotify) and now books—the entire process has a kind of inevitability to it that must be terrifying to traditional publishers.

2. Amazon could become the Hearst / Gannett / Knight Ridder of our age.

The paradox of media is that we love it so much that we can’t really afford it. The only way to pay for the enormous media diet of the average person is to subsidize that diet with advertising. News, especially, has always been subsidized.

The question everyone in the media business has been asking since the dawn of the Web is, if Web advertising can’t pay for online content, what will?

When it comes to news, when newspapers had a distribution monopoly, it was the real estate section, autos and the classifieds. Could the 21st century be one in which media are subsidized as a bolt-on to consumer goods, as in Amazon’s new scheme? Books have never been subsidized before, except through the sacrifices of their authors—maybe it’s time they should be.