Will there be a Netflix for Books? Who has the best chances of becoming the Netflix for Books?

Yes and No. Let’s see why

First,

1. Netflix reported its 2019 Quarter 4 Quarterly Earnings on Jan 21st, 2020

Some interesting points from Netflix’s Quarterly Earnings Report –

1. Netflix has 167 million subscribers, over 100 million outside the US
2. It had quarterly revenue of $5.467 Billion
3. 2019 revenue was over $20 Billion
4. It had quarterly net income of $587 million
5. It had 20% to 31% Year over Year growth (depending on which quarter you check)
6. It added 8.8 million subscribers in Q4, 2019

Can there be a similar behemoth in Books? A Book Subscription service which grows as big as Netflix

Reasons there might be a Netflix for Books

1. Subscription models have incredible appeal for customers and have already taken over music and movies. It is quite possible that subscription services also take over reading
   1. If that happens, then it is quite possible that one company dominates and becomes ‘The Netflix for Books’
2. Amazon already has a lot of things in place to turn Kindle Unlimited into ‘The Netflix for Books’
   1. The Big Publishers are unlikely to ever partner with Amazon, however, Amazon is trying to slowly strike deals with established authors to circumvent that
3. There is an unusual situation in eBooks in 2020, where Publishers are trying to price their ebooks high, even higher than paper books. At the same time, lower priced books from self published authors are ‘hidden’ by the ebook stores. This makes a subscription service more compelling than it would otherwise be
4. The convenience factor. It’s easier to just pay a monthly subscription fee and to never think about individual purchases
5. The Discoverability Factor. One thing that Netflix does a decently good job of, is helping you find ‘your next watch’. A subscription service for books can do the same. Combine this with the Convenience Factor and everything goes very fast, much faster than hunting for new books and buying them one by one
6. A subscription service, if set up right, gets a lot of ‘purchasing power’. Netflix is now releasing one Netflix original every day. A Book Subscription service, even if slow in the beginning, can start ‘purchasing’ book exclusives. Gradually it can build up to the point where it is releasing ‘new and exclusive books’ every day
7. People keep their subscriptions even when they are not using the service or hardly using the service
   1. This creates a nice little ‘surplus value’ stream of income. Where the subscription service has to pay nothing to the creators, but keeps getting money from the subscribers
8. There are a very large number of authors, and lots of new authors sign up to start publishing their books all  the time. This creates a steady supply of content. A book subscription service would not have to invest much into content. It could just get a share of new incoming authors, and existing authors, and pay them based on performance
   1. As opposed to Netflix, a book subscription service would not have to pay for content. Authors provide it for free, basically. Only successful authors need to get paid
9. People are signing up for more and more subscription services such as Netflix, Apple Music, Spotify, Disney+, Hulu, HBO, etc. This ‘trains’ people to be comfortable with, and familiar with, subscription services
10. There are lots of ways to make something work
    1. You can have paid subscriptions
    2. You can have lower price subscriptions with advertising included
    3. You can even have fully subsidized subscriptions

As you can see, there are some compelling arguments for why a Netflix for Books would arise

Reasons there might never be a Netflix for Books

1. The majority of big brand name authors are signed up with large Publishers. This makes it hard for a subscription service to be independent. The subscription service is at the whim of the large publishers
   1.  A good example is Random Penguin House pulling English language books from European Book Subscription Service Storytel. Hard to build a business when someone else controls the content
2. The large Publishers might decide to do their own book streaming service. That would fragment the market. The large Publishers have the big name authors. Amazon has the self published authors. Companies like Storytel have subscription services outside the US. This would prevent a Netflix for Books and instead we would have a bunch of smaller, fragmented subscription services
3. The market for readers might not be as big as the market for things like music and movies
   1. The number of people who read books is quite small. Some estimates say that only 30% of people read books, with a large percentage reading only a few books a year
   2. The number of people who read more than one book a year is even smaller
   3. Contrast that with things like movies, TV, music where there are a very large number of people doing these activities daily
4. The majority of self published authors in the US are tied to an exclusive deal with Amazon
   1. So for big brand names you can’t get them on your book subscription service because the large publishers have them
   2. For self published authors you can’t get them on your book subscription service because Amazon requires exclusivity for them to be in Kindle Unlimited
   3. Where are you going to get the content for your service from?
5. It is very expensive to set up and run a subscription service
   1. Netflix lost a lot of money to get to the point of having 167 million subscribers
   2. Netflix still has a lot of debt
   3. The only companies that can truly take a run at a subscription service are those with large pockets
6. It has not happened so far
   1. This might be the biggest reason there might never be a Netflix for Books
   2. Kindle Unlimited, by our estimates, has somewhere between 3 and 5 million subscribers in the US, and another 3 to 5 million subscribers outside the US. That’s 4 years after launch
   3. By comparison, Amazon Music has 55 million subscribers 3 years after launch (with the majority being paying subscribers). If we assume 30 million paying subscribers, then that’s 3 times the subscribers. And Amazon music pales in comparison to Spotify’s 113 million paying subscribers. Apple too has 60 million paying subscribers for Apple Music
   4. If Kindle Unlimited has between 5 to 10 million paying subscribers, Scribd has 1 million, and Storytel has 1 million
   5. It means the book subscription business might be an order of magnitude smaller
   6. That a ‘Netflix for Books’ when it arrives, might end up hitting a ceiling of around 20 to 30 million subscribers
   7. Never reach the 110 million subscribers type of figure that Spotify has
7. It’s not a good business to be in, because the money goes to the content providers
   1. Most subscription services end up giving between 35% to 70% of earnings to the content providers
   2. They still have all their other costs (R&D, marketing, infrastructure, employee salaries)
   3. Where is the profit? You have to look at scale to make profit, and books might not be a big enough business to deliver that

Some of these are very powerful detriments. A few of these by themselves could stop there ever being a ‘Netflix for Books’

Who has the best chance of becoming the Netflix for Books

1. Anyone who changes the pricing paradigm
2. Anyone who stops ignoring Asia, Europe, Africa, South America
3. Amazon, though it is hampered because the large publishers will never trust it (and rightly so)
4. Apple, though so far it has taken ebooks not at all seriously
   1. The hope is that the success of Apple Music will motivate Apple to start a subscription service for books
5. Anyone who can create a model that works well with self published authors and smaller publishers
6. Anyone who creates a product/model that allows the large publishers to compete against Kindle Unlimited
   1. The large publishers already have the more coveted authors and books
   2. All they need is someone that allows them to cooperate together on a platform that technologically can compete with existing ebook stores

There are actually a lot of opportunities. If Storytel and Scribd can get to 1 million paying subscribers, then there are some real opportunities

Our Predictions for a Netflix for Books

Reality says

1. There is never going to be a Netflix for Books

Our hope is

1. A company creates a platform that brings together the large publishers, the small publishers, and self published authors
2. Breaks the pricing paradigm
3. Provides transparency and honesty
4. Creates a subscription service that doesn’t ignore 90% of the world
5. Makes a viable, profitable product which also produces steady and dependable income for its partners

There is a real opportunity for someone willing to herd a bunch of crazy cats into a subscription service