Netflix For Books: Follow The Money Trail

April 2nd, 2007 · 24 Comments
by Kassia Krozser

Every now and then, the tides of thought turn to the age-old question: why isn’t there a Netflix for books? Invariably thoughts will turn to one of the many so-called “swapping” services and someone will say, “Look, I found one!”

Swapping services help readers but also cut into author compensation.

Oh no, dears, not even close. While we’re sure the people who run these services have the best intentions — and we recall that at least one service contacted us touting itself as a “Netflix for books” — the fact of the matter is that these businesses cut into author sales without additional compensation.

At its heart, Netflix builds upon the barely-established-before-it-was-gone video rental model. In that model, stores would pay outlandish (by today’s standards) prices for videocassettes. They would in turn rent these cassettes to customers. When the cassettes wore down to unviewable, a new item would be purchases, generally at the same outlandish price.

This business model, still wet behind the ears, fell apart in the early 1990s when the sell-through market built up momentum. Suddenly consumers were given the option of purchasing their own videos at a relatively modest price. The rental market, however, had lots of storefront property and felt slighted. Of course, the studios did not want these stores to pay sell-through prices for rental merchandise. Yes it was about a continuing revenue stream, but it was also about compensating talent.

In Hollywood, talent goes by many names. For the sake of simplicity, we’ll call it the producers, directors, actors, and writers. Even if the studios somehow fell for the idea that prices had dropped on rental videos, the talent would not. Thus, a concept called “revenue sharing” was born. For those who lived through those years, we are oversimplifying the process and timeline. Rental outlets would get the product for cheap but would share revenues (“overages”) from excess rentals with the studios.

Voila! Ongoing revenue stream.

Netflix emerged along with the DVD market. Someone figured out a way to rent product to consumers in an easy, cost-effective, and selection-rich manner. It was good news for movie lovers everywhere. Of course, the studios still faced the pesky issues of ongoing revenue and paying talent. There is no way that the Netflix model could exist unless the studios are getting their due.

Netflix has entered into revenue sharing agreements with the studios. There is no way the business would have survived otherwise. The studios would not have stood on the sidelines while money was lost. In many ways, this is a win-win for all parties.

This is vastly different from the swapping services (and the “rental”) services you see online. The Netflix model is designed — either by intent or forces of reality — to ensure ongoing compensation for talent. The amount of compensation is another issue entirely. The creative forces who are entitled to payments for their efforts are not bypassed by a loophole known as the First Sale Doctrine. Swapping services operate under a very long, stretchy thread of that doctrine; the idea is that someone who buys a book has a right to dispose of the book, including by selling it, however they wish.

There is no doubt that swapping services extend reader budgets. They also cut into publisher sales and author compensation.

Maybe it is time to see if the Netflix model works for books, but to do it right, you have to embrace the whole model, not just the pieces you like.

File Under: The Business of Publishing

24 responses so far ↓

  • Rachel Green // Apr 2, 2007 at 7:56 am

    I’ve used Netflix for books for years, except that I called it a library.

  • Graceanne // Apr 2, 2007 at 7:58 am is kinda the “Netflix for books.” You create a reading list online and get a book per month mailed to you. It’s just $9.95 each (no additional shipping fees). Unlike Netflix, you get to keep your selections.

    Perfect for avid readers, no?

  • erica // Apr 2, 2007 at 9:30 am

    i have to go with rachel – it’s called a library. that’s all i was thinking as i read this post.

  • Dylan Kinnett // Apr 2, 2007 at 9:44 am

    So, are there any good online libraries out there?

  • Kassia Krozser // Apr 2, 2007 at 10:04 am

    You will notice that I specifically excluded libraries from this discussion. I did this for two key reasons: one, libraries are largely local services; the Netflix model serves a national audience. Leading to: two, libraries have limited budgets and often must cater to local mores. You cannot get the widest possible selection from your local library. Also, the economics do not necessarily scale to allow a library to acquire larger numbers of popular titles. Sure, the Netflix model has built-in waiting lists, but there is more free cash available to buy more books.

    Libraries are the most excellent things on earth (speaking objectively, not as the daughter of a librarian (g)), but they are also subject to many limitations. And, as we saw in the past year, if local funding is not available — see the sad case of the Salinas libraries as well as other jurisdictions — then libraries cannot serve the community.

  • ann @ zen of writing // Apr 2, 2007 at 12:28 pm

    Maybe we are unusually fortunate, but the local library system has all its branches linked. If you want a book that is not in your local branch, you can request it online or in person. There might still be a few things that fall through the cracks. For those, there are used book sales. I’m glad this is such a literate area.

  • Dan // Apr 2, 2007 at 5:47 pm

    Interesting, but does, for example a second hand bookshop – or selling books second hand on ebay particularly affect the revenue due to an author? I suppose in a way it does, and i would also say this has more of an affect on earnings due then say a website like

    Are you suggesting here, that a sort of national rental library should be set up for literature? It’s an interesting idea, but surely only one that could come about through the working together of publishing houses in a similar way that record labels are working together to combat piracy. Until the publishing houses are losing enough money due to services such as bookcrossing, or ebay books, they’re not likely to create anything to combat it.

  • Kassia Krozser // Apr 2, 2007 at 8:05 pm

    There are a few topics that I address that always seem to get a rise out of people, though, frankly, I’m never entirely sure why. The topic of secondary or ongoing compensation for authors is one. Maybe it’s because my professional background is primarily the motion picture business, but I remain amazed that the studios have figured it out while other entertainment businesses haven’t.

    I digress. Sort of.

    Yes, Dan, secondhand bookstores and eBay do affect author income. I personally don’t buy books secondhand for this reason. I do, however, understand the reason that many people do, and I don’t quarrel with their choices. It is legal and most authors shrug off the lost sales as potential future sales for new books.

    I’m not even suggesting that a Netflix model be applied to the book business — but the question came up in a few ways in a few places this week and got me thinking. In the course of my work here, I have been contacted by several individuals who have asked me to publicize their book swapping/rental businesses. I’m a little less squeamish about the swapping sites, but downright opposed to the rental businesses. I am especially opposed to those services that claim to be doing exactly what Netflix does. They aren’t.

    Your last sentence is particularly interesting to because — while I can’t find the article right now — there was a recent piece on the rise of used book sales as more and more venues move online. I cannot imagine that the publishers do not do all sorts of metrics that quantify lost sales due to used books, but I have yet to see any hard facts and figures. At one point — and trust me when I say that suggesting this sort of radical idea is a guaranteed way to raise the ire of the blogosphere — that used book dealers be subject to a surcharge similar to the one employed in other countries. These surcharges are designed to compensate the copyright holder and participants (ie, the publisher and author) for lost sales. It’s not a perfect analogy, but what the heck. It was worth throwing out there.

    Conversely, I would suggest that the existing model — employed for blank media such as DVDs, CDs, certain tapes — be repurposed and the surcharge be added to new book sales. I can hear both parties, the used book side and the new book side, crying foul. But authors don’t benefit from after-market sales. The movie business and music business (though I haven’t seen actual money flowing through on the latter) have mechanisms in place for re-use of their products. Books don’t.

    Again, it’s worth considering. Probably won’t ever go anywhere, but if it does, I’d like a shout out in the legislation!

    Dylan — I don’t know if there are good “online” libraries. I know most library systems have online components. You can reserve titles online, etc. But I get back to my scarce resources argument. There are fewer places that I want to see my tax dollars go than libraries, but even I must face reality.

    Linked libraries are a great invention and inter-library loan is wonderful. Again, scarce resources. You, the patron, are limited to what’s available in the system. A consumer-based model would have more liquid resources; fund accounting really sucks when it comes to meeting the immediate needs of consumers. And in all fairness to the world’s librarians, investing in umpteen copies of The DaVinci Code will likely meet an immediate need, but a used book sale at a library will only net back a small portion of the initial investment.

    And, yes, this is a topic I’m thinking out loud about.

  • Cel Petro // Apr 3, 2007 at 8:04 am

    Whoa, are you suggesting trashing the first sale doctrine in favor of intellectual property rights for books? I’m feeling a little bit of a Luddite, here, but the revenue stream is well established for printed material. I guess I’m saying that just because “intellectual property” exists, we don’t have to apply it to everything. Copyright is by no means perfect, but what on earth are the advantages to readers/consumers/ideas/imagination/society/writers/publishers to applying intellectual property rights to print?

    I also think interlibrary loan is being underestimated here. In many public and academic systems it is almost as efficient as having the book on the shelf locally.

  • Kassia Krozser // Apr 3, 2007 at 9:19 am

    Nope, at no point am I suggesting that the first sale doctrine be trashed. I am suggesting that the doctrine (is it really a doctrine or just called that? I’ve always wondered but am too lazy to actually research the thing) and ongoing compensation for authors is not necessarily incompatible.

    Copyright is only one piece of the puzzle — it dictates who “owns” the rights to a work. I use quotes around the world owns because copyrights can be transferred. The publishing revenue stream may be well established, but it’s also not necessarily favorable to authors. I realize I live in a fantasy world, but I figure that if someone doesn’t toss out a radical notion every once in a while, nobody will.

    As I only use ILL on a limited basis — much to the husband’s dismay, I am a major book buyer — perhaps you can offer more information about how it works? My experience has generally been one of waiting for books, but it might be more of a reflection of the books I’m trying to acquired than the actual process.

  • Joan Kelly // Apr 3, 2007 at 10:00 am

    Why isn’t Booksquare running the world and what can I do to change that fact?

    Crabby That You’re Not Running Things

  • Kassia Krozser // Apr 3, 2007 at 10:39 am

    I have filed the paperwork, but fundraising is lagging. Mostly because of a loophole in the World Leader rules that allow me to buy shoes with campaign funds…

  • Jennifer // Apr 3, 2007 at 12:47 pm is a “Netflix for books,” but having to go stand in line at the post office in order to mail the books back is what made it unworkable for me.

  • Kassia Krozser // Apr 3, 2007 at 12:59 pm

    Sorry, Jennifer, but I have to disagree on this point. Unless Booksfree has suddenly started paying “rental” rates to the publishers, they are not following the same sense of fair play that Netflix follows. Booksfree is essentially a swapping service. The Netflix model works because it is extremely convenient for the consumer (critical) while compensating the motion picture industry. The movie business loses sales when people turn to rental product — and it’s very difficult for the studios to justify the very high prices they formerly charged for rental product in these days of cheap production — thus the revenue-sharing model utilized by all major rental chains, including Netflix.

    Swapping happens, that’s a fact of life. I can even see why many people utilize these services. But it gets back to my earlier point about the burgeoning used book market — authors and publishers only make money off of the first sale. Secondary sales benefit the seller. Swapping means only the first person to buy the book is out any money. There has to be a better way, you know?

  • Brenda // Apr 3, 2007 at 4:59 pm

    I’m with you, Kassia. I used to luuuve secondhand book stores and frequent them often. Until I became a published author and people started boasting to me that they picked up a copy of my book for roughly 50 cents on eBay or in a used bookstore. On the one hand, I’m flattered that they want to read my book, but on the other, those sales will never be reflected in royalties. And far more important than the tiny sum I’d get from the sale is the total sales number that my publisher will look at when deciding whether to publish my next book. Applying the Netflix model to books is a fantastic prospect, but unlike DVDs, I can’t see them figuring out a cheap way to mail all those books.

  • Michael Koch // Apr 7, 2007 at 1:13 pm

    When someone buys a used book they are purchasing something that, originally, was sold new with the appropriate revenue and royalties being paid to the appropriate parties. Why, then, should the author and/or publisher make additional money from the book if it happens to be sold on the secondhand market? (As opposed to sitting on a shelf, unread, until somebody decides to throw it away.)

    It’s as if someone sold their 1976 camaro and Chevrolet felt entitled to a cut. (This sort of thinking would make yard sales a real hassle.) The difference, of course, is that since a book does not necessarily deteriorate as quickly as something such as a car, perhaps it retains more of its initial monetary value. Regardless, multinational publishers feeling entitled to a kickback whenever one of their books winds up in a Church sale just sounds greedy.

  • Susan Helene Gottfried // Apr 15, 2007 at 8:42 am

    Hmm. I’m one of those evil online book traders — and a writer, myself.

    I have to say that I’ve never bought as many books — both new and (for the out-of-print books) used.

    Here’s how it goes: I read a book I go flipping crazy over. I blog about it, exposing its title to all my readers. Then I go out and buy a copy, maybe two. One goes on my shelf ’cause it’s too precious a book to not have up there. The other one — plus the original book I first read — go up onto trading sites or get mailed directly to my friends, who follow this same pattern that I do. All of these sites allow for reviews; people can see me raving about the book in a (hopefully) thoughtful manner that will entice others to read.

    This creates BUZZ. Maybe only among ten people, but if six of those ten people go out and buy the book themselves, or go and buy the author’s backlist or rush out for a new release the day it drops, those are six (or more) sales that wouldn’t have happened otherwise.

    It seems counter-intuitive at first glance. But among my circle, we’re all buying more new books and supporting an increasingly wider circle of authors, many of whom are midlist or struggling to get there.

    I’d say that is a bigger help than Starbucks selling Mitch Albom any day.

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  • Iksanika // Jul 16, 2007 at 7:27 am

    Hey all

    I ahve used Netflix several times – they look good to me, anyways whenever i tried to find something – they never failed to help… which means a lot…

  • Joey // Jul 16, 2007 at 11:08 am

    “So, are there any good online libraries out there?”

    yes there is. It’s called Rapidshare.
    And MegaUpload.
    and PirateBay.

    The internet’s transformed into a virtual library free for the pillaging.


  • Make Life Magic! » E-Media Piracy // Jul 28, 2007 at 10:39 am

    […] epic proportions. Even the eBook industry is being hard hit. Check out this link for a sampler: Netflix Hmmm.. looks like someone better start thinking the ebusiness model.Tags: DIY This entry is […]

  • Nathan // Jul 2, 2010 at 8:13 pm

    I don’t really want a Netflix for books in the sense that it sends you books, you send them back, and they send you another one. I want a service where you rate books and based on your ratings the website recommends different books for you to try with a full description of the book.

  • Jessee // Jul 11, 2011 at 8:55 am