What if a $79/year subscription to Amazon Prime didn’t just buy you faster shipping for hardcovers and small appliances, and free streaming for old movies and TV shows? What if it also let you read entire books from a similarly curated back catalog?

Several executives speaking anonymously to the Wall Street Journal report that Amazon has approached book publishers about doing exactly that.

Amazon has told publishers it is considering creating a digital-book library featuring older titles… Amazon would offer book publishers a substantial fee for participating in the program, people familiar with the proposal said. Some of these people said that Amazon would limit the amount of books that Amazon Prime customers could read for free every month.

Before Prime members (disclosure: that’s me) start gleefully rubbing their hands together, note that the publishers haven’t signed on. In fact, their executives are deeply skeptical. (Amazon wouldn’t comment on the story, for either the Journal or Wired)

“What it would do is downgrade the value of the book business,” said one publishing executive.

Let me translate that for you: We have no idea how to price this, and that makes us afraid.

Now much of the time, book publishers, like most other well-established media companies, are afraid to experiment with digital delivery for no real reason, for boring reasons, or out of simple inertia. Here, though, skepticism and even fear is totally understandable. Arguably, it even demonstrates good business sense.

The Journal called Amazon’s proposal “a Netflix Inc.-like service for digital books.” Now, “Netflix for ____” has become a cliché, but if we take the metaphor seriously, we can understand why no book publisher wants to be Starz.

Let’s assume that Amazon convinced one or more major publishers, or a handful of mid-level ones, to sign on with this plan. One of two things could happen:

1. The service doesn’t get traction with customers, for whatever reason — bad implementation, the catalog is too small/big or poor-quality, readers would rather own than rent — and it crashes and burns. The publisher just went through a ton of work to pore over its giant catalogs, digitize more back content, figure out author compensation for this weird new thing. And now they look like idiots.
2. The service is a smash hit. A big free catalog of books helps Amazon sell its next generation of tablets and e-readers faster than Foxconn can make them. Book clubs are binging on your back catalog and your content has more visibility and relevance than ever.A year into the deal, Random House CEO Markus Dohle (or whoever) is on stage with Amazon CEO Jeff Bezos. They clasp hands, and raise them over their heads to thunderous applause. As Dohle’s smile widens and flashbulbs pop, only one thought is on his mind, which he fights to keep off his lips: “I should have asked for a lot more money.”

To this, let’s add the following complications:

• Amazon already has more power over every aspect of the book publishing business than Apple ever had with music or Netflix has now with anyone. Publishers are naturally wary of doing anything that ties their business more closely to Amazon’s and further alienates or marginalizes their competitors.
• Book publishing is infinitely more fragmented and conflicted than any other media industry. It’s bigger than you probably think — in 2010, 1,963 publishers generated net revenue of $27.9 billion — and it’s growing, both in revenue and number of books sold.But it’s all over the map. Textbooks and genre fiction don’t have a whole lot to do with each other. Neither do giant megacorporations and vital little indies. Within each of these markets, authors, editors, agents, publishers, boards, large purchasers like libraries and school districts, retailers and reviewers all have substantial power, creating layers of competing but intricately connected interests that each need to be satisfied. This creates are all sorts of coordination and marketing problems that tend to thwart omnibus solutions.
• Books don’t have the same kind of problems with shelf life (har har har) that plague movies, music and television. A substantial chunk of the book business is and has always been in classics and “steady sellers.” These in turn are periodically refreshed with new editions and translations.
• Partly because of this, apart from used bookstores, with which publishers have never really dealt directly, an aftermarket for older books comparable to TV syndication or movie sales to premium or basic cable has never really developed. It was comparatively easy for Netflix’s (or Amazon’s) TV and movie partners to sign a deal, because it wasn’t much different from an agreement they might sign with someone else. Book publishers don’t have a comparable comparable.

Continue reading to see why Amazon’s proposal may be a good idea after all…

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