Is Netflix model the future of e-books?

June 6, 2013, 3:17 p.m. EDT

Is Netflix model the future of e-books?

Apple’s battle over e-book prices may be overtaken by digital rentals

By Quentin Fottrell

Federal prosecutors say Apple (NASDAQ:AAPL)  conspired with book publishers to jack up e-book prices. But the court case, which began this week, may soon be a moot point, experts say, as other companies aim to make traditional prices irrelevant by offering e-book rental services akin to Spotify and Netflix.

Is Netflix the future of E-Books?

Five publishing companies have already settled with the federal government and terminated agreements made with Apple in 2010 in the weeks before the launch of the first iPad. Those publishers include HarperCollins, Lagardère’s Hachette, CBS’s (NYSE:CBS)   Simon & Schuster, Pearson’s Penguin Group and the Macmillan unit of Georg von Holtzbrinck. (HarperCollins is owned by News Corp. (NASDAQ:NWSA)  , as is The Wall Street Journal and MarketWatch.) Since then, Amazon.com (NASDAQ:AMZN)   has been steadily cutting the prices of e-books.While the settlement between the government and publishers may lower prices in the short term, publishing experts say more companies are finding ways to allow readers to swap e-books, read them for a monthly subscription, or rent them from an e-library. Kindle owners who are also Amazon Prime members can already choose from over 300,000 books to borrow for free with no due dates, but they may only choose one book per month. Services such as eBookFling.com and Lendle.me give Kindle and Barnes and Noble’s Nook customers access to tens of thousands of other potential e-book lenders for a 14-day period.

But so far, there is no book streaming or rental service with the scope and selection of Spotify for music, or Netflix for movies and television. Consumers want the same flexibility they have with music and movies, experts say. “We’re increasingly addicted to instant gratification,” says Simon Lipskar, the president of Writers House, a literary agency in New York. That, he says, is why people stream music with Spotify and Pandora, and movies through Netflix and Hulu. “I anticipate that we will see more e-book publishers take this approach in the near future,” Lipskar says. Others say it’s a question not of if – but when. “It’s the next logical step in the market’s evolution,” says Peter Hildick-Smith, president of market researcher Codex Group.

There’s a burgeoning market in e-book rentals. Safari Books Online — which has a website and apps on iOS and Android — has partnered with over 100 publishers to provide access to technology e-books on a subscription model; it has over 30,000 IT e-books. “Think of it as Netflix streaming for professional developers,” says Safari’s director of marketing Troy Petersen. Texas Southern University and California State rent text e-books at discounts of up to 60% off the print price through CourseSmart.com, a digital service that began in 2007 and partners with 100 universities and colleges.

Others are following a subscription model. Start-up Oyster Books is planning an iPhone app that allows customers to read as much as they want for a monthly fee. But experts say its success will depend on the quality and quantity of titles and, of course, the price. (The company did not respond to requests for comment.) In its first round of financing last October, Peter Thiel — an early Facebook investor — invested $3 million through his Founder’s Fund. “Oyster’s challenge will be to prove that they can make the model profitable for Oyster,” says Mark Coker, founder of e-book distributor Smashwords.com.

It will be an uphill battle to get mainstream publishers and authors onboard, experts say. A successful e-book rental or subscription service will need to convince publishers that the service is an augment — not a replacement — for traditional e-book retailer sales, Coker says. It may make more sense to rent books, however, considering people tend to read them just once, he says. “A song is a three- to four-minute customer experience which is often repeated with the same song multiple times,” he says. “A book is a multihour experience, but is seldom read a second or third time.”

If e-book rentals take off, it may only make financial sense for avid readers. “Paying $9.95 a month for the premium Spotify is probably more than I used to spend on purchasing songs or albums,” says Neil Schlager, founder of Schlager Group, a publisher of materials for students and teachers, “but I’m happy to do it because the service has value to me.” To be fair, e-books prices are still low compared with print copies, Coker says. Amazon charges $9.99 for new and bestselling e-books. “Any e-book subscription or rental service needs to meet or beat what retailers are already doing,” he says.