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Book publishers are feeling good, but Amazon may have other plans

Aaron Pressman

The “Big 5” book publishers are feeling good and riding high.

Unlike shrinking movie box office receipts and plummeting music sales, 2014 book sales were up a healthy 4% to 5% all year -- though the true final numbers aren't in yet.

Publishers also defeated their top frenemy, Amazon (AMZN), at least somewhat last year, by winning back control over ebook pricing in new multiyear sales deals stuck by French-based Hachette and CBS (CBS) unit Simon & Schuster. At the same time, the portion of the market sold in ebook form, where Amazon has been most dominant, seemed to stabilize at around 25% to 30%.

At the Digital Book World Conference in New York this week, the mood was, if not quite giddy, at least more upbeat than in some prior years. The book market will continue to evolve, most agreed, but perhaps without the threat of total disruption publishers once feared.

"It looks to many people, including me, like things are calming down in the book market," says longtime publishing industry consultant Mike Shatzkin.

Challenges from subscription services

But lurking ahead, there are several possible challenges that could upset the current balance.

Subscription book-rental services are small, but growing fast.

Amazon has one called Kindle Unlimited, which the major publishers have all avoided like the plague. Kindle users can pay $10 a month to get access to a library of some 700,000 ebooks, many from among Amazon’s ranks of self-published authors. Readers get access to some older best-sellers by famous authors, like Suzanne Collins’ "Hunger Games" trilogy, but not much among the latest releases.

Big publishers instead have been slowly putting more of their books on two smaller services, Scribd and Oyster, where users pay a monthly fee and read as much as they want. Still, these are mostly backlist titles from Simon & Schuster, News Corp’s (NWSA) HarperCollins and Macmillan, owned by German publisher Holtzbrinck Publishing Group. Hachette and Random House Penguin, the largest publisher in the world, haven't signed on yet.

The key question is whether these subscription services end up more like Netflix (NFLX), which has generated fresh new revenue for Hollywood, or more like Spotify, which seems to be rapidly draining the urge to buy music ever again. Movie box-office receipts dropped 5% last year, while in music, sales of physical albums fell 11% and digital sales declined 9%. By contrast, U.S. publishers' revenue was up 5% in the first nine months of the year, according to the Association of American Publishers.

At Amazon, at least, people subscribing to Kindle Unlimited are spending 30% to 40% more time reading than they did before they signed up and spending about 25% more dollars in total, senior vice president Russ Grandinetti said at the conference. But he warned that it was too early to draw firm conclusions because Amazon only opened the service in July.

The Amazon threat

And that leads to the second risk ahead for publishers – some kind of surprise move from Amazon.

Grandinetti was asked about all the alleged stability in the market and he nearly laughed out loud. “When I get questions like that, it makes me nervous,” he said with a chuckle. The industry may have felt secure in 2007, just before the Kindle was launched, he mused. “It’s really hard to predict when things emerge that cause you to have to change the business in some respect.”

He then hinted Amazon is thinking about how to get at some parts of the book market that have proven more resistant to going digital, especially children's books, nonfiction and the education segment. He described those markets, which when combined are bigger than the fiction segment, as "much, much earlier in their development.”

“Our mindset is not, what is the predetermined percentage of the business that will be digital, but what is it we can invent that would cause customers to choose a digital format,” Grandinetti explained. “I think we’re still very early in some of the things we can invent.”

Amazon’s last high-profile invention, the Fire smartphone, was a flop. But Amazon has always been at the top of its game when it comes to catering to readers. And an invention in that area could be the next big disruption publishers didn’t see.

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