Business Insider Research Morning Call 20/10/2011

Amazon Brings Big Guns To The Publishing War
Amazon secured an exclusive to distribute digital versions of DC Comics’ library on its Kindle platform. In response, Barnes & Noble pulled the company’s physical comics from its store shelves, a largely unprecedented move. This war is heating up, and Amazon brought big guns. The NYT has the details.

A few points:

  • Amazon is playing to win in the ebook platform wars, and isn’t afraid of pulling out the big guns. It is securing exclusive deals. It is building its own publishing house. It is doing everything to increase the number of available titles (see chart above). We believe the winning Kindle platform is likely to have network effects: the more titles it will have, the more consumers it will have, which will lead more titles to the platform and so on, in a virtuous cycle. This is the right move on Amazon’s part. It will be fascinating to see what happens when Amazon get serious about streaming video.
  • Amazon is playing this smartly because it is distributing the comics across its Kindle platform. The announcement is clearly linked to the Kindle Fire, which is Amazon’s first rich media tablet. Comicbooks are a rich media format and so it makes sense to publish them for the Kindle Fire. But, crucially, DC comics will be available across the Kindle fire, i.e. on non-Kindle devices: computers, smartphones and even iPads through Kindle apps. This makes it a good deal for DC Comics and consumers, and therefore Amazon as well.
  • This is largely a positive for Amazon because its competitors are flailing. There’s no other way to put it: Amazon’s competitors are panicking. As author Neil Gaiman pointed out, B&N’s reaction to Amazon’s exclusive, pulling the comics from its shelves, amounted to giving Amazon an exclusive on DC’s physical products as well as its digital ones. In another incident, a publisher responded to an author publishing short stories through Amazon by suing the author. The expression “cutting off one’s nose to spite one’s face” may be overused, but it is certainly applicable here. There are plenty of things publishers and retailers could do to compete (or partner) with Amazon and win in the coming new publishing ecosystem, and they’re not doing any of them, because they are panicking. This means Amazon will reap the rewards.


  • Our Primer On Kindle Economics →
  • Why The Kindle Fire Will Be A Blockbuster →

In other news…

Demand Media’s stock has completely collapsed, closing yesterday at ~$5.60 a share. The company has been hammered by Google’s Panda algorithm change, and its traffic growth has slowed significantly. Yahoo’s Q3 display-ad results were also mediocre, suggesting that Demand’s may be weak.

Basically every big private equity firm is looking at Yahoo, and the takeout price seems to be $16-18/share.

Groupon is starting its IPO roadshow and is reportedly seeking a $12 billion valuation. That’s lower than the $20+ billion that had been thrown around sometimes, but still very impressive for such a young company. We think Groupon can build a big, viable business despite its losses. Click here for our report →

Nokia delivers a beat on earnings due to stronger sales than expected. The company is still losing money; shares are surging.


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