Is Amazon about to conquer a whole new market?
There is a report in the Wall Street Journal this morning that Amazon could be launching a Netflix style service for e-books.
If this is true, then Amazon is not just intent on killing Netflix, it may be intent on taking on Apple’s iBooks store, and being the “king of content.”
There are countless rumours that Amazon will launch its tablet sometime in the next few months, perhaps as early as next month in time for the holiday shopping season.
Adding a Netflix-style subscription service for e-books, in addition to its Amazon Prime movie subscription service would be another feather in Jeff Bezos’ cap. Shares are reacting favourably to this rumour, up slightly more than 1% as of the time of the writing. The broader equity markets are selling off, but Amazon is adding to year-to-date gains.
With its popular Kindle, Amazon would have almost a lock down on the e-book market should it launch this service. While the talks may still be in their preliminary stages, it is fair to say that Amazon has given this serious thought, and sees the potential benefits of launching such a service. It could be a hit to the publishers of the books according to the Journal, but Amazon is intent on doing what is best for Amazon.
If Amazon believes it can create additional revenues from doing this, then the Seattle-based company will certainly do everything it can to try to get this done.
The subscription model works for Netflix, and has generated new revenue opportunities for companies like CBS, which own the older content that was doing nothing. It would help the publishers get their older content in the hands of newer users, and be able to generate additional revenues for the publishers.
Amazon has a market cap of $97 billion, and with its ability to sell everything and anything, the prospects of this potential service are bright. It has considerable muscle to throw behind this venture, should it choose to do so. It looks like this is happening, slowly but surely. It has nearly $6 billion in cash, more than enough to get thie venture up and running, and profitable.
Amazon, like Apple, is one of those companies that everything it touches turns to gold. The Kindle. Online ordering. Digital downloads. Warehouse distribution. Customer service. Amazon does it all, and does it well.
If Bezos and his team want to take on this burgeoning market, there is probably not much that is going to stop them.
The market certainly thinks Bezos and team have it right.
Traders who believe that Amazon’s potential e-book subscription service will work out well might want to consider the following trades:
- Obviously Amazon should benefit, as it adds subscribers to this service.
- This could also benefit publishing companies, like McGraw-Hill, and CBS (which owns Simon & Schuster), as older content gets recycled.
Traders who believe that this will not happen successfully may consider alternate positions:
- While this is still a rumour, it is being discussed at higher levels certainly. If it happens, and proves to be unsuccessful, this could be a black eye to Amazon. Traders may want to short if the service happens, and does not meet expectations.
— Jonathan Chen
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