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Amazon needs newspaper and magazine publishers to embrace the Kindle standard if the device’s economics are ever to work well for Amazon. Growing scepticism among publishers suggests that this will be difficult.
We made calls to various newspaper and magazine publishers and found that many are not convinced the Kindle will dominate the e-reader market. Specifically:
- Some local newspaper publishers see more potential in smartphones than e-readers like the Kindle.
- Magazine publishers want to create device-neutral content that can be read across a number of devices, from mobile phones to netbooks.
- Apple is in talks with publishers about under-cutting Kindle pricing for its forthcoming tablet.
We continue to think analysts are far too optimistic about the Kindle’s potential contribution to Amazon’s future earnings. Right now, the device is a big money loser, and our recent calls with newspaper, magazine, and book publishers do not suggest that this will change.
APPLE IN TALKS WITH PUBLISHERS TO UNDERCUT KINDLE PRICING
Apple is holding ongoing discussions with the larger, national newspaper and magazine companies and offering better terms than the Kindle (we couldn’t find specifics) for inclusion in its much anticipated tablet device.
True to Apple’s incredibly secretive ways, even publishers who had discussions with the company did not have any idea what Apple’s launch plans were for the tablet. That info is so tightly held within Apple that one publishing exec called speculation by publishers about when the tablet would launch and how it would look and work “fantasy chatter.”
If the tablet launches, most publishers are expected to participate in some form though many are concerned with the potential expensive pricetag.
MANY PUBLISHERS EXPECT NOTEBOOKS TO BE THE WINNING DEVICE, NOT THE KINDLE
Newspaper/Magazine companies nearly all agree that prices for e-readers will come down since consumers will not be willing to pay the high prices.
Many pointed to netbooks as the most likely to emerge as the best-positioned platform for digital magazines and newspapers since those companies can build such a device at an affordable price to consumers at scale and know that business well.
PUBLISHERS WANT BETTER REVENUE SPLITS SO THEY ARE BUILDING CONTENT FOR MULTIPLE DEVICES
Publishers are desperate to avoid the iTunes slavery that has befallen the music industry, so they are now pursuing a strategy of building content for multiple devices to be sold through digital storefronts. These publications can be read on any device without encyrption software.
One industry executive we spoke with said the splits from those platforms (publicly not disclosed to-date) are closer to the iTunes model – with the publishers getting 70% of subscription revenue and the platforms keeping the rest. This is the reverse of the Kindle split, which is 70% in favour of Amazon.
BANDWIDTH COSTS REMAIN A BIG HURDLE TO FULL WIRELESS DELIVERY
An important point that many miss is that currently it is very expensive to deliver all the data necessary to publish digital versions of newspapers and magazines that replicate the graphic and colour detail of print publications.
Almost everyone we spoke with said that the costs to deliver rich newspapers and magazines wirelessly to e-readers are too prohibitive currently to make this a realistic endeavour for publishers or consumers in the immediate future. For now, therefore, wires are needed.
Industry executives are currently speaking with the major wireless carriers and say the carriers recognise the issue and are working aggressively to make wireless delivery more feasible. Specifics were scant but we will be following up on this in more detail.
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