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  • techstrategy techstrategy Dec 15, 2012 8:50 AM Flag

    Time to address the "digital content" profit fable...

    More fuzzy thinking needs to be taken to task...

    First, Amazon already has a virtual monopoly on digital books. So, it has more to lose and less to gain as tablets and consumption options proliferate. The Kindle Fire was a defensive move because Amazon realized Apple would be well positioned to dominate in the future. The DOJ ruling against Apple, which is hyped by many Amazon pumpers, is actually a disaster for Amazon because it gives Apple free reign to compete with Amazon on price on eBooks and undermine its key source of advantage and cash flow. Neither Google nor Apple need to make a penny on eBooks and since Amazon has opened a business model competition with both, both are not only justified but well served attacking Amazon's core business.

    Second, Amazon includes unlimited videos with its loss leader Prime. That means that new Kindle/Prime buyers are unlikely to generate large video content profits. Again, Amazon has no advantage on new releases. For those hyping a "self publishing" platform, I encourage you to visit YouTube. Google is light years ahead of Amazon on monetizing that opportunity....

    Third, Apple iTunes dominates music. Here, Amazon may be able to grab some share, but Apple has advantaged economics here and can certainly match Amazon's prices. So too with Google play. Over time, value will migrate to content creators rather than distributors as digital distribution with cloud/play anywhere offerings proliferate...

    Amazon will make some money on digital media, but mostly it will be trying to preserve the profitability of the existing Kindle ebook franchise... It is going up against bigger, better and much better financed competitors (both in cash and cash flow) in these arenas. It is NOT competing against mom and pop retailers and dinosaur bookstores anymore....

    We'll take a deeper dive on cloud next week...

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    • I think the denoument, when it comes, will be fast. Balloons and bubbles never deflate slowly.

      Sentiment: Sell

    • Another issue--"stale" inventory at "fullfillment centers"? Things that no longer sell but show up as "assets". Sooner or later, writedowns? Is this incorrect?

      Second, Amazon has sacrificed profits to gain share. Like the old adage, "lose money (almost) on every sale, but make up for it in volume". Is this a winning business plan? If they raise prices to get more profit, others may move in to take business. Plenty of potential rivals out there, starting with Apple, eBay, Google, Priceline, etc. and they have lots of cash.

      Similarly, "the cloud" is a fancy name for a digital data center. If it becomes very profitable, there will be MANY competitors.

      Amazon is a retail stock selling for tulip bulb bubble PE ratio in my humble opinion.

      Sentiment: Sell

    • Some of the "walled gardens" may crumble in due course, a sign of which I read recently about a Swedish start-up Publit which provides a platform for publishers and authors to sell directly to readers which should undermine the Kindle & iBooks walled gardens if the concept catches on.

      Rather disappointing to see such “disintermediating” innovations emerging from outside the U.S., perhaps attesting to the head in the sand denial on the part of US publishers and the stranglehold Amazon has over the industry.

      It was rather crazy for the publishers to have resorted to collusion for price-fixing and inviting the wrath of DoJ when the more effective approach would have to foster Publit-like platforms. Why bother with agency model, wholesale model etc. when all that is needed is a platform to host the content, manage DRM, process payment and advertise/promote etc. and receive realtime market intelligence as gravy. Besides Publit-like platforms, the publishers and authors could establish their own collaborative eBook portal and simply pay commissions to sales coming from affiliate's referral links from specialist book review sites similar to movie review sites Fandango and Rotten Tomatoes. And if only the industry promotes the development of generic, commodity e-reader devices using an open format like ePub and figure out a way to subsidize or pretty much give it away, it will liberate themselves and the readers from the walled gardens of Kindle and iBooks and shift the paradigm to “Content is King” rather that the yoke of “Platform is King” they squirm under.

      And as it ought to have been to begin with, hope the day will come soon when eBook distribution is done on a “Marketplace” model sponsored by neutral, non-competing platforms like Ebay, Facebook, Publit etc.

      • 2 Replies to krk_krk
      • How long until Apple and Google offer iTunes match equivalent for Kindle Books? (Frankly, there are plenty of converters to EPUB format already available, but it isn't an easy seemless experience yet).

        Once they do so, the playing field is level for all eBooks platforms. Tablet owners will shop and buy from whoever offers the best price because the content will be able to be viewed on any device, including legacy content. At that point, Amazon loses it advantage on eBooks and existing device share, not legacy ebook share, becomes the best predictor of platform dominance for self publishing.

        Amazon's monopoly WILL come under threat in the near future.

      • Nice post. I have much to say but all my content oriented posts are being censored. The problem has gotten much worse since the website redesign and even worse since CNBC partnered with Yahoo...

        FWIW, Google Books is industry standard EPUB based...

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