More Than the Kindle — How Amazon Is Taking Over the Book Business

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Victoria Barnsley, chief executive of the News Corp.-owned (NASDAQ:NWS) Harper Collins publishing house, told The New York Times in August that Amazon‘s (NASDAQ:AMZN) Amazon Publishing business is “obviously a concern.” Amazon Publishing, Barnsley said, is bringing the online retailer “close to a monopolistic situation.” Fast-forward a couple months later, and she’s right to be concerned.

Amazon has signed a fleet of popular writers to its new Amazon Publishing imprints with plans to publish 122 books, both in print and electronically via its Kindle e-book store, this fall. AMZN is projected to control 50% of the entire U.S. book retail business by the end of 2012. If it doesn’t need publishers anymore, what’s to stop Amazon’s domination of the book business?

Amazon’s far-reaching online retail business has been making publishers sweat for years, but it’s Amazon’s Kindle e-book store that causes the most concern. The ubiquity of the store — Kindle books can be purchased and read on any web browser — coupled with the popularity of Amazon’s own Kindle e-reader device has given the company a stranglehold on the growing e-book market.

The e-book market is growing and fast. E-book sales across the industry totaled $878 million in 2010. That’s just a fraction of the overall publishing industry, which brought in $28 billion in sales last year. And it’s just a fraction of even AMZN’s average quarterly earnings — the company brought in $9.9 billion in the second quarter of 2011 alone, so e-book sales have a long way to go before they influence Amazon’s overall value.

That might happen sooner rather than later, though, considering how quickly the e-book business is growing. That $878 million figure represents 1,300% growth since 2008. AMZN might not be making as much money on them, but e-books are outselling print editions at Amazon already. The company announced in May that for every 100 print books, including those without digital editions, it sells 105 books on the Kindle.

It’s Kindle e-reader business is growing apace with the e-book business, as well. Though AMZN still refuses to divulge sales numbers for the four-year-old e-reader line, there are hints to how well the device has performed during the past year. After Christmas 2010, Amazon announced that the Kindle had become its best-selling item in company history, surpassing J.K. Rowling’s 2007 book Harry Potter and the Deathly Hallows, a title that sold 15 million copies worldwide on its first day of sales alone. In July, the company said Kindle sales grew between the first and second quarters of 2011 thanks to the popularity of its new, cheaper, advertising-supported Kindle.

Now this holiday season, Amazon will release its new Kindle Fire tablet PC, a would-be iPad killer that will retail for $199 — $200 less than Apple‘s (NASDAQ:AAPL) lowest-end machine. Barclays predicts that Amazon will sell 4.5 million Kindle Fires before the year is out.

The Fire represents massive potential growth for Amazon’s Kindle operation and its future in the e-book market. First, the Kindle store will grow to include apps for the Google (NASDAQ:GOOG) Android operating system that runs the Fire tablet. Second, Amazon will have a device to also push its digital music and video sales.

In terms of AMZN’s e-book business specifically, though, the Fire might release alongside a new digital library service as part of its Amazon Prime premium subscription service. Amazon Prime members will be able to read books from a selection of titles without paying for them individually, much in the same way Netflix (NASDAQ:NFLX) users stream video. Amazon will be giving a 30-day free trial to all Fire purchasers, meaning that it plans to make the $79-per-year subscription service a key part of the Fire business.

Although Amazon refuses to divulge how much it makes from Amazon Prime, analyst Gene Munster of Piper Jaffray believes the service’s earning potential is growing exponentially. By his estimation, there are 5 million Prime subscribers, 20% more than in 2009, and for each 1 million subscribers, AMZN’s revenue grows by 1.5%.

The individual components of Amazon’s future book business are impressive, though not game-changers, on their own. However, team them together — Amazon Publishing, the Kindle store, the Kindle e-reader/tablet line, Amazon Prime, etc. — and AMZN is well on its way to gobbling up 50% of the book market by next year’s end.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/amazon-publishing-book-business-kindle-book-store/.

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