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

Amazon Publishing gobbling writers, cutting out the middleman

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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.

Article printed from InvestorPlace Media,

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