Amazon Children’s Book Deal a Low-Cost Route to Growth

It’s manifest destiny for Amazon (NASDAQ:AMZN)! What used to be little more than the Internet’s biggest bookstore has transformed itself into a lumbering, $88 billion market behemoth trading in everything from proprietary handheld gadgets to shoes for the unusually tall.

While Amazon has made the bulk of its headlines at the end of 2011 thanks to its Kindle Fire tablet, a quieter story about Jeff Bezos’ great machine has been unfolding — one that has seen the company returning to its roots in books. Amazon Publishing, the company’s very own book imprint, has been growing at an exponential rate over the past 12 months. The latest territory taken by Amazon Publishing: children’s books.

A Tuesday article in The New York Times said that Amazon purchased the rights to more than 450 titles from Marshall Cavendish Children’s Books, a subsidiary of Singapore-based Times Publishing Group. While Amazon has published a few children’s titles under its Amazon Encore imprint — Encore’s domain typically is reprinting titles that were independently published in small print runs — this acquisition represents the company’s first aggressive push into the category.

Most significant about Amazon’s new place in the children’s books market is what it represents for the company’s broader e-book business. Vice president of Amazon Publishing Jeff Belle told the WSJ, “(Children’s books are) a case where there’s a great list of books that have not been digitized.” He’s right. While Amazon has had great success with its Kindle e-readers and has helped set the standard for the market, a number of book types have simply been blocked off from its e-book operation.

The black-and-white Kindle e-reader, and even color ink e-readers like Barnes & Noble‘s (NYSE:BKS) Nook Color, haven’t been able to properly reproduce the large page format and bright coloring of children’s picture books. In turn, the Kindle e-book business has been cut off from a huge part of the $1.2 billion-per-year children’s books market. The Kindle Fire and Nook Tablet computers — with their clear, back-lit LCD screens — can better replicate the vivid images that make children’s books such marketable products.

This expansion is just one more victory for Amazon’s publishing imprint in 2011. The company staged something of a coup in landing exclusive publishing rights to self-help author Timothy Ferriss’ new book in August. Between its Kindle business and Amazon Publishing, the company could end up controlling 50% of the entire book market by the end of 2012.

What’s more, Amazon can continue expanding.

With graphic-heavy texts like picture books now within Amazon’s reach, it can begin branching out its e-book publishing business into other image-intensive book types. Amazon can acquire the rights to crafting books, photography books, even coffee-table-style luxury books.

And best of all? Amazon Publishing — with its growing domination of the entire book chain — represents a welcome, low-cost avenue of growth for the company.

Part of what has kept Amazon’s stock down lately is the company’s massive spending over the course of 2011, including acquisitions of other companies, TV and film content licensing for the Amazon Prime streaming video service, and R&D and manufacturing costs for the Kindle Fire (a device sold at a loss). In 2012, the company could use the chance to scale back a little and watch its investments ripen.

Being able to build part of its company without breaking the bank will help.

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.

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