Amazon's Kindle DX Poses Profitability Challenge To Publishers

The Kindle DX is leading the charge toward e-textbooks, but the result may be as painful for publishers as the freefall in CD sales experienced by the music industry.
It's also not clear how far schools would be willing to push publishers toward offering e-books as an alternative to traditional books. Princeton believes the market will force any needed changes. "If the tests work, you'll see a lot of students buying Kindle-like devices," Goldstein said. "This market will stand on its own. It won't need Princeton arm-twisting."

Rik Kranenburg, president of McGraw-Hill's Higher Education group, acknowledged that e-book readers could prove disruptive for the industry, which is still trying to understand how to use the technology and make money. "We're trying to figure out what works," Kranenburg told USA Today.

Impact On Publishers Will Be Serious

One fact that's sure to keep shareholders up at night is the drop in the value of content once it becomes digital, sometimes as much as 50%, analysts have said. Amazon, for example, sells electronic versions of books for about $10, considerably less than hardcover books or paperbacks.

Once the trend toward e-textbooks begins, the impact on publishers will be serious. "Their businesses are going to get smaller," Epps said. "They will see a decrease in revenue in their core products, and that's going to be painful."

Whether it's as painful as the free fall in CD sales experienced by the music industry remains to be seen. Record companies have been hit hard by an increasing number of people buying their tunes over the Web in digital format.

Textbook publishers are likely to have more time to adjust. "It's still a relatively slow-moving train," Andrew Frank, analyst for Gartner, said of the shift to e-books. "The Kindle DX has a ways to go before it's a ubiquitous replacement for printed books. It's not an imminent threat."

Meanwhile, newspapers face a different challenge. A major concern they have with the Kindle DX is that if it becomes too popular, then Amazon would gain too much control over the distribution of the electronic versions of newspapers. Such a scenario would be similar to Apple's rise as the largest music seller in the United States with the popularity of the iPod and its iTunes music store. Apple's success has caused considerable tension between the company and record companies over pricing of music.

"They don't want to hand over too much revenue to Amazon or any other e-book reader maker," Frank said of newspapers.

As a result, newspapers are taking a cautious approach to the Kindle DX. The New York Times, The Boston Globe, and The Washington Post will offer the $489 Kindle DX at a reduced price to subscribers, but only to those in areas where home delivery isn't available. The amount of the subsidy hasn't been disclosed, but customers will have to agree to a long-term subscription to get the device.

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