Kindle Can't Save Newspapers

By: Ann Northrop, CFA

Amazon.com (AMZN) unveiled a new, larger Kindle yesterday that publishers of newspapers, textbooks and novels all hope will spur sales.

The new Kindle has a 9.7-inch screen, 2.5 times the surface area of the original 6-inch Kindle, launched in 2007, and stores up to 3,500 books, more than double the current Kindle's capacity. The price tag is also much bigger at $489, compared with $389 for the current Kindle.

The electronic reader -- which enables consumers to download books anytime, anywhere at a smaller price than the hardcopy version -- has proven popular. According to Amazon, Kindle books now account for 35% of sales of titles that are available in both e-book and hardcopy versions.

An e-reader device seems well suited to replace a load of heavy hard copy textbooks lugged to school in backpacks. Three textbook publishers -- Cengage Learning, Pearson Plc (PSO), and John Wiley & Sons (JW.A) -- which account for 60% of the market will begin offering textbooks through the Kindle Store beginning this summer.

But can e-readers, such as the Kindle, shore up newspaper circulation, which has been in a secular decline for several years?

In hopes of spurring newspaper sales, this summer The New York Times and The Boston Globe -- both publications of The New York Times Co. (NYT) -- and The Washington Post Co's (WPO) namesake newspaper will offer the new Kindle at subsidized prices with subscriptions to those in areas where home delivery is not available.

As a standalone device, an e-reader seems unlikely to substantially replace dwindling newspaper circulation without other changes to the industry's business model. Most newspapers are currently free online, leaving little incentive to pay to read it at home or in the office on a smaller device. And though portable, carrying around a large e-reading tablet is not practical for most people, who already carry a cell phone or PDA.

Consequently, the revenues and earnings of newspaper publishers are likely to continue plunging until the industry begins charging for online news.

Comments

[Roger Knights:]

It may take five or ten years, but I think the Kindle is the light, for those publishers that can make it through the tunnel.

May 07 09:27 AM

[Kirill:]

3,500 books !!! Who will need this much storage. At 10 books a month you will have to read these books for a year.
Not only that if you go to ebay.com you can buy a laptop for this much money. I personally do not see any sense for spending this much on kindle.

May 07 10:30 AM

[Buckoux:]

Kindle won't save the newspapers from the self inflicted wounds of their own disinformation. The paper press committed suicide by lying with a straight face to their readers.

At the closing scene of the 1930's version of "King Cong", a cop and "Cong's" captor, Carl Denham, stand gazing at the dead body of the giant ape on the streets of New York and the dialog goes something like this:

Police Lieutenant: "Well, Denham, the airplanes got him."
Denham: Oh no, it wasn't the airplanes. It was beauty killed the beast..."

And so, just like "Kong", it isn't the obvious first notion that the Internet killed the newspaper beast, but that of the newspapers betrayal of the trust of their readers. Or: "Oh no, it wasn't the Internet, it was perfidy killed the newspaper".

May 07 02:44 PM