Amazon.com’s Kindle: Publishing Industry’s

iPod?

Case Study by Swapna Pragada and P. GirijaPresentation: Emily Ip

History of Publishing

•Reliance on traditional publishing houses. •All functions of publishing (selecting, editing, designing, and production & distribution) was performed by the traditional publishing house. • Financial risk beared by traditional publishing house.

Before the 19th Century:

History of Publishing

After the 19th Century:• The expansion of books such as novels,

children’s books, and academics changed the publishing industry. Modern publishing houses replaced traditional printer-booksellers.

• With technological advancements, publishing became more sophisticated. Publishing and book selling became two entities.

Book Publishing: Traditional Operating Model

Factors that Changed Publishing

• Technology such as:-lithography-offset printing-desktop printing-electronic publishing-computer printer

• Technology improved readability and professionalism in manuscripts. Introduction of the CD-ROM: Manuscripts used as soft copies allowed the editorial staff to easily edit material.

Factors that Changed Publishing• Consumer Demand: -Audio Books: been around since the 1950’s, but gained popularity in the 1990s.-Demand for books on specialized topics had increased

• Mergers and Acquisitions: Many small firms were being acquired by

large companies that had other media businesses such as television, music, and motion pictures. The competitive structure of the business was changing due to small firms being acquired.

Factors that Changed Publishing

• Internet: -Ease of access to information, readers preferred free content that was available on the internet.-Amazon started selling books and e-books through the internet-Companies like Google offered free e-books online• E-readers & Tablets: The way people are reading are shifting. People opt more to read from a screen than from a printed copy.

The Rise of the Kindle• Amazon.com launched in 1995. Started by Jeff Bezos.• Jeff Bezos saw the revenue potential of the World Wide Web

and came up with a novel business idea of selling books online.

• Amazon maintained a large number of books in their warehouse so that it supplied customers with their orders without any time lag.

• With technology and the internet growing, Bezos decided to expand his business model, eventually developing the Amazon Kindle.

• Amazon originally sold hard copies of books at lower rates. With e-books, it was buying books from publishers for $13.00 and selling them for $9.99, taking a loss on each book. They hoped to encourage sales of the Kindle and gain market share.

Kindle’s Competitors in 2007

Kindle’s Current E-Book Competitors

Tablet Competition 2013

• According to the Association of American Publishers (AAP),

e-book sales accounted for about 23% of publishers netrevenue for 2012. That is up from 17% in 2011. • In 2002, the first year that the AAP measured the

size of thee-book market, it was found that e-books accounted for 0.05% publishers net revenue.

Threats to Publishing Industry1. Amazon is cutting into Publisher’s profits with

low prices

2. Free material on the internet and piracy

3. Self-publishing

Traditional Publishing ProfitEXAMPLE: Book Hardcover Wholesale Price: $26.00

Publisher: 50% of the cover price, $13.00Author royalties: 15% of the cover price, $3.90Printing, cost of paper, and binding: $1.80Marketing: $1.00Distribution: $1.70 Profit (Before Overhead)*: $4.60

*Overhead: Rent, Editors, Sales Force, write-offs of unearned author advances

Publishers:-Worry that e-books that go on sale the same day as

regularbooks will cut into their profit. -Worry that Amazon will continue to cut prices of e-

books,which will lower profits.

• With the rise of digital book files and use of

e-readers, book piracy has been on the rise. • E-book piracy takes away profits frompublishers & authors. • Pirates either scan books and share

them asPDF files or crack the digital rights management technology.• In order to combat pirating, some

publisherstry to delay releasing e-books for several weeks after physical copies go on sale. (i.e. J.K. Rowling withheld rights to the digital editions for 5 years until after the final installment was released)

Internet & Piracy of Books

The Rise of Self-Publishing• There has been a rise of self-publishing platforms: Amazon Kindle, Direct Publishing, Smashwords, Lulu, Barnes & Noble Pubit, and iBooks.

• Self-publishing gives the author the control to hire their publicist, marketing specialist, editor, and distribution service.

•Allows aspiring authors to publish work even when rejected by traditional publishing houses.

• Every self-publishing website has their own royalty model, but Amazon has about a 70% royalty. (They have recently cut that in certain countries)

Current Event: Publishers Price Fixing?

• In April 2012, the Justice Dept. filed a civil antitrust

lawsuit against Apple and 5 publishing firms accusing them

of fixing e-book prices under an “agency model”. •Agency Model: publishers, not vendors, have the ability

to set prices on e-books. •Agency model was used to compete with Amazon’s

e-books, which were mostly priced at $9.99.•Most of the publishing firms settled with the Justice Dept.

As of February 2013, the last publisher, Macmillan, settled

as well. Apple is scheduled to stand trial in June 2013.

Current Event: Amazon Acquires Goodreads Inc.

• In March 2013, Amazon announces that it has

agreed to purchase Goodreads Inc. •Goodreads Inc. was started in 2007 and is a

website that allows members to list, rate, review

books they’ve read, and discover new books.

Discussion Questions

What are your thoughts as to what is destroying the publishing industry?

What can the publishing industry do moving forward?

Three Review Questions1. Name at least 3 factors that changed

the publishing industry.

2. What is agency model pricing?

3. What are some of the threats to publishing?