Newspapers and the Kindle

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Newspaper executives increasingly believe gadgets such as the Kindle, Amazon’s sleek e-book reader, might fix their industry’s malfunctioning business model. This week, the New York Times, Boston Globe and Washington Post announced plans to subsidise the cost of new Kindles to win electronic subscribers in certain markets. Even Rupert Murdoch, chief executive of News Corp, is making noises about handheld gadgets. If enough people bought them, the NYT, for example, could theoretically save up to 35 per cent of its flagship paper’s operating costs if it sold only paperless subscriptions.

One problem is how to reach the point whereby electronic subscriptions make up for lost newspaper sales. Subsidising hardware – the latest Kindle costs almost $500 – might help: mobile phones only became ubiquitous after mobile operators handed out free handsets in return for multi-year contracts. But there are problems applying this to newspapers.

First, subsidies require an element of cash upfront – something many newspapers lack. Second, Kindle revenues may be measly. The NYT wants Kindle subscribers to pay about $170 a year to read news on its 10-inch screen. Yet one publisher reckons 70 per cent of that will go to Amazon, leaving $50 for the paper itself – enough to cover a small hardware subsidy but little else. Mobile phone operators make their margin by charging for extras such as data plans and roaming services. It is harder to see what premium services a newspaper could offer. Counting on advertising is difficult as no Kindle ad market yet exists.

A paperless future, therefore, remains some way off. But investors can draw one conclusion from the recent hubbub. Asking readers to pay for an e-book edition of The New York Times makes little sense if they can access the same content from a computer for free. If newspapers are serious about e-books, they will all have to start charging for online content as well.

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