Kindle Can't Save Newspapers

Highlights include Amazon.com, Inc. (AMZN - Analyst Report), Pearson Plc (PSO - Snapshot Report), John Wiley & Sons (JW.A - Snapshot Report), The New York Times Co. (NYT - Snapshot Report) and The Washington Post Co. (WPO - Analyst Report).

Can Amazon's New Kindle Save Newspapers?
Not on its own.

Amazon.com (AMZN - Analyst Report) unveiled a new, larger Kindle today 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 - Snapshot Report), and John Wiley & Sons (JW.A - Snapshot Report) -- 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 - Snapshot Report) -- and The Washington Post Co's (WPO - Analyst Report) 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.