Amazon's Kindle Business: Saved or Doomed?

One study says that e-readers are dead -- another claims they are on the rise. Which one is accurate, and what does this mean for the future of Amazon's (NASDAQ: AMZN ) digital initiative? Roughly 18 months ago, iSuppli published a report detailing the rise of e-books and the impact they have had on traditional paperback and hardcover books. Researchers revealed a depressing trend: book revenue was expected to decline for U.S. publishers at a compound annual growth rate ( CAGR ) of three percent from 2010 to 2014. This accounts for both e-book and paper book publishers.

Comparatively, book revenue grew slightly from 2005 to 2010. During that period, the final two Harry Potter books were released, along with the introduction of The Hunger Games trilogy and the Twilight saga. Outside of the Fifty Shades of Grey series, there have not been any comparable book franchises introduced since that time.

"The overall weakening will be spurred by a five percent decrease in the CAGR of physical book sales from 2010 to 2014," the report claimed, adding that the industry would not be helped by the expected 40 percent increase in e-book sales.

iSuppli also predicted that e-reader shipments would rise to more than 20 million in 2012, more than 25 million in 2013 and roughly 30 million in 2014. While this represents a massive annual increase, iSuppli said that its forecast was lower than the consensus of more than 43 million units in 2014. The report said that e-reader sales would fall short as sales of tablets, which can also read books, continue to rise.

Two weeks ago iSuppli released a new report on the matter, announcing that e-reader shipments will only reach 15 million unit this year -- well below the more than 20 million units iSuppli had previously expected. iSuppli now predicts that e-reader sales will drop to less than 15 million next year and less than 10 million in 2014.

That second report inspired a plethora of media headlines proclaiming that e-readers were dead. Considering that the e-reader business belongs to Amazon, this was not good news for the online retailer.

Now a third report has been released. This one comes from Pew Research Center , which found that in the past year, 23 percent of all Americans (ages 16 and older) read e-books. In the prior year, only 16 percent of Americans used the digital format.

During the same period, the number of those who read printed books dropped from 72 percent to 67 percent.

Pew cites the rise of both e-readers and tablets as being the source of the transition. However, readers are definitely more interested in tablets than devices that can only display books.

Source: Pew Research Center

This presents an opportunity and a challenge for Amazon. On one hand it means that the company has been successful in convincing readers to switch to digital books. However, it could backfire if users switch to tablets made by other manufacturers. This is why the Kindle Fire is so important to Amazon's future. Without it, Amazon could easily lose control of a business it helped foster.

The same thing could happen to Barnes & Noble (NYSE: BKS ). While its Nook business appears to be growing, it will not last if the company fails to build a better tablet -- or an e-reader that stops consumers from buying an iPad.

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(c) 2012 Benzinga does not provide investment advice. All rights reserved.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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