Amazon is prepping an Android tablet that is likely to be subsidized by sales of digital media. Netflix freaks its customers out by unbundling streaming and DVD by mail services effectively raising prices. The common thread: Both companies are trying to speed up the transition to digital delivery of media.
The Amazon tablet, which has been rumored and reported for months. The Wall Street Journal confirms an Amazon tablet is on the way. The Kindle turned on the e-book spigot for Amazon, which would much rather deliver a book to you wirelessly than through the mail. Why? It’s cheaper for Amazon and you get instant gratification. What’s not to love?
And the Netflix discontent, which really shows few signs dying down, ultimately is about aligning DVD delivery costs with what the subscriber pays. And if some of you drop the DVD service in favor of streaming that’s just swell with Netflix. After all, the profit margins are much better. The future of Netflix is streaming delivery not DVDs. By splitting up the services—and management of them—Netflix is essentially hiving off the slow growth, costly business. From a numbers perspective, the Neflix move makes perfect sense no matter how much customers scream.
That Kindle effect will be magnified with a tablet. Amazon subsidizes you a tablet then sells you movies, TV shows, music, books and a few apps. That model sure beats packaging up DVDs and hardcover books for delivery. For Amazon, digital delivery of media means higher margins, less overhead and maybe a few redeployed distribution centers that can be used for other goods.
Barclays analyst Anthony DiClemente nails it in a research note. He said that Amazon’s tablet strategy has significant risks and loose ends, but the overall business rationale works. DiClemente said:
A tablet should help offset future declines in the physical media business as media shifts from physical to digital (media represented 40% of sales in 1Q11). While hardware is often a lower margin business and the tablet market is becoming increasingly competitive, we believe an Amazon tablet would further boost Amazon’s digital offerings and its Appstore. Amazon has had very good success with the Kindle and its app strategy across mobile platforms thus far as it now sells more Kindle books than physical books and the growth rate for Amazon’s domestic book business in units and dollars is the fastest in over 10 years.
Related:
- Netflix’s pricing backlash: Follow the money, churn rates
- Amazon reportedly preps tablet orders: Volume points to subsidized devices
- Five Things to expect from the Amazon Android Kindle tablet
- Amazon tablet drumbeat picks up; likely to land by October
- Netflix price hike creates social media firestorm
- Netflix and the Internet bandwidth dilemma
- CNET: Netflix still a deal?
- CNET: Was Netflix prepared for a backlash?
