> No one makes money selling media for consumption anymore. That market is quickly and brutally dying. The media market is now so efficient that all profit is completely sucked out of the equation by the time you get to the consumption delivery system, to the point that it is barely possible to break even.
This part resonated with me a lot. The media market was always a race to the bottom. iTunes only proved there was a market, not that it could be profitable once there a multiple entrants with closed ecosystems competing for attention.
I think Amazon is full of smart people, but they need to focus on what they're good at to increase their profits. Their core businesses simply aren't profitable enough for them to try to compete with Apple and Google. They should fix that problem first and then turn to the more ambitious projects.
No one makes money selling media for consumption anymore.
This is a common belief among people in tech. It is also disastrously false. Frozen has sold 1.2 billion dollars worth of tickets. The related IP alone, to say nothing of merchandising, will be sold for decades to come, and bring in additional billions.
You know the DVD, a dead format that can be trivially pirated? Yeah, they sold 3.2 million copies of Frozen. In a day.
> The author doesn't mean media isn't profitable, but media retail isn't profitable.
Meanwhile HMV, the UK chain that used to be #1 in music and DVD sales before going into administration a year ago, is now rapidly expanding again (as in: adding more retail outlets) [1], and looks set to overtake Amazon in media sales if growth continues at the current pace. While they posted an overall loss, most of that is one-offs related to the restructuring, and all their stores are reportedly now profitable and they reported 17 million in operating profits.
If you'd asked me a month ago, I'd have said the same. Now I'm not so sure.
Amazon has a number of self-produced shows. Also, they have an interesting "pilot" season where they put out the first episode of a half dozen or so shows and then let people vote on which one get produced into a full season.
The quality of them is on an uptick as well. 'Transparent' has been getting a good deal of critical attention and 'Tumbleleaf' an old school by hand stop-motion animated production is just incredibly high quality.
For every Frozen, there are probably a hundred thousand failed media projects that didn't turn a profit. This is an outlier. And most of the profit ended up in the hands of the creators (Disney), not the distributors (everyone else).
Distribution of media is just not a profitable enterprise now. Too many closed, competing ecosystems and the entrenched now have so much capital acquired from other, more profitable ventures (Google from Search/Advertising, Apple from Hardware), that it makes little sense for anyone else to try unless they plan to be really different or disruptive.
I had to read this part of the article twice because I thought I couldn't be reading that right. I finally understand what he means but if taking what written at face value then he is horribly wrong.
> [A Macquarie Capital researcher] expects that this year alone, Apple's iTunes, software and services business should generate about $30 billion on a gross revenue basis, which would be more than 83 percent of S&P 500 companies. [...] Schachter believes earnings before interest and taxes through iTunes, software and services will account for 21.8 percent of the company's profits this year.
Not "all" profit is sucked out of the equation by the time a DVD or video gets to retail. But a lot of it is. It's not so much a retail margin issue per se. It's that lots of stakeholders have contractual claims against the top-line sales ("front end") and bottom-line profits ("back end") of any given entertainment property. Producers, talent, studios, production companies, DVD distributors, film financing companies, investment banks, licensors and licensees, etc. Depending upon their clout and their contribution, each may get a cut of either the front-end or back-end of the property. Some of them might double-dip, taking a cut of revenues, in addition to producer's fees.
All of these shares are negotiated and locked before a single DVD (or Blu-ray, or digital download, or what have you) goes on sale. As you might imagine, it's extremely hard to price an entertainment product profitably at retail, given how little flexibility the retailer has on its pricing to begin with. Sure, a retailer could set the price high -- but every other retailer is pricing low, so that won't work. It's a tough racket. Even still, these properties sell like hotcakes, so at least some money's being made. And entertainment sales are often correlated with sales of other big categories (electronics, toys, etc.), so retailers feel the need to keep the category around as a sort of proof point.
The death of the DVD is inevitable, but it's not as imminent as people would like to think. In the meantime, the life of the DVD is kind of a pain in the ass. :)
I like the post and agree with dcurtis about the abysmal phone. However I like my Fire HDX. It works for what I want to use it for: reading books and watching stuff. It isn't the best tablet, but it is not bad. It's the best for buying books and videos from Amazon. Ecosystem is subpar, but that is ok.
That's basically the problem I have with the Kindle. I love how convenient it is to buy books, and just turning from page to page is easy enough with the physical buttons on my model (or hopefully the little touch zones on the new model), but everything else sucks.
Software updates are rare, the menus are convoluted and obtuse, when the newer models you have to know secret touch zones to use different features. Simple options that used to exist have disappeared and new options of questionable utility have taken their place.
Probably my favorite thing about the Kindle is that it syncs my place with my phone, but the app on iOS is gotten much worse over the years. At this point when reading a book the timeline thing at the bottom and all sorts of weird little blue dots on it that I've never been able to figure out. Sometimes if you tap on one it goes away.
The things just smack of strange decisions. Who thought it would be a good idea to remove the page current buttons for two or three years in a row? And when they brought them back or not real buttons, but hopefully they're good enough.
In the meantime the books are still absolutely riddled with typos, terrible formatting, and if a publisher actually makes an update to a book you're unlikely to find out about it. What little I've heard of the authorship side of things is supposed be pretty dreadful too, were even recent kindles don't support some of the newest formatting things because Amazon hasn't bothered to update them.
It's the best e-book reader on the market, and in many ways it's a piece of crap. It's so clear the decision seem to be made by marketing or something else instead of what the readers want.
And sadly this experience seems to match what I've heard about other Amazon hardware. At best they behave like a mediocre hardware company who doesn't understand software. Even their flagship devices like the original Kindle fire have serious issues, which if you're lucky get fixed in a software update later.
Didn't Bezos once say something like "your margin is my opportunity"? There's a certain irony in Amazon not being able to compete in mobile because the market is too efficient.
They can't compete because they're producing mediocre products that add little value; products that consumers don't have a good enough reason to want. Creating their own Android equivalent store was an extraordinarily terrible idea.
The problem is not because the market is too efficient.
> No one makes money selling media for consumption anymore. That market is quickly and brutally dying. The media market is now so efficient that all profit is completely sucked out of the equation by the time you get to the consumption delivery system, to the point that it is barely possible to break even.
This part resonated with me a lot. The media market was always a race to the bottom. iTunes only proved there was a market, not that it could be profitable once there a multiple entrants with closed ecosystems competing for attention.
I think Amazon is full of smart people, but they need to focus on what they're good at to increase their profits. Their core businesses simply aren't profitable enough for them to try to compete with Apple and Google. They should fix that problem first and then turn to the more ambitious projects.