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Amazon's digital metamorphosis: ebooks up 70 percent, video spikes as print books flatten

Kindle paperwhite

Amazon hardly ever gives you numbers that don't begin with dollar signs. It won't tell reporters or investors how many Kindles it's sold, or anything else that offers too much of an x-ray inside its business. "More/fewer Kindle Fires sold than Nexus 7s!" is a tempting trend story, but it's not really a trend Amazon wants to highlight.

It's a little odd, then, that in its newest quarterly earnings report, Amazon is calling attention to the fact that its sales growth for physical books is flattening out. This isn't just tossed-off; it's direct from founder and CEO Jeff Bezos: "our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5 percent." This is Amazon's original business, for years its core in digital retail, and brick-and-mortar bookstores across the country are shutting down. Amazon's growth in this market was only 5 percent? And Jeff Bezos is pleased with this?

Bezos is only highlighting this figure because it lets him brag about the bigger number in Amazon's new dominant market: ebooks. Ebook sales at Amazon have grown by 70 percent year over year, says Bezos, making it a multibillion-dollar category for the company. “We’re now seeing the transition we’ve been expecting,” Bezos writes. Both Amazon and its customers are becoming fully digital.

2011 was the year of the e-reader, but 2012 was the year of the ebook

Here too, some context is helpful. In 2011, ebooks were a four-year-old business for Amazon — still relatively new, but fairly mature, with Amazon clearly the dominant player in the market. More e-readers were sold in 2011 than any year before or since, the lion's share by Amazon. Those e-readers sold plenty of ebooks. For Amazon to grow seventy percent in 2012 over its sales in 2011 is a pretty remarkable achievement. It suggests that the ebook medium itself hasn't only arrived, but still has strong potential for growth, and that Amazon is likely to continue to be the global leader, even as it opens up new markets.

Now, for years, Amazon's ebook sales were completely tied to its sales of E Ink Kindle e-readers. That's no longer the case. IHS and iSuppli estimate that dedicated e-reader sales fell dramatically in 2012, to between 15 million (iSuppli's guess) and 20 million (IHS's) units. Meanwhile, IDC puts 2012 tablet sales at 122.3 million. Some of those tablets are Amazon's Kindle Fires, but Kindle has applications for Apple's iPad, other Android tablets, and also every major smartphone and desktop platform. The Kindle ebook platform is overwhelmingly bigger than the Kindle e-reader now.

Amazon Prime membership and Instant Video viewing "increased dramatically"

Growth in ebooks is helping Amazon grow its business in other digital media too. No numbers or even percentages were given, but Amazon reported what it called "very good progress" in its non ebook categories. Amazon Prime membership "increased dramatically year-over-year"; so did Amazon Prime subscribers' viewing of TV and movies on Prime Instant Video. Prime subscribers are also purchasing more movies, meaning Amazon's subscription video alternative to Netflix is helping make the rest of Amazon Instant Video a more attractive alternative to iTunes.

Still, Amazon used the earnings call to push back against the doom-to-the-e-reader theme. The company says demand for its new Kindle Paperwhite completely outstripped supply, and that it could have sold many more Paperwhites in the holiday quarter if it could have made them available. But clearly, a shortage of new Kindles and an explosion of digital video options isn't keeping anyone from buying ebooks. Between new tablets and the e-readers already on the market, there's little reason to leave the house to buy a print book any more — even from Amazon.com.

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