Tickers in this Article: AMZN, BKS, SNE, AAPL, NYT, GCI, NWS
The publishing world seems to be putting on an impromptu rendition of "Monty Python and the Holy Grail." First we had the scene with the Black Knight where the internet began dismembering old media and old media bravely told us "'tis but a scratch," as gouts of blood spurted out of the cash flow statement. Now, though, we may be to the scene with Eric Idle and John Young, in which Mr. Young bravely declares "I'm not dead yet!"

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What's Old is New Again
Ironically, it may be new media and technology that ultimately saves the day for old media. As consumers continue to buy up the Kindle from Amazon (Nasdaq:AMZN) and competing devices like Barnes & Noble's (NYSE:BKS) Nook, Sony's (NYSE:SNE) Reader, and Apple's (Nasdaq:AAPL) iPad, it looks like publishers may have finally accepted the reality that their future is digital.

In the past, book, magazine and newspaper publishers saw handheld devices as a threat and priced their digital editions accordingly - you paid basically the same amount for the digital version that you could for the hardcopy. Now, though, some companies seem to be getting with the program. New York Times (NYSE:NYT), Gannett (NYSE:GCI), and News Corp (NYSE:NWS) are all offering their major publications (the New York Times, USAToday, and the Wall Street Journal) on Kindle at prices that are meaningfully lower than the print subscription prices.

Pricing the Past
So why am I optimistic that these e-readers may save the industry? It is a combination of the user experience and the cost structure involved.

The cost structure of e-distribution is a godsend for the publishing industry. If you peruse the income statements for companies like the New York Times, Gannett or the Washington Post, you see that printing and distribution costs eat up a huge percentage of the company's revenue - so much so that publishing became a pathetically low-margin business. On top of that, it takes money to buy and maintain the enormous machinery that goes into the printing process. If you can simply skip over the hard copy production process and go straight from desktop to e-distribution, the profitability of the business suddenly changes.

Taboo Speech
Not only do the numbers add up well for media companies, but there is precedent for this move as well. If you take a subway in Japan, you will see cell phones everywhere, but nobody is talking (it is considered rude to talk on a cell phone in public transportation). Instead, thousands of people are using their cell phones to text, play games and read.

These cell phone novels have become so popular, in fact, that they have their own word (keitai shousetsu) and half of the most popular novels in Japan started as cell phone versions. Given the inherent limitations of reading anything on a cell phone screen, the combination of comfortable and well-engineered e-readers, and the profitably of foregoing the printing process, is a win-win for publishers and readers alike.

The Bottom Line
Certainly these are early days for portable e-media, but the initial sales of the devices have been strong. It remains to be seen whether e-distribution will save the day for companies like Gannett and New York Times, but the early returns seem encouraging. In the meantime, Amazon's 70/30 split on sales through its Kindle store is certainly taking a successful page out of Apple's playbook (with the iStore) and if e-publishing really is here to stay, it may be the gatekeepers like Amazon and Apple that benefit most. (For more, see The Successful Investment Journey.)

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