Amazon's Faulty Math on the Literary Market

Amazon posted a statement explaining its motives in trying to strong-arm Hachette (and, inevitably, other publishers if it succeeds) into slashing the wholesale prices of e-books. A few choice bits:

"If publishers lowered prices, they would sell more books, which would create more readers, which in turn would sell more books, it argues...The argument of profit-through-volume rings hollow coming from Amazon, however, with its price-to-earnings ratio of 500. The company has yet to be able to achieve any sort of meaningful profit despite growing to nearly $20 billion in quarterly sales across a huge range of products."

By it's own profit-through-volume logic, Amazon should be the richest company on the planet. Instead, Amazon has rarely ever posted a profit in its entire 20-year corporate history and just reported a $126 million loss for the last quarter alone.

"Amazon, by its own admission, was previously losing $3 to $5 per e-book when it sold e-books at the $9.99 price point before the Department of Justice stepped in to force publishers to adhere to a wholesale model. However, profits of the publishers did not go up significantly during the same period, suggesting that in fact publishers cannot sustain a $10 e-book price when it would only see $3.50 of each sale as Amazon proposes. In part, this is due to the fact that lower e-book pricing was previously demonstrated to have a deleterious effect on hardback and other printed book sales, as well as harming physical bookstores. These outlets continue to be the main profit centers for publishers, and the main way readers find and buy new books, despite the growth of e-books."

Yep. Steve Jobs called it four years ago.