The Fire tablet looks compelling. At $199, less than half the price of Apples cheapest iPad, it has a colour touchscreen and a new higher-speed browser optimised for accessing content from the cloud. Amazons growing music and video libraries are right to hand. With a smaller screen, the Fire is built to take on the iPad as an easier-to-hold media consumption device, if not as a full tablet computer (it is WiFi-only, lacks a camera, and so on).
Yet if Amazon wants to make digital media the main plank of its strategy, it needs to provide greater transparency into its digital businesss financials. This means, at a minimum, disclosing unit sales for devices and revenue for devices and content. Apple discloses unit sales, and iTunes and App Store sales. Even little Barnes & Noble, which is competing with media giants way out of its weight class, breaks out combined digital hardware and content sales. But investors should really insist on digital profits numbers for all of these companies.
Amazon is expected to generate roughly $11bn in gross profit from $48bn in sales this year. About $4bn of that profit will be absorbed by marketing, content and technology costs. The company will also devote $3bn or so to capital expenditures. Amazon should report how much of this investment goes to digital - especially given that rising investment is pressuring both margins and cash flow. Amazons stock has returned just under 600 per cent in the past five years. This is not an excuse for woefully thin disclosures out of line with the companys own strategy.
The Financial Times Limited 2011