Disadvantages Amazon

Washington Post sold: Amazon's Bezos shocks media with $250m purchase



The Washington Post is to be sold to Jeff Bezos, the founder of the web retail giant Amazon, in a move that has shocked even seasoned observers of the turmoil in the US newspaper industry.

The agreement to sell one of the legendary titles in American newspapers brings to an end the 80-year control of the paper by the Graham family which steered the Post to national prominence through such landmark journalism as Watergate in 1972. The deal was conducted in such secrecy that even the Post's own stable of investigative reporters were taken by surprise when the paper published on its website a story about the transfer.

"This is absolutely stunning news," the media commentator Jim Romenesko told the Guardian. "Just as surprising is that it didn't leak in a building filled with investigative reporters."

According to the Post's own account, the initiative for a sale came from the Graham family and not from Bezos. Donald Graham, chief executive of the Washington Post Co which currently owns the title, used an investment firm to approach six "potential suitors" amid tightest security before choosing Bezos.

The sale price was set at $250m, a relatively small sum for such a legendary institution – 1% of Bezos's enormous personal wealth as put by Bloomberg at $22bn. The figure elegantly captures the dire economic state of many of America's leading news titles, coming as it does just days after the sale of the Boston Globe by the New York Times Co to the owner of the Red Sox, John Henry, for an even more paltry $70m.

Graham told his own newspaper that after four generations of ownership in the family, "every member of my family started out with the same emotion – shock – in even thinking about selling the Post. But when the idea of a transaction with Jeff Bezos came up, it altered my feelings."

Graham added: "The Post could have survived under the company's ownership and been profitable for the foreseeable future. But we wanted to do more than survive."

According to the Post article, Katharine Weymouth, Graham's niece, will continue to act as publisher and chief executive of the newspaper following its transfer to Bezos. "No layoffs are contemplated as a result of the transaction," the paper said. The Grahams will retain control of the Slate website, the Kaplan education business and, for now at least, the building that houses the Post in Washington, which is for sale.

The end of the Graham dynasty is the latest in a long line of family proprietorships that have succumbed in the face of the economic strife that has swept through traditional newspaper businesses in the US with the advent of the internet. The many casualties include the Bancroft family that sold the Wall Street Journal and Dow Jones to Rupert Murdoch in 2007, leaving the Sulzberger family still at the helm at the New York Times as stalwart examples of a dying breed.

At the other end of the extraordinary convulsion in fortunes brought by the digital revolution is Bezos himself, who started Amazon out of a garage of his home in Washington state in 1994. Since then he has torn a strip through the book publishing industry and through conventional retailing businesses that have struggled to keep up with his flexibility and taste for innovation.

Bezos told the Post that as its new owner he would be entering "uncharted terrain" that would "require experimentation". He tried to assuage those who fear his reign might bring editorial interference by saying "there would be change with our without new ownership. But the key thing I hope people will take away from this is that the values of the Post do not need changing. The duty of the paper is to the readers, not the owners."

The sale came as a complete surprise to almost all of the Post staff, and stunned the US media world. "This whole thing happened with admirable and amazing secrecy," said Jeff Jarvis, associate professor of journalism at City University of New York's Graduate School of Journalism.

Jarvis expressed reservations about the Post being owned by the CEO of Amazon, a relatively secretive company. "Bezos doesn't believe in openness. And that somewhat worries me. Both with how a newspaper operates, how a Washington institution operates and also with the need for business model experimentation to occur in the open for the good of the entire industry."

But Jarvis said that on balance, he said the sale was a good thing. "Bezos is incredibly smart, a nice man. He's terribly successful, he has the resources to do this, I think all in all, at first rush it seems like a good idea."

Bezos's purchase follows a recent trend of wealthy businessmen buying up newspapers. Last week John Henry, the Red Sox owner and Fenway Sports Group mogul, bought the Boston Globe and its websites for $70m, beating off competition from half a dozen rival bidders.

In July Warren Buffett's Berkshire Hathaway company – a major shareholder in the Washington Post Company – bought the Press of Atlantic City. Last year the billionaire investor bought 63 Media General newspapers for $142m, and in 2011 bought the Omaha World Herald for $200m.

"I would hate to think that the only way for news organisations to survive is by way of sugar daddies. That also brings its own set of problems," Jarvis said. "But the Post didn't have a clear strategy for where to go and private ownership does protect it.


Amazon ‘undeterred’ by Fire Phone failure

Amazon’s head of devices for Europe has likened the poor selling Fire Phone to the original Kindle e-reader, which received poor reviews and sales on its release, stating that the company is “undeterred”.

The Fire Phone was launched in June in the US with new 3D features powered by face-tracking cameras. It sold only an estimated 35,000 smartphones before arriving in the UK in October, while reviews of the device were lukewarm from both critics and customers with an average of 2.3 stars out of five from 3,525 reviews in the US.

Successful smartphones from Apple and Samsung among others typically sell millions of units in their first month on sale.

“In an honest assessment of the Fire Phone, we’ve learned a lot on this one,” Jorrit Van der Meulen, vice president of devices for Amazon in Europe explained to the Guardian. “We’re undeterred, but we’re not immune to the criticism either.”

“We certainly read everything that’s written from customers to journalists and take note, so might the second step be slightly different than our first step, sure. I suspect that it will be,” he said.

Amazon was forced to write off $170m on unsold Fire Phones with chief financial officer Tom Szkutak saying that the company had approximately $83m worth of Fire Phones in store, which equates to approximately 207,000 unsold phones in October.

Amazon’s senior vice president of devices David Limp admitted to Fortune that part of the Fire Phone’s problem was its pricing in the US, which put it in direct competition with Apple’s iPhone and Samsung’s high-end devices but with less attraction to consumers.

In the UK, the Fire Phone costs £399 without a mobile phone contract, which is the same price as many of its high-end smartphone competition, or available for free on a contract costing £28 a month for two years.

Van der Meulen likened the Fire Phone to some of Amazon’s other devices that have had rocky starts, including the Kindle ereader that went on to dominate the ebook market.

“If you look at version one of the Kindle e-reader it was pretty bad, like the reviews we received on it,” explained Van der Meulen. “But we said we’re going to do keep going, keep investing and do this eventually, receiving many lumps along the way.”

“The number of times we’ve been written off or received lumps because of short-term speed bumps – the list is really, really long,” he said.

Amazon is looking at the Fire Phone as a long-term project, and while short-term sales of the device and a loss on unsold inventory are certainly a worry, the company is not deterred and doesn’t solely judge worth of iterating on initial sales and such thinking is “sub-optimal”, according to Van der Meulen.

‘We care about are proactive devices’

The Fire Phone was the company’s first attempt at a smartphone, but it has found success with its Kindle Fire tablets, which have been competitively priced to undercut large competitors like Samsung and Apple. Amazon has achieved this by pricing devices so they primarily only break even.

“Our strategy has been to not make money on devices, but make money when people use the devices,” explained Van der Meulen saying that overall sales volumes are not the key to device success for Amazon.

“What we care about are proactive devices, people who use the device,” said Van der Meulen. “People who buy a device and put it in a drawer and don’t continue to use it, those device sales are not nearly as interesting as those who proactively use it.”

Amazon makes its money from the services that users access on its tablets, e-readers and smartphone – its Prime video subscription, its music store, the Kindle book store and its App Store, as well its traditional online shopping.

So while the Fire Phone has fallen flat for now, a second version of the Fire Phone next year is highly likely, whether customers want it or not.

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Views: 1 204
Date: 11-06-2016, 15:51
Category: Disadvantages

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