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Old 08-13-2010, 12:50 AM   #1
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Kobo Investment Ups Loss at Indigo: A good sign?

I'm kind of surprised that this article wasn't covered here (dated Aug 9th).

Basically, revenue up $10M in Q1, profit down $5.3M in Q1 due to 'heavy investment' in the Kobo e-bookstore and (presumably) the rollout of the Kobo reader. After applying some oversimplified math, investment in Kobo (e-bookstore and reader) is costing Indigo at least $10M/Q! Is this a good sign, or will the losses continue at the hands of Bezos?

Indigo has done a great job in spinning off Kobo (reader and e-bookstore) in such a short timeframe. Book retailers realize how critical it is to be a player in the digital market, but only a few will be able to capture a significant share of the market. Let's hope they can build on their e-bookstore and reader before the losses are too great.

Will Kobo be forced to break the $100 e-reader barrier sooner rather than later, or be dropped under pressure from Kindle? What is the point of having an e-reader anyway when profits are cut razor-thin and the reader doesn't create a significant allegiance with the Kobo e-bookstore (like the Kindle)?
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Old 08-13-2010, 06:49 AM   #2
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From the article:

"CEO Heather Reisman attributed the bigger loss to the company’s heavy investment in the e-bookstore Kobo. Originally a digital branch of Indigo, Kobo was spun off into a separate company last December but Indigo is still its major shareholder. "The increased loss is not unexpected as we continue to invest significantly in the growth and development of Kobo. We expect this investment to pay off materially in the mid to longer term," Reisman said."

It seems to me that Indigo made an investment, spent some real money, and it was reflected in its bottom line for the quarter. No where in there does it seem to imply anything negative about the future financial success of the Kobo reader.
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Old 08-13-2010, 07:44 AM   #3
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It seems to me that Indigo made an investment, spent some real money, and it was reflected in its bottom line for the quarter. No where in there does it seem to imply anything negative about the future financial success of the Kobo reader.
But if you combine the fact that BordersUS and Redgroup Retail are in the red (2 other major backers) the future does look uncertain, especially if all three don't really have readily available cash to invest too much further. I really do hope the Kobo becomes a big success. For me (not currently an owner but damn close) they;

- are the first to provide Linux desktop software for ebook purchasing/syncing. So now one could buy epubs and sync with their reader natively without wine+ADE.
- Their ebooks, whilst not a huge selection (will grow in time) the prices are good.
- I have no doubt that once things settle down Kobo will introduce more formats to the reader, such as .TXT/.RTF/possible HTML.

I am still waiting for an ereader with ADE support to REMOVE those damn pesky page numbers on the side. Drives me nuts. Some epubs you buy have no margins (so the side numbers get in the way) or the margins are huge and subsequently when zooming the page numbers go up in size as well.
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Old 08-13-2010, 09:09 AM   #4
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I am still waiting for an ereader with ADE support to REMOVE those damn pesky page numbers on the side. Drives me nuts. Some epubs you buy have no margins (so the side numbers get in the way) or the margins are huge and subsequently when zooming the page numbers go up in size as well.
100% agree on the EPUB margin issues, but I quite like seeing the "real" page number displayed on the side.
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Old 08-13-2010, 10:02 AM   #5
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ROI on the Kobo doens't revolve around selling millions (certainly not at $100, which is where the price is heading); but rather as an additional 'hook' to the Kobo bookstore. The same goes for B&N's Nook and the B&N e-bookstore. The problem is that you aren't 'forced' to buy from Kobo or B&N, so Indigo and B&N can't capture their audience as well as Amazon can (and Apple - from an application point of view).

Losing $15M/quarter on $200M of gross is not sustainable, and I understand the short-term investment required, but ultimately, shareholders will want ROI and that can only happen if the Kobo e-bookstore is successful. How do retailers like Target compete against Wal-Mart? They don't directly - they go after a slightly different market. B&N and the Kobo e-bookstores have to offer something that Amazon's store doesn't have - does anyone know what that is?
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Old 08-13-2010, 02:55 PM   #6
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epub is what they offer over Kindle

The kindle reader itself aside what the nook and kobo offer over the kindle is a far better and more readily available format. I have the kindle for iphone app and there are at least 4 books that I bought from kindle less than a year ago that are no longer available for sale in canada.

I have repurchased them all for my kobo in epub without issue.
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Old 08-13-2010, 03:52 PM   #7
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Old 08-13-2010, 04:20 PM   #8
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Originally Posted by baronrus View Post
The kindle reader itself aside what the nook and kobo offer over the kindle is a far better and more readily available format. I have the kindle for iphone app and there are at least 4 books that I bought from kindle less than a year ago that are no longer available for sale in canada.

I have repurchased them all for my kobo in epub without issue.
Indeed, the mobi format (while not horrible as a format) is pretty much useless outside of Kindle, but wasn't that Amazon's plan all along? I'm sure Indigo would love to push their own format, but that would only drive people away, and they don't have a choice at this point. B&N is in the same boat and support EPUB as well, but they suck internationally (as does Apple's book selection).

Another e-bookstore has to be viable against Amazon, but at this point, I'm not sure how. To that point, I no longer purchase books from Amazon if they are available at either B&N or Kobo. Maybe others will follow suit? There is a good thread on the Kindle boards here on when (or if) Amazon will support EPUB.
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Old 08-13-2010, 04:56 PM   #9
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Most people don't know about ebook formats, or even care. They just want to buy books the easy way, and if their book of choice is not available on their chosen device they just read something else or buy a paperback.

It's only geeks like us who are conscious of the format wars when buying reader.

Quote:
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Losing $15M/quarter on $200M of gross is not sustainable, and I understand the short-term investment required, but ultimately, shareholders will want ROI and that can only happen if the Kobo e-bookstore is successful.
It's only been out three months. Every loss-leading product/ecosystem like this has a slow start. Give it some time to build momentum and exhibit book-buying patterns before writing it off.

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Originally Posted by Kindle Addict View Post
B&N and the Kobo e-bookstores have to offer something that Amazon's store doesn't have - does anyone know what that is?
Demonstration units. You can walk into a Borders or Chapters or B&N (at least some of the time) and acually use an ebook reader. I know in Australia the Kobo has been hugely successful because there are live Kobos in every Borders.

Last edited by Vzzzbx; 08-13-2010 at 05:04 PM.
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Old 08-14-2010, 06:15 AM   #10
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It seems to me that in Canada, Chapters-Indigo had to "go big or go home" as demand for eBooks grew. Spinning off Shortbooks into Kobo and taking in partners (while retaining 58% for themselves), was brilliant, given the relatively small market in Canada alone. The big bucks spent in the quarter reflects the capitalization of the new venture. They could have spent less, and ended up with a smaller share of Kobo. This quarter's numbers would have looked better, perhaps, but Kobo as a separate entity would both not be under their control and not have enough to launch themselves successfully.
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Old 08-14-2010, 09:40 AM   #11
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Indigo is a reasonably well run enterprise, led by passionate book people with a nose of business. Running a book chain these days is among the more challenging spaces to play in; and Q2 is the "softest" season for bookstores. Launching Kobo in May was probably an excellent idea since the product can gain some legs before heading into the fall buying season. Kobo is a drain to launch, but the investment isn't actually huge in dollar terms.

Presumably, Indigo will have taken away strong learnings from the early Kobo sales and will work hard to maximize its sales (and profits) heading into the fall. The hardest thing will be to wrap corporate minds around the notion that sales of Kobo leads to more revenue stream through Kobobooks and this is an opportunity to win back share from other players, like Amazon, rather than see it as taking away from in-store sales.

Something will have to give on the hardware pricepoint heading into the fall but quite what that is remains to be seen. What's the magic price in store? $149? $128? $119? As long as Kindle doesn't support Overdrive library books, Kobo has a serious talking point when it comes to heavy book buyers. And, Kobo needs to "stay in the face" of consumers at Indigo (and possibly Wal-mart) -- something Amazon's online only Kindle cannot do.

Mileage may vary outside of Canada.
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Old 08-14-2010, 10:20 AM   #12
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I have purchased more tree-books from Chapters-Indigo since buying my kobo than I did in the past. Those sales would have gone to Amazon, in the past. I bet I am not alone in this.
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Old 08-14-2010, 06:41 PM   #13
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I bought a Kobo ereader back in May, since it came out. Since then, I've bought about half my ebooks at Smashwords, half at the Kobo Bookstore. I also read my Kobo in public a lot; it draws a LOT of attention. Half the time when people see it, they ask about it, and take a closer look. I'm doing my part to spread the word-of-mouth. :P
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