The Rise Of The Kindle And The Fall Of Literacy

Jeff Bezos, the founder of Amazon (NYSE:AMZN), is being praised as the man who has invented the next big and important electronic device. That category includes the Sony (NYSE:SNE) PS2, the Apple (NASDAQ:AAPL) iPod, and the Nintendo Wii. The iPod has sold 200 million units worldwide. That, in the nomenclature of the electronics industry, makes it a once in a generation success, a truly mass market product.

Bezos lowered the price on the Kindle to $249 from $299 and Amazon will release a version this month that can work over wireless networks in 100 countries. There is some compelling research that says people will not pay over $200 for an e-reader or even over $100. That has not prevented Sony and Barnes & Noble (NYSE:BKS) from entering the e-reader industry. Rumors are that Rupert Murdoch’s News Corp (NYSE:NWS) will come out with a product of its own.

The Kindle’s challenge to reach 100 million sales may not have to do with price primarily. It will probably have more to do with people’s media consumption habits. More and more consumers listen and watch media now rather than reading it. Much of the reason for the rise of the iPod and other multimedia devices is that a growing number of people, particularly younger people, would rather have passive engagement with media than active participation. Listening to music involves nearly no intellectual effort. Reading is an art, at least to the extent that it requires years of preparation and practice to read well enough to go through a metropolitan daily paper or “The Great Gatsby.”

The National Endowment for the Arts recently pointed out that “The U.S. population now breaks into two almost equally sized groups – readers and non-readers.” The percentage of people who read literature has dropped sharply from 1982 to 2008 according to the NEA data. A study by the Carnegie Foundation found that only 8% of people under 34 years of  age would use newspapers for information in the future. That is not news to anyone in the newspaper industry who watches dropping paid circulation trends for the printed paper and anemic growth in online readership. Part, if not most of the reason for this, is that one in three people in high school drops out before graduation and in some urban areas the figure is closer to 50%.

Less than a year ago, Apple announced that its iTunes store had passed five billion song downloads since its launch in April 2003.  Apple has been smart about pricing the iPod. Almost anyone can buy one, because a reasonably featured version costs as little as $79 and will hold 1,000 songs. Apple has not changed media consumption; it has just taken advantage of people’s new habits.

The rise of television did not do the book and newspaper industries any good, but probably did them little harm. Magazines like “Life” thrived well into the 1960s. “Time” and “BusinessWeek “prospered well into the last decade. Newspapers reached peaks of both circulation and adverting revenue in just the last ten years.

It is not shocking that the iPod was released in 2001 and that the popularity of video game consoles like  Sony PlayStation, Nintendo Wii, and Microsoft (NASDAQ:MSFT) Xbox rose sharply at about the same time. It appears that the turn of the century was about the time that reading habits began to turn sharply, too. Fewer people are well educated and fewer of the educated seem interested in reading. Book stores and newspapers are closing. The iPod is nearly ubiquitous among the young and middle aged.

The Kindle is the product of remarkable inventiveness and it will almost certainly do well. Wall St. research firm Cowen & Co predicted that there will be 1.5 million active Kindle units in the US by the end of this year.  By the end of next year, that number should be closer to three million. But, even with quickening demand, the Kindle’s market penetration among US adults is only expected be 4% five years from now. That is shameful in a country where every eight year old child has a phone that can access the internet.

The enemy to Amazon’s ingenuity is stunning growth in indifference about reading, at least among those who can read.

Douglas A. McIntyre