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Q4 2012: Brazil: Amazon in its way to open a digital bookstore with
Kindles offering.
Amazon.com Inc is expected to set up a digital bookstore in Brazil in the fourth quarter.
Amazon seeks to get a piece of the fast-growing online retail market in
the country that inspired its name.
Amazon wants to elbow
its way into Latin America's largest economy with the popular Kindle e-reader
and a Portuguese-language catalogue of digital books, according to Brazilian
publishers and an industry source familiar with Amazon's plans.
The all-digital
approach will allow Amazon to minimize the risks that a bigger retail launch
would imply in a country with notorious infrastructure shortcomings and a
complex, costly tax system. The company would also have to ride out a downturn
in Brazil's economy that threatens to cool consumer demand.
"Brazil would be
the first country Amazon enters only with digital (products) and that is
because of the logistic and tax difficulties," said the industry source,
who spoke on condition of anonymity because of the sensitivity of the
negotiations.
"Having a full
retail operation? That's the goal," the source added.
A Brazil-based operation
would save the country's 200 million consumers from paying high import taxes on
online orders shipped from overseas.
Two local book
publishers told Reuters they have had meetings and video conferences in recent
months to negotiate contracts with Amazon's head of Kindle content, Pedro
Huerta.
"They told us the
plan is to start between October and November," said one of the
publishers, who asked not to be identified.
Amazon spokesman Craig
Berman declined to comment.
Pedro Guasti, director
of the Sao Paulo-based research firm eBit, says Brazil's online business has
become big enough to pop up on Amazon's radar.
"This year we
should reach $12 billion in sales online, a level that justifies their entry.
If they wait much longer it would become very expensive," he said.
KINDLE E-Readers:
Amazon thinks it could quickly dominate Brazil's ebook
market with the Kindle, boosting sales of electronic books to 15 percent of the
publishing market in the first year of operations from 0.5 percent currently,
the industry source said.
Amazon hopes to grab 90
percent of Brazil's ebook market, the source added, in part because many
Brazilians already download content from its site using readers they bought
abroad.
To gain market share
quickly in Brazil, Amazon will likely sell its most basic Kindle model at a
subsidized price of under 500 reais ($239), three times more expensive than in
the U.S. but still bellow rival products, the source said.
Amazon has already
signed contracts with around 30 Brazilian publishers and is rushing to build a
portfolio of some 10,000 electronic books ahead of the end-year shopping
season, the source familiar with the company´s plan said.
A publisher involved in
the negotiations said Amazon is planning to price the ebooks at about 70
percent of their cover price and earn a profit margin of to 40 to 50 percent.
"Revenues for us
will be insignificant, but we see it as an important channel to promote our
products and sell more physical books," the publisher said, who also asked
not to be identified because negotiations with Amazon are ongoing.
Amazon's move could end
up prompting other U.S. competitors to expand their digital operations into on
Brazil. One distributor said Barnes & Noble Inc has already approached some Brazilian publishers
with its reader Nook. A spokeswoman with the U.S. bookseller said they have
plans to expand internationally but had no specific comments on Brazil.
"Local companies
will need to acquire foreign technology in order to survive," said the
source close to the negotiations.
"I think Amazon
will take small steps at first, to learn the market, but then invest in growth.
Amazon is a large company, and could subsidize its operations in Brazil for
years before making a profit there," said Colin Sebastian, an equity
research analyst with R.W. Baird in San Francisco.
Local competitors say
Amazon would first have to prove it can compete in the challenging environment.
"They are going to
face the same kind of problems we always had," said Sergio Herz, director
of Livraria Cultura, one of Brazil's top bookstores with a dozen locations.
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