Discovery sues Amazon over Kindle, but the e-book revolution rolls on

On Tuesday, Discovery Communications Inc. (DISCA), owners of the Discovery channel, filed a lawsuit against Amazon (AMZN), claiming that the online retailer's Kindle reader infringes on patents they hold. This follows on the heels of a difficult few weeks for Amazon, as the Kindle has been attacked by publishers, even as it watches fresh competitors enter the electronic reader fray.

Discovery alleges that its founder, John Hendrix, holds the patent for the encryption technology that the reader uses. Hendrix and Discovery were pioneers in "digital content and delivery services in the 1990s," and invented a system that allowed users to select, purchase, and receive online books. According to the company, this program, for which Hendrix received a patent in 2007, forms the basis of the Kindle's technology.

Discovery is seeking damages and wants royalties on any future use of its system.

This is hardly the first problem that the Kindle has faced. Recently, Amazon voluntarily disabled a text-to-speech function in the reader that essentially transformed any book into an audiobook. Critics claimed that the program effectively robbed authors of royalties; Amazon disagreed, but chose not to press the issue.

Amazon, which recently released the second generation of its reader, is also facing an increasingly competitive landscape. Sony (SNE) already has a portable reader and Barnes & Noble (BKS) recently purchased Fictionwise.com, in an attempt to enter the e-book market. Some analysts are predicting that the massive book retailer is planning to come out with a reader of its own. Alternately, they may take advantage of Fictionwise's relationship with the eagerly anticipated Plastic Logic reader.

Even Apple (AAPL) has gotten into the act. When the Kindle was first released, Steve Jobs quipped that "the whole idea is flawed at the top because people don't read anymore." Nonetheless, Amazon's release of an iPhone version of its Kindle software seems to have spurred Apple to action. According to some reports, the computer company is currently in the midst of a major scanning operation, creating digital editions of thousands of books.

The digital reader revolution has been controversial almost from its inception. Touted by some as a potential savior of the publishing industry, others see it as the final nail in the coffin of literature. However, as newspapers increasingly fail, magazines find themselves trying to radically shift their business models, and publishers desperately retrench, a few things have become painfully clear. First, e-books are the future of publishing. They are convenient, easy to search, and perfectly suited to an emerging culture that is dedicated to the unrestricted flow of information.

Second, today's electronic readers are only the bare beginnings of an industry that will eventually be massive. They are the crystal radio sets, the cabinet televisions, and the shoebox-sized cell phones of this generation. As early adopters pick them up, the technology will take off, leading to quick advances and a rapidly lowering price point. It seems likely that, in a few years, retailers will be practically giving them away in order to sell e-books, magazines, and newspapers.

Finally, Discovery's lawsuit notwithstanding, it's clear that this is one area that needs serious competition. While Amazon's early sales should give it a nice head start, there is only so long that they can remain the only game in town. To put this into context, it would be like having all publishing in the hands of one company or all television provided by one channel. It seems reasonable to expect that the next few years will see Amazon, Barnes & Noble, Apple, and any publisher that wishes to remain in business recreating some version of today's competitive publishing landscape.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum