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Amazon profits take a hit from ebook transition

Amazon boosted its sales in the holiday quarter but net income was down, as the online retail giant said it continues to feel the effects of transitioning from physical book sales to digital media for consumption on its own Kindle devices and other platforms.

The company is selling a lot of Kindle tablets and eBook readers - for the second year running, the Kindle Fire HD was "the No. 1 best-selling, most gifted, and most wished-for product" in Amazon's enormous product catalogue - but sluggish fourth-quarter sales growth in the product that launched the company, books with actual pages, was the lowest in Amazon's history.

"We're now seeing the transition we've been expecting. After five years, e-books is a multi-billion dollar category for us and growing fast - up approximately 70 percent last year," Amazon CEO Jeff Bezos said in a statement. "In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5 percent. We're excited and very grateful to our customers for their response to Kindle and our ever expanding ecosystem and selection."

Amazon's net sales of $21.3 billion (£13.5 billion) for the fourth quarter of 2012 represented a 22 per cent increase from the same period in 2011. Operating income was also up 56 per cent year-over-year but holiday quarter net income of just $97 billion (£62 billion) was down 45 per cent.

For the full year, Amazon's net sales came in at a healthy $61.1 billion (£39 billion), up 27 per cent from its fiscal 2011, but 2012 operating income of $676 million (£429 million) was down 22 per cent and the company wound up posting a loss of $39 million (£25 million) on the year after reporting profits of $631 million (£400 million) in 2011.

In listing its 2012 highlights, Amazon focused almost exclusively on the moves it made in developing more services and content around its Kindle products and for its growing digital media library. In addition to the top-selling Kindle Fire HD, three other Kindle products - the Kindle Fire, Kindle Paperwhite, and Kindle eBook reader - have each held the next three spots on Amazon's best charts since their respective launch dates, the company said.

Amazon said its total digital media catalogue of movies, TV shows, songs, magazines, books, audio books, apps, and games totalled 23 million units at year's end, up from 19 million at the close of 2011.

New services and content introduced in 2012 included AutoRip, which provides MP3 versions of physical CDs purchased by customers; the kid-targeted content service Kindle FreeTime Unlimited; and newly licensed television content from Turner Broadcasting, Warner Bros., and A + E Networks.

The company's rapidly growing cloud computing business also saw some major additions in 2012 as Amazon Web Services (AWS) launched "159 new services and features" last year, including the certification of the SAP Business Suite on the AWS cloud platform, which includes the Amazon Elastic Compute Cloud (EC2), Amazon Simple Storage Service (S3), and Amazon Relational Database Service (RDS).