1 Further implication of this theory: After give or take a decade of trying, Jeff Bezos believes that a sum total of zero newspapers have successfully harnessed the Internet, and furthermore, the realistic probability of any of them doing it on their own in the near future is approximately zero.

I'm comfortable with that assessment.

Whether or not he has the solution I'm more ambivalent about, but I'm definitely behind the problem analysis.

2

If they handle it well, the WaPo could end up with the equivalent of 10 million daily circulation, which would make it pretty much the biggest and most successful newspaper in the US. There must be a hundred million Kindles out there by now, and a 10% penetration rate is not outlandish.

Even if that number is high, it could still end up being outrageous. After all, there's essentially zero distribution cost. So they can price it really low and still make out like bandits.

I don't know if it will work, but I'm certainly not going to call Bezos a fool.

3 But how do you make money with it?

The old newspaper model isn't going to work. Tablets are fine for reading websites, but they suck for reading websites with ads - there's just not the screen real estate to spare, and it really affects the total quality of the experience.

That said, he doesn't have to make money on the paper. He makes his money, as it were, by running a very successful general store; to the extent that the paper makes his tablet look like a better bet, and that tablet makes it nice and easy for people to buy things from him, then it may be a good move on his end. And in the meantime he's got a media outlet that's moderately respectable, so he's got a leg up on any lobbying he needs done...

4

Remember that a Kindle subscription to the WaPo is pure profit, after he's paid the fixed cost of preparing the online edition of the paper each day. This is a form of software, and Bill Gates was the first to realize that the essential difference of software compared to all other products is that the manufacturing cost of software is negligible compared to its value.

Nearly the whole expense is one-time, and it amortizes over your entire sales base, so if you can get volume up, then your cost per unit declines drastically. That's why Bill Gates can buy Sweden.

This is the same thing. The Kindles are already out there, and each day's paper gets distributed via the internet and wifi. The only per-unit expense for Amazon is the cost of transmitting it to each customer -- and Amazon has already built a titanic network for the purpose. (Pixy is going to be a customer for it, soon.)

It probably costs Amazon about one cent, if even that, per unit to distribute each day's paper. If they get lots of subscriptions at a price that amounts to ten cents per paper, which is entirely possible, then they do very fine indeed.

Plus there's the nontrivial fact that it may make the Kindle attractive to certain new buyers, and increase Kindle sales. And each Kindle sold is a Barbie Doll; it leads to sales of books and magazines and games -- and that's where the real money is.

Even if they break even on the Wapo, it's still a good investment.

5 Maybe without the distribution costs of printing all those papers and shipping them all over the place, a newspaper can survive solely or mostly on subscriptions.

6 All Bezos needs is for it to break even or lose only a little. Anything better than that is gravy.

7 "The old newspaper model isn't going to work."

The *older* newspaper model is probably what he's aiming for. Way back when, before fantasies about objective journalism, newspapers were generally propaganda outlets for political parties, which carried enough useful news to entice people into reading them. That's why older newspapers will have names like "The Democrat Gazette".

If you can convince people to use you as their source of news, you can subtly manipulate their attitudes and beliefs by controlling what information they're exposed to, and how it is presented. I think this is what motivates people to go into journalism today, so why shouldn't they do this explicitly again, instead of pretending to be objective?

8 It also buys Bezos cover, influence and control of messaging.  It's a very cheap price for the amount of influence he gained with it.  
Newspapers have, always, been "toys" for powerful Men.  It's what they are.  They exist to produce effects for those that own them.  It's been true since even before the days of William Randolph Hurst. (Benjamin Franklin quite well understood the game, way back in the 1730s)
But, for Bezos, it's not just the standard influence buy of a rich Man. It works well with the Kindle (they've been trying to pull this off with eReaders since at least 2001), it works well with the entire Amazon delivery system and it gives him the ability to defend against any runs at his leadership of Amazon.  It's important to understand: Amazon has pretty much never made much money.  Huge Revenue, Minimal Profit.  The Hedge Funds and Financial Press now can't get on his case.  It's a pretty brilliant Insurance plan.  
Plus, he'll get invited to every White House from here out.  Like I said, "very cheap" was the price.