Editor's Note: This is the second of a two-part series on the explosive growth of e-readers. Check out last week’s story, which looked at the race to develop the perfect device.

On the same day Jeff Bezos unveiled the Kindle DX, Amazon’s next-generation e-reader, in New York City, James Moroney was testifying in Washington about the precarious health of the newspaper industry and the effect e-readers might have on its future bottom line.

Moroney, the publisher and CEO of the Dallas Morning News, said his paper was working with digital-solution companies and e-reader developers to create electronic versions subscribers can put on laptops and other mobile devices, as well as support ad revenue. The problem, he said, was that unless they have mass consumer penetration and support an equitable revenue share or a new business model, the deals seem hard fought.

“They [Amazon] want 70 percent of the subscriptions revenue. I get 30 percent, they get 70 percent,” Moroney told a Senate subcommittee. “On top of that they have said ‘we get the right to republish your intellectual property to any portable device.’ Now, is that a business model that is going to work for newspapers? I get 30 percent and they get the right to license my content to any portable device—not just ones made by Amazon? That, to me, is not a model.”

Moroney admits he got caught up in the emotion of the moment—he unwittingly violated the terms of the News’ nondisclosure agreement with Amazon while addressing the Senate panel—but is adamant in his refusal to buy into the concept that newspaper publishers have to continue to let their content be devalued by the Internet and other forms of digital distribution. “Kindle’s attitude was ‘here’s the deal, take it or leave it,”’ Moroney tells Portfolio.com.

Along with its latest e-reader model, which has a larger screen and better image resolution, Amazon also developed a pilot program with 37 national and international newspapers—among them the New York Times, the Boston Globe and the Washington Post—which charges monthly subscriptions ranging from $5.99 to $14.99 depending on the publication. (Amazon, Barnes & Noble, the New York Times, and the Los Angeles Times were contacted for this story, but none wished to comment.)

During Bezos' unveiling of Amazon’s new e-reader on May 6, New York Times publisher Arthur Sulzberger Jr. shouted out that the device was "wonderful." Since then, Barnes & Noble has entered the e-reader market with much fanfare, joining Amazon and Sony in creating what some see as this season’s hot holiday product.

Yet despite their success in the public consciousness, industry watchers like Michael Norris, an analyst with Simba Information, a media and publishing research company, say it’s too early to tell whether the electronic devices will truly supplant books or indeed offer a new, viable business model for the newspaper industry. “Like a lot of things that have to do with content digitization,” Norris says, “(e-readers) like the Kindle are not living up to their promise.”

It’s all about the numbers, says Norris: “There is a reason why Amazon has said nothing of any substantive value about what Kindle is doing regarding newspaper publishing. The penetration rate is not as big as the tech columnists say it is. They say that three million Kindles are going to sell this year. But in a country with a population with more than 300 million people, that’s nothing really.”

Moroney crunches those numbers for his market. “If the Dallas-Fort Worth area has two percent of that, that’s only 6,000 Kindles,” he says.