Following the best Christmas sales ever for Amazon.com’s Kindle devices, the total e-reader category is expected to once again deliver double-digit growth this year, Jill Bilzi learns, as she looks at how it continues to revolutionize the publishing industry and forever change ‘books’ as we know them.
The exploding demand for digital reading devices and downloaded e- books during the fourth quarter of 2011 brought a flurry of news among the leading suppliers in the market: in November, e-reader manufacturer Kobo was sold to a Japanese company that runs online shopping malls; in early January, Barnes & Noble announced it is reviewing its Nook e- reader business and may possibly spin it off from its core retail bookstore operation; also in early January, analysts speculated that Amazon.com will release another new Kindle in 2012 and drop prices even lower on its existing Kindle models.
Total annual e-reader sales figures are highly speculative, largely due to category leader Amazon.com’s refusal to release specific unit sales numbers. According to Jeff Bezos, Amazon’s founder and CEO, customers worldwide bought “well over one million” Kindle devices per week during the month of December 2011. The Kindle family of e-readers were the best-selling products on Amazon.com, Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.es, and Amazon.it, Bezos said. Industry analysts estimate that Kindle devices account for between 55% and 60% of the total e-reader category.
What is agreed upon is that the sector is poised for tremendous growth, in both device sales and downloadable digital content. Juniper Research forecast in November 2011 that worldwide sales of e-readers will nearly triple in the next five years. Futuresource Consulting estimates that the Western European e-book market alone grew by over 400% in 2010 with sales of e-books exceeding 10 million units. By the end of 2011, 32 million e-books were expected to be sold in Western Europe.
The growth potential is huge, according to Fiona Hoy, market analyst at Futuresource Consulting, which forecast e-book revenues in Western Europe will reach £1.6 billion by 2015, accounting for 15% of total book spending and representing one out of every five books sold in the region. “Despite all this rapid growth in demand for e-books in Western Europe, the market is still in its infancy, representing less than 1% of total consumer spending on books,” Hoy said. “Moving forward, there are enormous opportunities within the market.”
FACTS, FIGURES & PRICES
North America accounts for nearly 80% of the worldwide e-reader market, according to the International Data Corp, (IDC), a US based market research firm. The worldwide market for digital reading devices is shared by only a few key players: Amazon.com; Barnes & Noble; Pandigital; Kobo; Hanvon and Sony, which released early versions of e-readers more than ten years ago, but has, as yet, failed to become a dominant supplier in the category.
E-readers have found particular success in entry-level price points ($79 is currently the lowest-price e-reader from Amazon available in the US) and in higher-level price points ($199 in the US for the Kindle Fire and the Kobo Vox.) The basic models use e-ink, an unlit black-and-white display technology that affords weeks-long battery life and looks remarkably like actual paper. Many lower-cost models are ad-supported, meaning they typically have advertisements on their screen savers.
At the higher end, the newest devices are essentially hybrid e-readers/tablets. Most feature 7-inch colour screens and about eight hours of battery life. Designed with e-book downloading and reading at its core, the new devices also offer app stores, email, video playback and web browsing. The new hybrids are often mentioned as lower-cost alternatives to the iPad (still at about $499 in the US) which has a built-in app for digital reading called iBooks that are available through its iBookstore.
When Barnes & Noble launched its hybrid e- reader/tablet, the Nook Tablet, in the US in November 2011, it was the company’s fastest and lightest tablet yet. With a retail price of $249, however, it faced stiff price competition from Amazon’s Kindle Fire. Barnes & Noble also offered its Simple Touch black-and-white e-reader for $99 over the Christmas selling season, but demand for the entry-level model lagged expectations, according to the company.
Still, combined sales of Nook products were brisk, up 70% compared with a year ago during the nine-week period ending December 31, 2011. Digital content sales more than doubled; the company said it expects those sales to total $450 million in fiscal 2012. In total, Barnes & Noble expects its Nook business to generate $1.5 billion in revenue this year, while at the same time it is contemplating spinning off the Nook operation in order to raise capital to sustain growth. Within the next two months, the company is also expected to decide whether to expand its Nook business overseas.
E-readers and tablet/e-reader hybrids have not only profoundly changed the retail landscape for printed books, they have also completely up-ended business at the big six publishing houses in the US. About 20% of total book sales at both Random House and Hachette are in digital format, but other publishers are reportedly much slower to get on board. After Borders bookstores closed their last remaining stores in the US last year, it was clear that traditional book publishers that do not have a plan to shift to digital content may not survive. Adding to the woes of the traditional publishing houses are suppliers like Amazon.com, which is rapidly turning itself into a fully-fledged publisher to meet the increasing demand for digital content.
And Amazon, first to slash prices on devices and get e-readers below the magic $100 point, is also way out front on discount pricing of e-books by offering, just as Apple does, most books at a price tag of $9.99. After Amazon charged $9.99 for a New York Times bestseller, the big six publishers in the US instituted agency pricing, which allows them to set the prices of their own e-books.
Both Apple and the six publishers are now involved in a class action lawsuit, filed on charges of price-fixing and collusion. Agency pricing is also being investigated in the UK.
Downloading books and magazines has the same consumer appeal that made downloading digital music a success: it is fast, relatively inexpensive and hugely convenient. Christmas Day 2011 was the biggest day ever for Kindle book downloads, according to Amazon. And, in a surprising success for independent book publishing, the #1 and #4 best-selling Kindle books released last year were both published independently by their authors using Kindle Direct Publishing (KDP), one of seven publishing imprints Amazon has launched. Earlier in 2011, Amazon.com announced its e-book sales now exceed all of its printed book sales; the company reported that it sold 140 e-books for every 100 hardcover books, including hardcovers for which there was no digital edition.
In the US, paperback book sales as a total category are still much larger than either hardcover or e-book sales, but the numbers are rapidly changing. The American Publishing Association estimates that e-books represented 8.5% of total book sales as of mid- 2010, up from 3% a year before. And total sales of digital reading products, which includes the hardware, e-books, screen protectors and other related accessories, could become a $2.5 billion business by 2013, according to market research firm Yankee Group.
Europe, the second largest e-reader market, also rose to its highest volume levels in the fourth quarter of 2011, fuelled by the release of lower-cost models, many of which are ad- supported. “At just £79, the all-new Kindle was by far the biggest-selling product of the festive period,” says Christopher North, Managing Director of Amazon.co.uk Ltd.
The United Kingdom continues to dominate the European market, generating close to half of all Western Europe’s e-book spending last year, according to Futuresource. Hoy says the introduction of Amazon’s e-reader and the Kindle Store to the UK in 2010 was key since the market had previously been fragmented with unbranded dedicated e-reader devices.
In countries like Italy and Spain, the uncertain euro zone climate and the initial lack of local language titles presented challenges to suppliers.
In fact, despite its current sales successes, the entire category of e-readers struggled initially, due, in part, to the natural learning curve as consumers gradually move from physical books to hand-held digital devices. And early suppliers, primarily Sony Corp, but also HP, had the technological know-how to create e-readers but did not supply enough digital content to consumers.
In 1990, Sony released the Data Discman in Japan, and two years later, launched the device in the US. The electronic book reader could only read e-books that were stored on 3.5-inch CDs, a limited supply of which were available.
CORNERSTONES OF SUCCESS
One of the basic cornerstones of book buying is variety, a fact both Amazon.com and Barnes & Noble knew well. Their vast million-title libraries of books and magazines, coupled with strong retail and customer service expertise, made e-book purchase and delivery a much simpler exercise. Amazon particularly understands that speed is critical – consumers get frustrated if transactions online take too long – so it takes an average of 60 seconds to download a book from Amazon.com to a Kindle. And Kindle Fire customers can move seamlessly within Amazon’s entire digital library, from books and magazines to TV shows and movies, paying for each piece of entertainment they purchase.
In fact, the research firm IHS recently reported that Amazon is losing money on the Kindle Fire, which costs approximately $202 to make and is sold for $199. Market analysts say Amazon can cover the loss by selling, books, magazines, movies and TV shows to consumers who purchase Kindle Fire. The typical e-reader has room for anywhere between 1,000 and 5,000 books. With hardware largely similar except for a few different bells and whistles, consumers may end up choosing an e-reader based on their familiarity with the content provider attached to the device.
For example, in Canada, Kobo has over 50% share of the e-reader market, thanks in large part to the name recognition and library of titles of its former primary owner: Indigo Books & Music, a Canadian retail bookstore chain. In November, Kobo was purchased for $315 million in cash by Rakuten, Japan’s largest online shopping mall operator. The buy “could create 50 million potential Kobo customers around the world,” according to Kobo CEO Michael Serbinis.
Rakuten, one of the world’s top three e- commerce companies is expected to promote Kobo through Buy.com in the US, Tradovia in Germany, Rakuten Brazil, Rakuten Taiwan, Lekutian in China, TARAD in Thailand, Rakuten Ichiba in Japan and Rakuten Belanja Online in Indonesia. Kobo has been aggressive with special offers attached to its e-readers, including its one free e-book a month offer throughout 2012 for consumers who purchase the $99.99 Kobo Touch with Offers. Amazon has also driven sales using the same strategy; its Prime Membership offers one free e-book per month.
Barnes & Noble is taking a page from Apple stores and has created free Nook customer service centres in its 703 bricks-and-mortar stores in the US. Anyone with a Nook can read any Nook book for free in-store for up to one hour a day with free Wifi. In a modern take on the classic downtown village bookstore or the beloved neighbourhood library, Barnes & Noble also offers Nook Events and Nook Nights for readers and book lovers to come together.
And, not coincidentally, the Nook centres offer free technical advice to Nook owners, a strategy developed successfully at Apple’s in-store Genius Bars. The retailer is also aggressive on pricing – with over 2.5 million titles, Barnes & Noble sells most Nook books for $9.99 or less, but also offers a selection of books by popular authors that are under $5 each. And, since all fiction written before the year 1900 is in the public domain, the company also offers more than 1 million books that are totally free.
And just whom do suppliers suspect will be purchasing all the e-readers fuelling the new book revolution? In a May 2011 Pew Research Center tracking survey of those who had purchased e-readers, the most likely to own the device were college-educated men and women between the ages of 30 and 49, who make more than $75,000 per year. Men and women were about equal in ownership, but parents with younger children were much more likely to own an e-reader than people without children.
The Pew study found that adult e-reader ownership doubled to 12% as of May 2011, up from 6% in November 2010. During the same periods, tablet PC ownership stood at 8% in May and 5% in November, with 3% of those surveyed saying they own both a tablet and an e-reader.