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www.pwc.com Turning the Page The Future of eBooksTechnology, Media &Telecommunications
Foreword Today, it seems eBooks and eReaders provide more questions than answers for the book industry: This research is complemented by more than 40 interviews with experts and senior executives of reader manufacturers, a wide range of publishers, dealers, online • Will the industry face the same issues and traditional book shops, and libraries that music publishers did during its in Germany. The survey considers the digital transformation several years importance of eBooks and asks about their ago – primarily digital piracy and a loss market potential, drivers, obstacles for the of revenue as customers discovered future market development, and possible new methods of acquiring content and income models and marketing structures. adopted new listening habits? The survey focuses on the internationalPublishers, Internet bookstores, and • Who will purchase eReaders? Will market for eBooks and eReaders,companies that manufacture eReaders they be designed to appeal to a broad particularly with regard to mass markethave high expectations for the digital group of customers or only to those books in the United States, Unitedfuture of the book industry. A new who have a high degree of comfort Kingdom, the Netherlands, and Germany.generation of eReaders may, at last, with technology? Will people who read It also focuses on opportunities for digitalachieve the long-awaited breakthrough once in a while want to buy an eReader, distribution of newspapers and magazinesthat lures consumers away from paper or will they only be purchased by the through tablets, such as the Apple iPad.and ink. In the United States, Amazon has small group of customers who buy andrevolutionized the market by producing read a high volume of books?an eReader that is easy to use and makingit easy for customers to purchase a wide • Will publishers be able to use eBooksvariety of books at competitive prices. and eReaders to extend the marketWhile some people herald the advent of for books in general, creating a wider Werner Ballhausdigital reader technology as an opportunity audience?to open new target markets and create Industry Leadercustomers, others mourn the end of • Will publishers ever move to an all- Technology, Media & Telecommunicationstraditional books and doubt the industry digital model and abandon printed Germanywill be able to retain control over pricing books?and content. • Is the media responsible for much of the hype we are now hearing about eBooks and eReaders? This study will look at consumers’ attitudes toward and interest in digital reading. It will also identify market opportunities and developments for eBooks and eReaders, and make recommendations for publishers, traditional retailers, online retailers, and intermediaries. The study includes a general market analysis, a discussion of trends and developments, and the results of a consumer poll conducted among 1,000 online users in the United States, United Kingdom, the Netherlands, and Germany. Turning the Page: The Future of eBooks 3
ContentsForeword Outlook and recommended action ......28 1. The Situation in the Year 2015 ............... 28Management summary ............................2 2. Critical Factors of Success for DifferentCurrent situation .....................................4 Business Models..................................... 291. The Book Market ..........................................4 2.1 Publishers.............................................. 29 2.2 Physical Bookstores ............................... 312. The Digital Book: Market of the Future? .......4 2.3 Online Stores ......................................... 312.1 eBooks ........................................................4 2.4 Device Manufacturers ............................ 312.2 Electronic Reading Devices .........................5 2.5 Intermediaries ....................................... 322.3 Market Overview: A Market or a Niche?.. .....8 3. Conclusion ............................................ 322.4 Taxation of eBooks: Artificial Price Driver ..102.5 Value Chain and Revenue Models ..............10 Methodology ......................................33 1. Analysis Framework..................................33What do the experts say? .......................12 2. Timescale and Method ........................... 331.1 eBooks: An Opportunity or Risk? ...............12 3. Expert Interviews .................................. 331.2 Market Drivers ...........................................13 4. Consumer Survey .................................. 331.3 Market Barriers ..........................................131.4 Pricing and Distribution Models .................14 Bibliography .......................................341.5 eReaders or Tablets? ..................................15 About us .............................................341.6 Looking to the Future.................................151.7 Challenges Facing Companies ....................15 Contacts .............................................34Discussion: Electronic Newspapersand Magazines .................................................16What do customers want?......................181.1 Popularity of eBooks and eReaders ............181.2 Revenue Models ........................................221.3 Purchase Intentions: Tablet or eReader? ....251.4 The Future ................................................27 Turning the Page: The Future of eBooks 1
Management account for 7% in 2010. And this is only the beginning: Driven by the improvement of reading devices with integrated online summary stores, an extensive range of electronic books, and an aggressive price policy of online retailers such as Amazon, eBook revenue continues to expand. The market is being further stimulated by multifunction devices such as Apple’s iPad, and it has already proved lucrative for publishers, whose initial investments are paying off because of higher margins for eBooks. Digital publishing appears Nonetheless, when consumers are asked about their knowledge of eBooks There is no doubt that the same trends to be reaching critical mass. and eReaders, it becomes obvious that that spurred the adoption of eBooks and Most consumers have an many people are missing the big picture. eReaders in the United States are having understanding of eBooks and Although consumers seem amenable to a similar effect in other countries as well, eBooks and eReaders, they do not yet such as: eReaders, thanks to media grasp the larger concepts behind digital coverage, as well as extensive publishing and may not understand the • Technical development and reporting ahead of this year’s advantages of reading digital books over sophistication of reading devices that paper ones. This is especially true in provide an experience similar to that of major book fairs. Apple’s new Europe. reading an actual book. iPad, which can serve as an Attitudes toward eBooks and eReaders • The increasing penetration of the eReader, also brings more Internet in all areas of life, which is seem to differ on each side of the Atlantic. attention to the market for the In the United States, publishers appear significantly changing reading patterns digital technology. amenable to eBooks because they generally and reading behavior. offer lower costs and higher margins than print. An eBook publisher does not incur • The increasing extent to which inventory return costs that are typically consumers are open to new associated with traditional print channels. technological trends, for which in In Europe, publishers seem more likely to particular the availability of attractive view digital publishing as a step backward mobile devices such as smartphones, for their companies – a necessary evil, portable games consoles, and MP3 so to speak – that represents more risks players are responsible. than opportunities. Therefore, European Publishers, content owners, and retailers publishers may have less interest than their should act promptly to secure leading American peers in actively developing the positions in the eBook and eReader eBook market. European publishers are marketplace, and not concede ground more likely to express doubts about digital to participants new to the industry. transformation in the industry, and act Publishers, bookstores, and device slowly out of fear of high costs and the manufacturers should take the opportunity possibility of losing sales of print books. to provide the market now with innovative However, the progress toward a digital products before others do so. And authors publishing industry can only move should explore opportunities for digital forward. This is most obvious with the distribution, and support publishers in developments in the United States, where their efforts to publish content. eBooks accounted for about 3% of the Publishers in the nascent European overall market at the end of 2009 and will eBook marketplace should actively and2 PwC
aggressively digitize and market their with instant and simple delivery of separate dedicated reading devices fromelectronic books, even if eBook revenue content through mobile wireless or wi-fi the iPad and other tablets.does not cover costs in the short term. connections, built-in links to onlineThese investments are necessary to stores, and competitive prices. The Publishers should view these technologicalestablish the market, and provide a device manufacturers are now facing the advancements as opportunities to movelegitimate alternative to any pirated challenge of rolling out this development established readers to eBooks, which canmaterials that may be available on file- worldwide. Manufacturers do not have improve operating margins and reducesharing websites. Publishers should also to vertically integrate the entire value production costs while creating a newdesign a pricing strategy that attracts chain for this purpose. Cooperations with market for customers who are not frequentcustomers without undermining the value publishers and online bookstores are a step book buyers but might find eBooks with of content. A well-thought-out pricing in the right direction. multimedia content attractive. If the bookstrategy may also help publishers and industry fails to establish the marketplacecontent owners gain new customers – Online bookstores appear to be best now, companies may find themselves those who would not have purchased situated for digital transformation, thanks playing catch-up later after losing sales anda traditional book but may be inclined to their built-in customer bases and their customers to newcomers. What is more, byto buy an eBook that costs less, offers experience as Internet retailers. However, waiting, established players may lose theadditional features, and works on a digital European-based online bookstores may be opportunity to establish pricing policies,device they already own. The strategy challenged by new players, who can offer eBook format standards, and partnershipsof offering eBooks at a price lower than customers a wider range of products, or a that set consumer expectations andthat of printed books is a step in the right more engaging experience through reviews define the marketplace. In addition, if direction. As soon as a mass market has and integration with social networks. legitimate vendors fail to meet consumerbeen established, the investments will Amazon has already established itself as demands, either in terms of contentdemonstrate their worth because eBooks an online retailer in Europe and has begun choices or reasonable prices, their potentialalso provide an attractive source of selling the Kindle in several European customers may turn to file-sharing websites revenue. markets. Although Apple’s iBookstore for pirated books – a situation similar to does not carry many non-English books, the one that set back the music industry.In the future, publishers will need to retailers should not underestimate theposition themselves as content providers, company as an online content seller, It is clear that many people are willing toand not just the suppliers of physical books. evidenced by the growth of its iTunes make the transition from printed books toThey will have to make content available Store. eBooks and eReaders. Recent exampleson multiple media, in multiple formats, in the United States prove that consumerson multiple platforms. This content may For every company involved in the will adopt eReaders, which ease thenot be limited to the text of a book itself book industry, these developments are process of buying and reading eBooks.– it may also include audio, video, and challenging but exciting. For the first time, While the publishing industry, especiallygames. This additional content may lead to consumers can purchase eReaders that in Europe, is at the beginning of its digitalincremental revenue. are relatively inexpensive and easy to use. transformation, the breakthrough is under Customers in the United States already way.Market participants will have to rethink enjoy eReaders with integrated Internettheir strategy and adapt to changes in the access, which allows them to purchasevalue chain. Traditional bookstores face books directly on their devices or throughthe risk of exclusion from the expanding a website and begin reading them inmarket for digital content. More than about a minute. Some of these devices areever, the traditional bookstore will have available in Europe, and more are on theto emphasize its strengths in terms of horizon. The iPad and other tablets givecustomer knowledge, customer retention, publishers and authors the ability to putand competence. And it will have to color pictures, videos, and music in theirdistribute book content in all formats and books. While today’s eReaders are mostlyall channels. limited to black and white, future models will introduce color and video capabilitiesUS companies have been successful by while maintaining the longer battery life,providing user-friendly reading devices thinner form factors, and lower prices that Turning the Page: The Future of eBooks 3
eReaders, tablets, personal computers, smartphones, and also on some mobile phones. Current situation eBooks can be published in a variety of file formats. In the United States, there is not much debate about formats, as the industry leaders – Amazon, Barnes & Noble, and Apple – allow customers to read their purchased books on a variety of devices. This multiple-application strategy mitigates the problem of competing file formats, as consumers rarely need to move a book saved in one format to a device that 1 The Book Market There are many indications that books requires a different format. In Europe, Reading books continues to be one of the remain popular. Younger readers (10- to where the eBook and eReader environment most popular leisure-time occupations 19-year olds) have a strong appetite for is less mature, publishers continue to around the world, notwithstanding the reading, thanks to successful books such discuss the merits of different file formats. increasing use and significance of the as Stephenie Meyer’s vampire romance Formats are especially important to Internet in our daily lives. In Germany, series Twilight. Consumers aged 40 and customers, as few eReader or eBook for example, people said they enjoyed older buy the most books, while electronic companies in Europe provide the multiple- reading books more than they liked using media is more popular with consumers device convenience and flexibility as their the Internet, going to the movies, and between ages 30 and 39, according to US peers. That puts the onus on buyers to playing video games, according to a 2009 various industry surveys publishers understand the file type, and whether it is poll. The only leisure activities more have an opportunity to bridge these two compatible with their devices. popular than reading books were watching demographic markets with electronic television, listening to music and the radio, media– eBooks, music, video, and At this time, PDF and ePUB are the most and reading newspapers and magazines, applications – to attract customers and common eBook file formats. PDF was pursuant to the poll conducted by German create new revenue sources. created by Adobe in 1993 and is used companies Axel Springer and Bauer Media. primarily for special interest books. ePUB is Other surveys show that older women tend 2 The Digital Book: generally used for mass market eBooks.3 to favor books, while men prefer to spend Market of the Future? Here is a brief discussion of the two file their leisure time with electronic media, The discussion concerning the viability formats: such as television and the Internet.1 and chances of success of eBooks is not new. In recent decades, there have been • ePUB is an extensible markup Books are big business. Around the world, talks as to when and whether the eBook language, like the HTML used for people spent US$1082 billion on books in will overtake the printed book in terms of websites. The text adapts to a user’s 2009. The region encompassing Europe, popularity. Following music, newspapers, device. If the user wants a larger the Middle East, and Asia represented magazines, television, and radio, the typeface, the text will be redrawn on the largest share of sales. Mass market digital transformation has now also caught the screen. In contrast, a PDF document books, sometimes called consumer books, up with the book industry. The market is is like a series of photographs: every continue to increase as a percentage of undergoing a period of change – and is page will show up on the screen exactly overall book sales. In this mass market restructuring itself. as the designer laid it out, but the category, sales of books for children and reader may find it difficult to enlarge or young adults have grown steadily. eBooks 2.1 eBooks decrease the type size. are too new to make up a significant share eBooks are digital versions of printed of worldwide sales. books, which are distributed through the Internet. These files can be read on 1 According to Allensbacher Market and Advertising Media Analysis 2008, 45% of women and 29% of men use books daily or several times a week. And most books are bought by women (66% compared with 52% of men). 2 PwC: Global entertainment and media outlook: 2010-2014, 2010. 3 ePUB is an open standard for eBooks, based on XMLM; it has been defined by the International Digital Publishing Forum (IDPF) and replaced the older standard Open eBook (OEB) or Open eBook Publication Structure (OEBPS). In addition to dynamic text adjustment, ePUB files can be individually adapted to a certain extent and support vector graphics. ePUB is also compatible with Digital Rights Management systems. There are plans for further development: Accordingly, the IDPF has set up a commission which is expected to enable advertising and videos to be displayed in ePUB and is also expected to permit standard or interactive add-ons.4 PwC
• ePUB files allow readers to control the size of the text on their screen. However, eBooks published as ePUB From Data Discman to Kindle files do not have static page numbers. A brief history Researchers and students may not be Sony pioneered the first electronic reading devices in 1990 with its Data Discman, able to provide accurate page numbers a reading device with a CD-ROM drive that was able to display books and focused for citations. PDFs allow publishers primarily on reference works. Its initial selling price, US$550, would have paid to create more intricately designed for an entire shelf of books. In the United States, the Data Discman was marketed books, with fixed page numbers and to college students and international travelers. The product was also marketed illustrations, but these books may be in Europe, where it was introduced for €500.4 The Data Discman did not sell well difficult to read on some eReaders and outside Japan, and Sony discontinued it in 1993. other devices, especially those with small screens. Readers may not want In 1998, the German-American joint venture NuvoMedia, in which Bertelsmann to scroll left and right to read each line was also involved, launched the Rocket eBook for approximately €345 in the United of text. States and Europe. The Rocket could hold up to 4,000 pages, and customers could download additional books from the Internet. Various online shops for eBooksAmazon uses a proprietary format, AZW, started at the same time as the launch of the Rocket eBook. For instance, eReader.which is an extensible markup framework com was launched in the United States, being one of the first websites worldwide like ePUB but offers a level of copyright to sell eBooks. The site still exists today and belongs to the US book retailer Barnesprotection and digital rights management. & Noble. Bertelsmann, in Germany, launched its eBook shop BOL.de, and offeredAZW is based on software made by the 600 or so eBooks in German that were available at that time via the onlineMobipocket, a subsidiary of Amazon. A bookstore dibi.de (now trading as libri.de). The books were published in PDF or theversion of Mobipocket is available for free. open standard Open eBook (OEB), the predecessor of the present-day ePUB format.It is similar to ePUB: it allows flexible page breaks and is suitable for small electronic The Rocket represented significant technological progress from the Data Discman, devices. yet it was not successful on the market. The Rocket had Internet access, a monochrome LCD display, weighed 22 ounces (or 630 grams), and contained2.2 Electronic Reading Devices 16 mega ytes of flash memory. b2.2.1 eReaders Later Rocket models did not establish themselves on the market either, despite theWhat is an eBook without an eReader? addition of color displays and lower prices. The products were discontinued. TheThe eReader promises a comfortable, software group Microsoft, which had been working on a reader since June 2003,computer-free experience for reading. The and the US bookstore chain Barnes & Noble also discontinued their efforts to pressdevices work with so-called electronic ahead with sales of electronic book files. The Librié, a further reader of Sony, which ink (eInk), which ensures an experience was the first device to be equipped with eInk technology, was initially not published similar to that of reading a real book worldwide and was sold exclusively in Japan in 2004, although without success.as a result of its precise and stablecharacteristics. eInk displays do not require The reasons for the lack of customer acceptance at that time included the shortageany background lighting and are easy to of available books and the fact that the devices were not attractive, particularly inread, even in direct sunlight. Because they terms of weight, size, and price. For several years, consumers’ appetite for eBooksonly require power for turning pages, they and eReaders stalled, but Amazon’s Kindle changed that in the United States indo not consume a lot of battery; this means 2007. Sony, with its PRS-500, had made a further attempt with electronic readingthat a recharged device can be used for devices one year previously. As was the case with the international Sony model,several thousand pages, or several weeks. which was launched in Europe approximately three years later, the US equivalent also did not have mobile access and was hardly perceived at all by the market.eReaders are not a new phenomenon.Many companies introduced readingdevices in the 1990s and early 2000s, butcustomers generally felt these eReaders additional connection costs to access US$399. Today, Amazon has three Kindlewere too expensive, had too many the Kindle Store, where eBooks can be models:technological limitations, and were too purchased, mostly at a considerable discount compared with printed books. • The Kindle 3 with wi-fi, for US$139expensive. Amazon originally imposed a US$2 • The Kindle 3 with wi-fi and mobile 3G The new generation of reading devices is charge when a Kindle user purchased connectivity, for US$189now expected to achieve the breakthrough, a book outside the United States, butdriven by advances in the US market. this international surcharge has been • The Kindle DX, with a larger screen, eliminated now that Amazon sells the wi-fi, and mobile 3G connectivity, for The Kindle: Amazon thinks big with a Kindle outside the US. Books are purchased US$359device that is simple and friendly for at the push of a button, and this facilitycustomers encourages impulse buying because it is Amazon sells the Kindle on its website and easy to operate and constantly available. through two brick-and-mortar retailers inAmazon introduced the Kindle in the the US, Target and Staples.US in 2007, and in Europe and other The Kindle’s simplicity, connectivity,international markets in 2009. As the first and integration with Amazon’s digital Since the international launch in OctobereReader model with an integrated mobile bookstore proved to be very attractive. 2009, the Kindle 2 (and, now, the Kindle 3)access link to a major online store, the The first devices sold out within five and a can be purchased in the United Kingdom,Kindle generated a considerable amount half hours in the United States. The Kindle the Netherlands, and Germany. Sinceof market attention. Kindle users do not was not subsequently available for many January 2010, the Kindle DX, has also beenhave to sign a mobile contract or incur months – although the device initially cost available on the international market.4 Today’s currency. The product would have been sold in each country’s respective currency at the time. Turning the Page: The Future of eBooks 5
The non-US Kindle is also directly linked offering customers a seamless reading and 2.2.2 Tablet PCs to the Kindle store, where consumers can shopping experience. Since July 2010, Tablets: Alternative reading devices for access a selection of more than 725,000 the store has sold the iRiver Story in its eBooks (mainly English) books and a wide range of physical store and on its website. The national and international newspapers and £179 eReader connects through wi-fi to A tablet is a portable computer with a periodicals. In addition, Amazon provides WHSmith’s 100,000-title online store. touch screen. Apple ignited the tablet access to 1.8 million free, public-domain market when it introduced the iPad in books. In general, the books cost as much While Amazon has a head start in Europe, early 2010, but the concept is not new. in Europe as they do in the United States. nearly all of the eBooks available to As early as the 1960s and 70s, there were Kindle users are in English. In non- initial concepts of a portable computer Competition for the Kindle English-speaking countries, customers with a user interface providing a facility for looking for eBooks in their native intuitive operation. Amazon is no longer the only game in tongue may be frustrated with Amazon’s town. Barnes & Noble, the largest US selection. European publishers, device In 1993, Apple launched the first portable bookstore chain, introduced the Nook in manufacturers, and online retailers may computer with genuine pen input, the early 2010. Like the Kindle, the Nook is have an opportunity to introduce eReaders Newton MessagePad. However, production available with only wi-fi, or with wi-fi and a and services that are as easy to use as of the Newton, a predecessor of the 3G mobile connection. The Nook is priced the Kindle but offer more content than personal digital assistants, or PDAs, was competitively with the Kindle, but instead Amazon for each country’s native readers. discontinued in 1998. (Those PDAs, in of the Kindle’s physical keyboard, the Nook One part of this puzzle – eReaders with the turn, have mostly disappeared from the has a small color touch screen beneath capability to integrate with online stores marketplace, having been replaced by the main eInk screen. In October Barnes in Europe – may already be in place. In smartphones such as Blackberrys and & Noble introduced the Nook color with a Germany, for example, bookstore chain iPhones.) colored LED screen. thalia.de offers the Oyo, an eReader with wi-fi access. The BeBook Neo, announced In addition to Apple, other manufacturers In August 2009, Sony added the Daily have announced the launch of tablets, in the Netherlands, has wi-fi capabilities, Edition to its line of eReader devices in or have already introduced tablets to the but its high price may hinder sales. the United States. The Daily Edition has market. It is expected that about 20 tablets wireless Internet connectivity, and is Lately eReader prices have fallen will be available on the market by the end integrated with Sony’s online bookstore. significantly. The dramatic price cuts are of the year. due to the announcement of Apple’s iPad, Borders, another large US bookstore chain, Tablets are not designed solely for reading increased competition between Amazon recently introduced an eReader called the books; instead, they allow users to browse and Barnes & Noble, and falling prices Kobo. websites, view photos and videos, play for supplies. The introduction of the iPad highlights the difference between games, read and write email messages, Across the Atlantic, Sony remains the multifunction tablet computers, like the and perform many of the same functions largest player in the eReader market. Sony iPad, and eReaders, which are primarily they would do with a traditional computer. introduced the Reader Touch Edition with for eBooks. The eInk screens in most Unlike the eReaders, tablets use LED-lit a touch screen in October 2009, targeting eReaders can only display content in LCD displays, which enable information to professionals. The company then released black and white, and a few shades of gray, be displayed in color and also enable the the Sony Pocket Reader in February 2010, which makes them suitable for text and user to read in the dark. However, the LCD marketing it as an entry-level eReader. monochrome photographs and graphics. It displays are susceptible to glare and can Neither model has integrated mobile takes a moment to display each new page be washed out in direct sunlight, which Internet access, which means users are on an eInk screen – a delay that will not may not provide the most comfortable required to download books on their PC bother readers, but that makes the devices environment for reading. In addition, and then transfer them to the eReader. incapable of displaying video. the tablets are generally heavier than In August 2010, Sony redesigned its eReaders, and must be recharged more eReaders for the European market, adding It is only a matter of time before eReaders frequently. touch screens to all models and introducing gain more sophisticated capabilities. American chipmaker Qualcomm and Prime As is the case with purchasing eBooks several new features. However, still none of View, the company that manufactures for eReaders, the digital content can the eReaders has wireless Internet access. eInk displays, are working on color be obtained through specific online Amazon’s simplified, integrated shopping screens. Qualcomm is developing a display bookstores, publishers, or Internet and delivery system differentiates the technology that requires little power but portals with free content (for instance, Kindle from other products in many can show video and animation in color. the Gutenberg Project). For buying and countries. A UK-based bookstore chain, reading books on the iPad, Apple has WHSmith, is following Amazon’s lead by followed the example set by the Kindle eReader Original price Current price Nook with wi-fi and 3G (Barnes & Noble) US$259 US$199 Kindle 2/Kindle 3 with wi-fi and 3G (Amazon) US$359, then US$299 (July 2009), US$189, US$139 (wi-fi only) Note: The Kindle 3 was announced in July 2010. then US$259 (October 2009) It replaces the Kindle 2. Kindle DX (Amazon) US$489 US$379 Reader Pocket Edition (Sony) US$170 US$150 Reader Touch Edition (Sony) US$200 US$170 Reader Daily Edition (Sony) US$350 US$300 Fig. 1 Price changes of selected eReaders6 PwC
Store to create a seamless environment in Laptop/which customers can buy, download, and Features Smart-phone eReader Tablet Notebookread books. iPad customers can downloadfrom Apple a free application, or app, Battery lifecalled iBooks. This app acts as an eBookreader, in which users can read books, addnotes, highlight passages, and organize Ability to display Picturestheir libraries. A button in iBooks links theuser to Apple’s iBookstore, where morebooks can be purchased. Free books from Ability to display Videosthe public domain are also available.Because the iPad is a multifunction device, Display sizeusers can download many apps, includingdifferent eBook reader apps. Amazon’sKindle app is free and provides much of Readabilitythe functionality of the Kindle deviceitself. An iPad owner can launch the Kindleapp, type in his or her Kindle account Colorsname and password, and gain access to allpreviously purchased content. The Kindleapp, just like the Kindle device, lets users Variety of formatsdownload new books from the KindleStore. Bookmarks, notes, and highlights aresynchronized across all devices. WeightBarnes & Noble has a Nook app for theiPad, which is similar to the Kindle app.Someone with a Barnes & Noble account Mobile connectivitycan download the free Nook app, enter hisor her account and password information,and use the iPad in much the same way as Disk spacethe Nook device itself.Why would customers buy eReaders Additional contentsinstead of tablets when tablets can act asan eReader? First, tablets cost considerablymore than eReaders. The least expensive Suitable for consumeriPad model costs US$499 in the United booksStates, £429 in the UK or €499 in Europe.The least expensive iPad with an integrated Suitable for professionalmobile connection costs US$599 in the booksUnited States, £529 in the UK or €599 inEurope. Second, tablets are multifunction Excellent suitability No suitabilitydevices. A customer may not want emailor social networking notification messages Fig. 2 Comparison of the suitability of different reading devices for eBooksto pop up on the screen. Third, customersmay prefer the eInk display to the LED The national variations between has also published free reading softwaredisplay. consumer reading patterns mean that (Kindle for PC), which, in the same way it is not possible to generalize such as the Kindle app, allows eBooks to be2.2.3 Smartphones and Laptops trends; however, in other countries, it is purchased and downloaded.Smartphones in Japan popular for reading also possible for iPhone users to access an extensive range of eBook apps via 2.2.4 What Device for What Purpose?books Apple’s App Store. iPhone owners can, for A ComparisonIn Japan, the mobile telephone has become instance, buy and read electronic booksa mobile reading device, particularly in via iBooks, the Kindle app or the Nook The launch of Apple’s iPad has also setrecent years. The mobile novels, or Keitai app. In addition, companies also offer off a discussion as to what is the bestShosetu, which are written specifically for book applications for other devices, such reading device for eBooks. While somemobile phones and which are frequently as Android smartphones and BlackBerry may say tablets have not been designedwritten as sequels as a result of the limited devices. primarily for reading electronic books,size of display, are popular among young Apple is clearly positioning its iPad asJapanese who use them on their daily The advantages of smartphones are their an alternative to eReaders with thecommute to work or school, as well as at ease of handling and, generally, their introduction of the iBook app and thehome and during their leisure time. The direct access to the Internet and thus the iBookstore. In addition, for smartphonesgreat success is attributable particularly possibility of downloading eBooks. The and laptops, there are products for readingto the high mobility of the Japanese (long disadvantages of mobile telephones are the eBooks such as Amazon’s Kindle app. Howcommuting hours) and the intensive use of small display and the comparatively short is the competition posed by the variousthe mobile phone. battery operating time. reading devices to be assessed? Do tablets compete with simple eReaders or do they Apart from mobile devices, eBooks can complement each other? The following also be read via traditional channels such table summarizes and compares the main as PCs, notebooks, and laptops. Amazon device characteristics. Turning the Page: The Future of eBooks 7
eReaders are ideal reading devices for mass music and special effects. Such products over an extended period of time. On the market books will be attractive mainly for younger and other hand, they are suitable for eBooks technophile consumers who tend to read with graphics or short mobile novels, At first sight, eReaders compare poorly only extracts of books. However, tablets are which are written specifically for mobile to other reading devices with respect to also particularly suitable for newspapers phones. Smartphone apps also allow users photos, color content, add-on content, and and periodicals; in the final analysis, a convenient way to read while “killing touch screen navigation. However, they the integrated mobile access enables time” on daily commutes, in doctors’ offices perform much better than other devices the user to source publishing content or in between classes. in terms of legibility, battery operating directly at any time or as a subscriber. In time and weight, attributes that are very addition, photos can be displayed in high 2.3 Market Overview: important for the consumption of mass resolution, and the device can turn pages A Market or a Niche? market titles. eReaders permit lengthy and follow hyperlinks without delay, 2.3.1 The Range of Products and undisturbed reading of eBooks; the which is a particularly important aspect for The US as the pioneer in a developing eyes are not fatigued when they look at publishing products. market the screen, as is the case with LED displays with background lighting. In addition, a As multifunction devices, tablets are Internationally, there are considerable long battery operating time of up to several attractive for a larger target group. differences with regard to the range of weeks and a low weight (about 200 to 300 Particularly positive aspects are their eBooks that are available. The United grams, or 7 to 10 ounces) also result in user-friendliness and the integrated shop States is a pioneer in this regard: At the positive assessments. function, e.g. in the iBooks and Kindle launch of the Kindle, Amazon offered apps, which reduce the resistance to 90,000 eBooks for purchase, including 102 In terms of a target group, the eReader is buying eBooks and which provide access to of the 112 The New York Times bestsellers. therefore clearly designed to appeal to avid a wide eBook range. According to Amazon’s own information, readers. Traditionally, these are women the company now has more than 725,000 between 30 and 60 years of age, who read Disadvantages include the backlit display, eBooks in its proprietary AZW format. several times a week and purchase many the heavier weight, and the lower battery And there are an additional 1.8 million books each year. In addition, eReaders are operating time. Tablets are therefore less free eBooks in the public domain that suitable for professional applications, for suitable as a permanent reading device, can be downloaded from Amazon. In instance in the publishing environment particularly as they are, at present, much addition, Amazon offers 132 newspapers when the focus is on reading lengthy more expensive than corresponding and 40 periodicals under the terms of a texts. For these large-volume readers who eReaders. The disadvantages affect laptops subscription or as individual editions. The are interested in the content and not the to a greater extent, which means that a largest bookstore in the world, Barnes & format of the book, eReaders provide an laptop appears even less suitable for mass Noble, has more than 1.2 million eBooks. excellent experience that is close to that market titles. Its digital bookstore has fewer newspapers of reading a genuine book and also enable Typical tablet users are interested in and magazines than Amazon: 20 and 14, numerous books to be read in parallel. using their devices for many purposes respectively. On the other hand, eReaders are less – including, at times, reading eBooks. The UK also benefits from an extensive convenient for special interest literature, In addition, tablets are a handy reading range of English-language content. For newspapers, and magazines. These device for newspapers and periodicals instance, the Kindle offers more than publications often require readers to skip because they combine up-to-date 320,000 books for readers in the UK alone, between pages and chapters and search information with multi-media content, and more than 1 million free books are the text for words and phrases. Today’s colored forms of presentation and linking available in English via Google Books. eReaders perform poorly in these areas. and overview functions. Alternative Current eInk technology cannot jump possibilities of use include mobile work On the other hand, publishers in the instantly from one screen to another: it environments or increased use of special Netherlands and Germany are more requires a moment for existing text and interest literature and reference works in conservative in their approach to digitizing images to disappear and then another which the user has to perform many search their book holdings. As recently as moment for the new page to appear. In operations. Tablets, and in particular summer 2009, the range of eBooks in the addition, photographs and illustrations laptops, are also more suitable for special Netherlands was limited to about 1,000 may not display well on an eInk display, interest literature than eReaders because eBooks.5 The largest online bookstore as the screen lacks color and backlighting. they enable the reader to turn pages now offers approximately 4,000 eBooks in Future eReaders may overcome these quickly and provide the possibility of Dutch (by way of comparison: at the Dutch limitations. further research. market leader bol.com, about 350,000 printed books in Dutch are available). Tablets for occasional readers and for Smartphones will not be primary reading The range of German-language eBooks professional use devices is also relatively limited in terms of an PCs and tablets offer many advantages As primary reading devices, smartphones international comparison. It is true that for reading special interest literature. It are less conventient for either mass market online bookstores such as buecher.de now is possible for content to be displayed in or special-interest literature – although have a selection of more than color, which means that tablets are also they would be suitable as a secondary 100,000 eBooks, representing about 8% attractive for selected mass market titles device given their greater penetration of the currently available 1.2 million with additional multimedia content. density. The constant availability is a German books, in a wide range of formats. The most prominent example of such a key advantage. For this purpose, eBook However, most of the books are only presentation form is probably the iPhone providers make apps for smartphones. The suitable to a limited extent to be used on and iPad adaption of Alice in Wonderland, key disadvantage of smartphones is their mobile reading devices because they are in which illustrations are enriched with small display, which is problematic with made available in PDF. audio commentary and combined with regard to reading large amounts of text 5 PwC: Entertainment and Media Outlook for the Netherlands: 2010-2014, 2010.8 PwC
Authors are also responsible for sluggish 2.3.2 Prices strategy and made those titles availabledigitizing The prices of eBooks vary considerably, again. Macmillan books are now sold depending on the value-added tax rules for between US$12.99 and US$14.99. InPublishers are not necessarily responsible addition, Simon & Schuster and Hachette and fixed book pricing arrangements. for the sluggish pace of digital have announced that they will launch the At present, there are fixed book pricing transformation in some countries. In many eBook versions of their top titles only after arrangements in 13 of 20 European Unioncases, publishers only have the marketing a certain delay to avoid cannibalization of countries, including France, Germany,rights for the printed and audio content. sales of printed books. the Netherlands, and Spain.6 In theseTo enable eBooks to be distributed, countries, bookstores have to follow thefurther negotiations are necessary with In 2009, the iPad presented an opportunity price policies of the publishers.the authors. This is frequently a time- for publishers to establish a new typeconsuming and expensive process. In order Whereas the fixed book price arrangement of pricing strategy, one that would shiftto press on with developing the market, in Germany is not subject to any time pricing power from the retailer to themost publishers are already digitizing most restriction, the corresponding arrangement publisher. Several major publishers workedof their front-list books, including current in the Netherlands is applicable only for with Apple to arrive at an agency pricingbestsellers and, to the extent that they own the first year after publication of printed model for Apple’s iBookstore. Underthe rights, are also opening up parts of and digital books. In the United Kingdom, the agency model, online retailers selltheir backlist for electronic sales. recommended retail prices were abolished publishers’ eBooks and receive 30% of in 1995 and, in the United States, fixed gross revenues. The model is not tied to aGoogle Books plans to enter the eBook specific pricing structure, rather publishers prices contravene competition law.market with Google Editions set their own prices individually. Amazon So far, no standard procedure has been also implemented the agency model as anIn May 2010, Google announced plans established for fixing the prices of eBooks option for publishers shortly after the iPadto enter the US eBook market with the in countries with a fixed book price launched.launch of its Google Editions store. The arrangement. While some publishers inannouncement came even as competition As publishers gained more control of Germany offer their electronic editionsintensified among market leaders with pricing, consumers immediately saw at a price that is up to 20% lower thanthe launch of Apple’s iPad tablet and higher prices on many titles as a result of the corresponding price of the printediBookstore. However, Google may be this shift. Consequently, eBook pricing versions, others have a policy of offeringreconsidering or refining its strategy to is attracting antitrust scrutiny in the US digital content for the same price as thereflect new market conditions. As of this market. Reviews by state attorneys general least expensive printed form, which iswriting, Google Editions is not yet available are under way in Texas and Connecticut. usually the paperback format.in the US market, missing its targeted Additionally, according to The Wall Streetlaunch date by five months. The absence of a fixed book price Journal, the Department of Justice is also arrangement also explains the strategy showing keen interest in the emergingSome analysts are suggesting that falling of the online bookstore Amazon, which eBook sector with a focus on the largerprices for eReader devices may have sold nearly all books for US$9.99 or technology companies.substantially negated the consumer less to kick-start the eBook and eReaderbenefits originally contemplated for 2.3.3 The Market Volume market, encourage Kindle sales, andthe Google Editions business model. As establish its online store as the market eReaders: A far cry from the hype inplanned, Google Editions lets consumers leader. At US$9.99, a Kindle eBook was Europepurchase and read content from any significantly cheaper than a hardcover. connected device, using only an Internet By the end of 2010, eBooks will account eBooks are now available mainly for pricesbrowser. It is also intended to benefit for more than 7% of sales in the US book between US$9.99 and US$14.99. In theindependent bookstores and publishers market. Additionally, industry observers UK, new publications are available for thethat have previously been excluded from estimate that up to 8 times as many of equivalent of US$12 to US$14.participating in eBook growth. These these sales are coming through Amazon’ssellers will be able to use the Google Antitrust Scrutiny for the Agency Pricing Kindle Store than all other online retailersEditions platform to market books on Model combined. Comparatively few eReaderstheir own sites. A similar announcement were sold last year in European countrieswas made in July 2010 regarding Google’s The introduction of the Kindle in late such as Germany, the Netherlands, and theplanned entry into the Japan eBook 2007 with most titles priced at US$9.99 UK, where the market is in its infancy.market. generated rapid uptake from Amazon’s customers as eBooks were sold at a The UK bookstore chain Waterstone’sThrough a partnership with the American significant discount compared with included the Sony Reader in its programBooksellers Association (ABA), which hardcover and paperbacks. On average, in autumn 2008 and has since soldpromotes independent booksellers, Google Amazon paid publishers US$13 per 60,000 eReaders. In the Netherlands,plans to offer more than 400,000 titles in eBook and realized a US$3 loss on each iRex Technologies, a spinoff of Philips,the United States initially. Members of the eBook sold. Setting the price at US$9.99 introduced eReaders at the end of 2008ABA and others will also be able to leverage resulted in considerable unrest among and reported scarcely more than 4,000the platform for selling books through their the publishers. Publishers’ concerns sales at the end of 2009. Sales rose toown sites. Google Editions will be housed extended beyond how much profit they 50,000 eReaders by midyear, but it waswithin Google Books, the current home for made on each eBook sold; they focused on not enough to save iRex from filing for 2 million public domain eBooks. Google cannibalization of traditional formats. bankruptcy protection in June 2010.will retain a 37% share of the revenue byselling direct to consumers. At the end of January 2010, Amazon Several other eReader manufacturers have removed all Macmillan eBooks in a dispute filed for bankruptcy protection, including over pricing but later adjusted its pricing the manufacturer of the Cool-er eReader6 Cf. http://www.javnost-thepublic.org/media/datoteke/stockmann-4-2004-4.pdf. Turning the Page: The Future of eBooks 9
and the European division of Foxit. These and change the content. Such applications and periodicals. However, the initiative companies may have succumbed to are not suitable for all groups of products falls short of what is needed: The reduced pressure from manufacturers of tablets and but could be used in picture books, comics, rate of VAT is limited to physical media, other eReaders. or special interest and travel literature, and and is thus applicable only for audio books also in some detective stories. and digital books in the form of a CD or In Germany, between 50,000 and 80,000 CD-ROM. eReaders have sold up to spring 2010, In Europe, the market remained sluggish and 15,000 of them were purchased from in 2009. Germany generated scarcely Accordingly, eBooks distributed digitally Weltbild (according to the company’s own quantifiable sales of eBooks. The UK, are subject to the standard rate of VAT in information). with its comparatively large range of the EU. For online bookstores, this means English-language books, reported only that the only possibility to optimize tax Despite the extensive range of eReader approximately €8 million in eBook sales, liabilities is to carefully select the country models on the market, sluggish sales are which represents less than 0.5% of the of domicile of the online shop because due to various factors, including the fact British book market. Consumers in the this is where VAT is incurred for sales of that the models have only a limited range Netherlands spent €1 million on eBooks downloads to end users. Luxembourg is of functions and were comparatively in 2009, a marginal percentage of the particularly suitable in this respect, as it expensive for many years until a few country’s book market. presently has a 15% VAT, the lowest in the months ago when prices began to fall. EU. A further tax reduction in Luxembourg Special interest books: eBooks are already would appear conceivable, in line with that In addition to the normal development of established country’s taxation of music downloads. prices in the technology cycle, increased However, this would have to be discussed competition posed by tablets also has The comparatively small market share of and implemented with a VAT expert in tempered eReader prices. By way of eBooks on the mass market is opposed each individual case. comparison: More than 3 million iPads by an electronic special interest book were sold throughout the world in the first market, which is becoming more and The reason for the different taxation is that 80 days. more important. According to the British tax law treats the digital book at the point Publishers Association, English special at which it is downloaded or read online eBooks: Still a niche for mass market interest and scientific publishers last as a service that is rendered electronically reading year generated about €130 million with and not as a cultural asset. Accordingly, electronic content. Because bookstore tax law is based on the type of distribution In the United States, there have been discounts have already been deducted, the (download, online use) and not on the signs of the market picking up appreciably figure is likely higher. And even the market product to be taxed (the work as such). In since 2008, largely due to the Kindle. in the Netherlands is posting a strong this context, the French publisher Antoine Overall, eBook sales in the United States performance, although at a lower level. At Gallimard, chairman and CEO of Éditions amounted to about €400 million, or the end of 2009, eBook sales on the special Gallimard, demanded a reduced rate of US$550 million, in 2009, which accounted interest book market hovered around 5%. VAT at the end of November 2009 in an for approximately 3% of the mass market. However, the market for special interest EU-wide petition. And the major German In July 2010, Amazon announced that, books in the Netherlands is not subject to industry association (Börsenverein des for the first time in its history, it had sold a fixed price arrangement, which indicates Deutschen Buchhandels e. V.) also pleads more eBooks than hardcovers, despite that strong sales growth is possible. In for a reduced VAT rate for eBooks and rising sales of printed books. According to the United States, the electronic special audio books. It argues that books are more information released by the company, 180 interest book market accounted for 10% of than an economic asset as they encourage eBooks were sold in June 2010 for every sales. ideas and characterize cultural identity. For 100 hardcovers; the three-month average figure was 154 Kindle eBooks. During the the cultural value, it is irrelevant whether 2.4 Taxation of eBooks: a book is read in physical or digital form same period, Barnes & Noble boosted its Artificial Price Driver eBook market share with the Nook, to 20%. or whether it is consumed in audio form. According to a study carried out by Because the digitizing and electronic The eBook market got a bigger boost with PwC and the International Publishers dissemination of content increases the the iPad, which was used for downloading Association7 84% of the 88 investigated chances of social participation in cultural 5 million eBooks (including free eBooks) countries charge VAT on printed books education, the current unequal tax from Apple’s store in the two months at a reduced rate. On the other hand, treatment of physical and digital books is following the market launch. electronic book products are not subject to no longer justifiable objectively and ought Increasing sales with digital book the reduced VAT rate in 70% of countries, to be changed. content, including international sales, including Europe. The discrepancy is are indicated by the expanding sales particularly extreme in the UK, where 2.5 Value Chain and Revenue of eBooks for eReaders, as well as new printed books are exempt from VAT, Models revenue potential, which can be primarily whereas the full rate of 17.5% is charged Digital transformation affects the book realized from multimedia devices such for digital content. And in Germany, the industry’s established value chain and as tablets and smartphones. For instance, reduced VAT rate of 7% has so far been revenue models of the book industry. eBooks can be enriched with multimedia applicable for printed products due to New competitors – some, like Google and content for devices such as the iPhone or considerations of cultural and education Apple, also new to the industry – enter the the iPad or can be provided with up-to- policy, whereas the full rate of 19% is market and take on the tasks of established date information. A further conceivable charged for digital products. players. Existing relationships are breaking possibility is the facility for adding sound down, and new ones are being forged. In May 2009, the EU Commission modified or music to novels and thrillers or murder the 2006/112/EU directive for reduced The development of the digital value mysteries in order to create a new reading rates of VAT. This directive permits chain is being driven primarily by the experience. Also, the reader could be member states to apply a reduced rate of shift toward end-consumer business and enabled to intervene directly in the story VAT to digital book formats, newspapers, direct sales. The potential effects of this 7 PwC, International Publishers Association: VAT/GST/Sales Tax Rate: Global survey on books and electronic publications, 2010.10 PwC