E-Book "Blades" Strategy Will Hasten Digital Content Shift

A new price war for low-end e-readers could force Barnes & Noble and Amazon to rely more heavily on their profit from selling e-books, accelerate the shift of 'book' sales to digital delivery, cut the profit out of the device market and, as is typical when prices are cut, expand the e-book market overall. 

 

The changes are the sort of unintended developments that cause adoption curves to deviate from linear growth projections. Barnes & Noble cut the price of its Nook e-reader to $199 while Amazon.com (News - Alert) immediately responded by slashing the price of its standard Kindle e-reader to $189. Both models had been $259.

 

In 2009 device sales more than tripled, while content sales were up 176 percent for the year, according to Forrester (News - Alert) Research analyst Sarah Rotman Epps. 

 

Since late 2009, the big change in the market has been the Apple iPad launch, which seems to validate the existence either of a new consumer 'media reader' appliance market, or a reshaping of netbook and notebook form factors at one end of the market. 

 

To the extent that the tablet device emerges as a significant product category, and given the wide availability of e-reader apps for those tablets, the e-book reader market is negatively affected. E-book readers can counterattack, of course, by lowering their prices, which they have begun to do. But it seems almost inevitable now that the single-purpose e-book reader appliance market will be squeezed (in terms of profit margin) more than might have seemed possible a year ago. 

 

That isn't to deny some advantages for optimized e-book readers. If you want to read on the beach, a tablet isn't going to work. And lower prices will make the e-book reader more attractive to a wider circle of users. 

 

Dual-screen mobile phones and netbooks have been expected to eat into eReader demand as well. The new change is that even the netbook market now looks to be challenged by tablet devices. And demand for dual-screen devices remains unproven. 

 

At the same time, most consumers don't read enough to justify buying a single-function reading device, and according to Forrester's data, more consumers already read e-books on mobile phones and PCs than on eReaders. It remains unclear how readership across the various form factors is going to break out. 

 

Some have been expecting Amazon to introduce color readers, but the price war now makes that a more-daunting prospect. It isn't clear how much advantage a color, and higher-priced, e-book reader will have compared to an iPad or other tablet supporting e-book reader apps. 

 

Some observers also have expected more content companies to introduce their own e-book readers. There hasn't been much movement on that front, nor is there likely to be such movement now that reader selling prices are set to keep dropping. 

 

News Corp (News - Alert). now is the primary example of a modified approach, as the firm now owns its own e-reader software, though it has declined to get into supplying its own hardware. 

 

Magazine and newspaper publishers have not been satisfied with the way their content looks and acts on the Kindle and Sony Readers. They want color, video, interactivity, the ability to sell ads and control the subscriber relationship. That seems less likely now given price pressure in the e-book reader market, and more attention likely will shift to tablets, which do have color, interaction, video and ad support. 

 

It appears that e-books are generating more profit than anticipated when the new delivery channel was envisioned. 'Booksellers are actually making money off of e-books now. That was not the case when they built their business plans and set their original prices for these devices,' said James McQuivey, an analyst at Forrester Research (News - Alert), and reported by the Wall Street Journal. 

 

E-bookstores keep about 30 percent of the sale price of e-books.

 

'Now they can go to the old razor-world model of giving away the razor for free and selling the blades. They are starting to give away the e-reader,' McQuirvey said.

 

McQuivey estimates 6.6 million dedicated e-readers will be sold in the U.S. this year, bringing the total sold to over 10.4 million. He expects prices on some e-readers lacking wireless Internet access will hit $99 before the end of this year.