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Turning the Page The Future of

Technology, Media & Telecommunications

Today, it seems eBooks and eReaders This research is complemented by more Foreword provide more questions than answers for than 40 interviews with experts and senior the industry: 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 international Publishers, 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 market have high expectations for the digital group of customers or only to those in the United States, United future 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 digital achieve the long-awaited breakthrough once in a while want to buy an eReader, distribution of newspapers and magazines that 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, has small group of customers who buy and revolutionized the market by producing read a high volume of books? an eReader that is easy to use and making it easy for customers to purchase a wide • Will publishers be able to use eBooks variety of books at competitive prices. and eReaders to extend the market While some people herald the advent of for books in general, creating a wider Werner Ballhaus digital reader technology as an opportunity audience? to open new target markets and create Industry Leader • Will publishers ever move to an all- customers, others mourn the end of Technology, Media & Telecommunications digital model and abandon printed traditional books and doubt the industry Germany will 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 4 PwC Contents

Foreword Outlook and recommended action...... 28 1. The Situation in the Year 2015...... 28 Management summary...... 2 2. Critical Factors of Success for Different Current situation...... 4 Business Models...... 29 1. The Book Market...... 4 2.1 Publishers...... 29 2.2 Physical Bookstores...... 31 2. The Digital Book: Market of the Future?...... 4 2.3 Online Stores...... 31 2.1 eBooks ...... 4 2.4 Device Manufacturers...... 31 2.2 Electronic Reading Devices ...... 5 2.5 Intermediaries...... 32 2.3 Market Overview: A Market or a Niche?...... 8 3. Conclusion...... 32 2.4 Taxation of eBooks: Artificial Price Driver...10 2.5 Value Chain and Revenue Models...... 10 Methodology...... 33 1. Analysis Framework...... 33 What do the experts say?...... 12 2. Timescale and Method...... 33 1.1 eBooks: An Opportunity or Risk?...... 12 3. Expert Interviews...... 33 1.2 Market Drivers...... 13 4. Consumer Survey...... 33 1.3 Market Barriers...... 13 1.4 Pricing and Distribution Models...... 14 Bibliography...... 34 1.5 eReaders or Tablets?...... 15 About us...... 34 1.6 Looking to the Future...... 15 1.7 Challenges Facing Companies...... 15 Contacts...... 34 Discussion: Electronic Newspapers and Magazines...... 16 What do customers want?...... 18 1.1 Popularity of eBooks and eReaders...... 18 1.2 Revenue Models ...... 22 1.3 Purchase Intentions: Tablet or eReader?.....25 1.4 The Future...... 27

Turning the Page: The Future of eBooks 1 account for 7% in 2010. And this is only the beginning: Driven by the improvement Management of reading devices with integrated online stores, an extensive range of electronic books, and an aggressive price policy of summary online retailers such as Amazon, 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 to be reaching critical mass. asked about their knowledge of eBooks There is no doubt that the same trends 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 eReader, also brings more Attitudes toward eBooks and eReaders • The increasing penetration of the seem to differ on each side of the Atlantic. Internet in all areas of life, which is 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 and

2 PwC aggressively digitize and market their with instant and simple delivery of separate dedicated reading devices from electronic 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 online These investments are necessary to stores, and competitive prices. The Publishers should view these technological establish the market, and provide a device manufacturers are now facing the advancements as opportunities to move legitimate alternative to any pirated challenge of rolling out this development established readers to eBooks, which can materials that may be available on file- worldwide. Manufacturers do not have improve operating margins and reduce sharing websites. Publishers should also to vertically integrate the entire value production costs while creating a new design a pricing strategy that attracts chain for this purpose. Cooperations with market for customers who are not frequent customers 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 book strategy may also help publishers and industry fails to establish the marketplace content 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 and a traditional book but may be inclined to their built-in customer bases and their customers to newcomers. What is more, by to buy an eBook that costs less, offers experience as Internet retailers. However, waiting, established players may lose the additional 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 partnerships of offering eBooks at a price lower than customers a wider range of products, or a that set consumer expectations and that 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 consumer been established, the investments will Amazon has already established itself as demands, either in terms of content demonstrate their worth because eBooks an online retailer in Europe and has begun choices or reasonable prices, their potential also 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 the position themselves as content providers, company as an online content seller, It is clear that many people are willing to and not just the suppliers of physical books. evidenced by the growth of its iTunes make the transition from printed books to They will have to make content available Store. eBooks and eReaders. Recent examples on multiple media, in multiple formats, in the United States prove that consumers on multiple platforms. This content may For every company involved in the will adopt eReaders, which ease the not 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, especially games. This additional content may lead to consumers can purchase eReaders that in Europe, is at the beginning of its digital incremental 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 Internet their strategy and adapt to changes in the access, which allows them to purchase value chain. Traditional bookstores face books directly on their devices or through the risk of exclusion from the expanding a website and begin reading them in market for digital content. More than about a minute. Some of these devices are ever, the traditional bookstore will have available in Europe, and more are on the to emphasize its strengths in terms of horizon. The iPad and other tablets give customer knowledge, customer retention, publishers and authors the ability to put and competence. And it will have to color pictures, videos, and music in their distribute book content in all formats and books. While today’s eReaders are mostly all channels. limited to black and white, future models will introduce color and video capabilities US 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.

eBooks can be published in a variety of Current situation 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 3 Other surveys show that older women tend 2 The Digital Book: generally used for mass market eBooks. 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. From Data Discman to Kindle However, eBooks published as ePUB 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. 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 , and customers could download additional books from the Internet. Various online shops for eBooks Amazon 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 Barnes protection and digital rights management. & Noble. Bertelsmann, in Germany, launched its eBook shop BOL.de, and offered AZW is based on software made by the 600 or so eBooks in German that were available at that time via the online , a subsidiary of Amazon. A bookstore dibi.de (now trading as libri.de). The books were published in PDF or the version 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 contained 2.2 Electronic Reading Devices 16 mega­bytes of flash memory. 2.2.1 eReaders Later Rocket models did not establish themselves on the market either, despite the What is an eBook without an eReader? addition of color displays and lower prices. The products were discontinued. The The 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 press devices 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 stable characteristics. eInk displays do not require The reasons for the lack of customer acceptance at that time included the shortage any background lighting and are easy to of available books and the fact that the devices were not attractive, particularly in read, even in direct sunlight. Because they terms of weight, size, and price. For several years, consumers’ appetite for eBooks only require power for turning pages, they and eReaders stalled, but Amazon’s Kindle changed that in the United States in do not consume a lot of battery; this means 2007. Sony, with its PRS-500, had made a further attempt with electronic reading that 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 reading devices in the 1990s and early 2000s, but customers generally felt these eReaders additional connection costs to access US$399. Today, Amazon has three Kindle were too expensive, had too many the , where eBooks can be models: purchased, mostly at a considerable technological limitations, and were too • The Kindle 3 with wi-fi, for US$139 expensive. discount compared with printed books. Amazon originally imposed a US$2 • The Kindle 3 with wi-fi and mobile 3G charge when a Kindle user purchased The new generation of reading devices is connectivity, for US$189 now expected to achieve the breakthrough, a book outside the United States, but driven 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$359 device that is simple and friendly for at the push of a button, and this facility customers 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 in Amazon 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 October eReader 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. Since of market attention. Kindle users do not was not subsequently available for many January 2010, the Kindle DX, has also been have 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 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 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 in the Netherlands, has wi-fi capabilities, have announced the launch of tablets, Edition to its line of eReader devices in but its high price may hinder sales. or have already introduced tablets to the 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, increased competition between Amazon Tablets are not designed solely for reading recently introduced an eReader called the and Barnes & Noble, and falling prices books; instead, they allow users to browse Kobo. for supplies. The introduction of the websites, view photos and videos, play games, read and write email messages, Across the Atlantic, Sony remains the iPad highlights the difference between and perform many of the same functions largest player in the eReader market. Sony multifunction tablet computers, like the they would do with a traditional computer. introduced the Reader Touch Edition with iPad, and eReaders, which are primarily Unlike the eReaders, tablets use LED-lit a touch screen in October 2009, targeting for eBooks. The eInk screens in most LCD displays, which enable information to professionals. The company then released eReaders can only display content in be displayed in color and also enable the the Sony Pocket Reader in February 2010, black and white, and a few shades of gray, user to read in the dark. However, the LCD marketing it as an entry-level eReader. which makes them suitable for text and displays are susceptible to glare and can Neither model has integrated mobile monochrome photographs and graphics. It be washed out in direct sunlight, which Internet access, which means users are takes a moment to display each new page may not provide the most comfortable required to download books on their PC on an eInk screen – a delay that will not environment for reading. In addition, and then transfer them to the eReader. bother readers, but that makes the devices 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. As is the case with purchasing eBooks several new features. However, still none of American chipmaker Qualcomm and Prime for eReaders, the digital content can the eReaders has wireless Internet access. View, the company that manufactures 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 eReaders

6 PwC Store to create a seamless environment in Laptop/ which customers can buy, download, and Features Smart-phone eReader Tablet Notebook read books. iPad customers can download from Apple a free application, or app, Battery life called iBooks. This app acts as an eBook reader, in which users can read books, add notes, highlight passages, and organize Ability to display Pictures their libraries. A button in iBooks links the user to Apple’s iBookstore, where more books can be purchased. Free books from Ability to display Videos the public domain are also available.

Because the iPad is a multifunction device, Display size users can download many apps, including different eBook reader apps. Amazon’s Kindle app is free and provides much of Readability the functionality of the Kindle device itself. An iPad owner can launch the Kindle app, type in his or her Kindle account Colors name and password, and gain access to all previously purchased content. The Kindle app, just like the Kindle device, lets users Variety of formats download new books from the Kindle Store. Bookmarks, notes, and highlights are synchronized across all devices. Weight Barnes & Noble has a Nook app for the iPad, which is similar to the Kindle app. Someone with a Barnes & Noble account Mobile connectivity can download the free Nook app, enter his or her account and password information, and use the iPad in much the same way as Disk space the Nook device itself.

Why would customers buy eReaders Additional contents instead of tablets when tablets can act as an eReader? First, tablets cost considerably more than eReaders. The least expensive Suitable for consumer iPad model costs US$499 in the United books States, £429 in the UK or €499 in Europe. The least expensive iPad with an integrated Suitable for professional mobile connection costs US$599 in the books United States, £529 in the UK or €599 in

Europe. Second, tablets are multifunction Excellent suitability No suitability devices. A customer may not want email or social networking notification messages Fig. 2 Comparison of the suitability of different reading devices for to pop up on the screen. Third, customers eBooks may prefer the eInk display to the LED The national variations between has also published free reading software display. 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 be 2.2.3 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 2.2.4 What Device for What Purpose? books an extensive range of eBook apps via Apple’s App Store. iPhone owners can, for A Comparison In Japan, the mobile telephone has become instance, buy and read electronic books a mobile reading device, particularly in via iBooks, the Kindle app or the Nook The launch of Apple’s iPad has also set recent years. The mobile novels, or Keitai app. In addition, companies also offer off a discussion as to what is the best Shosetu, which are written specifically for book applications for other devices, such reading device for eBooks. While some mobile phones and which are frequently as Android smartphones and BlackBerry may say tablets have not been designed written 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 as Japanese who use them on their daily The advantages of smartphones are their an alternative to eReaders with the commute to work or school, as well as at ease of handling and, generally, their introduction of the iBook app and the home and during their leisure time. The direct access to the Internet and thus the iBookstore. In addition, for smartphones great success is attributable particularly possibility of downloading eBooks. The and laptops, there are products for reading to the high mobility of the Japanese (long disadvantages of mobile telephones are the eBooks such as Amazon’s Kindle app. How commuting hours) and the intensive use of small display and the comparatively short is the competition posed by the various the 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 and magazines than Amazon: 20 and 14, numerous books to be read in parallel. Typical tablet users are interested in 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 . 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 available digitizing 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. In Publishers are not necessarily responsible and fixed book pricing arrangements. addition, Simon & Schuster and Hachette for the sluggish pace of digital At present, there are fixed book pricing have announced that they will launch the transformation in some countries. In many arrangements in 13 of 20 European Union eBook versions of their top titles only after cases, publishers only have the marketing countries, including France, Germany, a certain delay to avoid cannibalization of rights for the printed and audio content. the Netherlands, and Spain.6 In these sales of printed books. To enable eBooks to be distributed, countries, bookstores have to follow the further 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 type consuming and expensive process. In order Whereas the fixed book price arrangement of pricing strategy, one that would shift to press on with developing the market, in Germany is not subject to any time pricing power from the retailer to the most publishers are already digitizing most restriction, the corresponding arrangement publisher. Several major publishers worked of their front-list books, including current in the Netherlands is applicable only for with Apple to arrive at an agency pricing bestsellers and, to the extent that they own the first year after publication of printed model for Apple’s iBookstore. Under the rights, are also opening up parts of and digital books. In the United Kingdom, the agency model, online retailers sell their 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 a Google Books plans to enter the eBook prices contravene competition law. specific pricing structure, rather publishers market with Google Editions set their own prices individually. Amazon So far, no standard procedure has been also implemented the agency model as an In May 2010, Google announced plans established for fixing the prices of eBooks option for publishers shortly after the iPad to 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 in announcement came even as competition Germany offer their electronic editions As publishers gained more control of intensified among market leaders with at a price that is up to 20% lower than pricing, consumers immediately saw the launch of Apple’s iPad tablet and the corresponding price of the printed higher prices on many titles as a result of iBookstore. However, Google may be versions, others have a policy of offering this shift. Consequently, eBook pricing reconsidering or refining its strategy to digital content for the same price as the is attracting antitrust scrutiny in the US reflect new market conditions. As of this least expensive printed form, which is market. Reviews by state attorneys general writing, Google Editions is not yet available usually the paperback format. are under way in Texas and Connecticut. in the US market, missing its targeted Additionally, according to The Wall Street launch 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 emerging Some analysts are suggesting that falling of the online bookstore Amazon, which eBook sector with a focus on the larger prices 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 eReader benefits originally contemplated for market, encourage Kindle sales, and 2.3.3 The Market Volume the Google Editions business model. As establish its online store as the market eReaders: A far cry from the hype in planned, Google Editions lets consumers leader. At US$9.99, a Kindle eBook was Europe purchase and read content from any significantly cheaper than a hardcover. connected device, using only an Internet eBooks are now available mainly for prices By the end of 2010, eBooks will account browser. It is also intended to benefit between US$9.99 and US$14.99. In the for more than 7% of sales in the US book independent bookstores and publishers UK, new publications are available for the market. Additionally, industry observers that have previously been excluded from equivalent of US$12 to US$14. estimate that up to 8 times as many of participating in eBook growth. These these sales are coming through Amazon’s sellers will be able to use the Google Antitrust Scrutiny for the Agency Pricing Kindle Store than all other online retailers Editions platform to market books on Model combined. Comparatively few eReaders their own sites. A similar announcement were sold last year in European countries was made in July 2010 regarding Google’s The introduction of the Kindle in late such as Germany, the Netherlands, and the planned 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’s Through a partnership with the American significant discount compared with included the in its program Booksellers Association (ABA), which hardcover and paperbacks. On average, in autumn 2008 and has since sold promotes 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 2008 ABA and others will also be able to leverage resulted in considerable unrest among and reported scarcely more than 4,000 the platform for selling books through their the publishers. Publishers’ concerns sales at the end of 2009. Sales rose to own sites. Google Editions will be housed extended beyond how much profit they 50,000 eReaders by midyear, but it was within 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 by selling 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 eReader

6 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 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 In the United States, there have been tax law is based on the type of distribution discounts have already been deducted, the signs of the market picking up appreciably (download, online use) and not on the figure is likely higher. And even the market since 2008, largely due to the Kindle. product to be taxed (the work as such). In in the Netherlands is posting a strong Overall, eBook sales in the United States this context, the French publisher Antoine performance, although at a lower level. At amounted to about €400 million, or Gallimard, chairman and CEO of Éditions the end of 2009, eBook sales on the special US$550 million, in 2009, which accounted Gallimard, demanded a reduced rate of interest book market hovered around 5%. for approximately 3% of the mass market. VAT at the end of November 2009 in an However, the market for special interest In July 2010, Amazon announced that, EU-wide petition. And the major German books in the Netherlands is not subject to for the first time in its history, it had sold industry association (Börsenverein des a fixed price arrangement, which indicates more eBooks than hardcovers, despite Deutschen Buchhandels e. V.) also pleads that strong sales growth is possible. In rising sales of printed books. According to for a reduced VAT rate for eBooks and the United States, the electronic special information released by the company, 180 audio books. It argues that books are more interest book market accounted for 10% of eBooks were sold in June 2010 for every than an economic asset as they encourage sales. 100 hardcovers; the three-month average ideas and characterize cultural identity. For 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 The eBook market got a bigger boost with Because the digitizing and electronic PwC and the International Publishers the iPad, which was used for downloading dissemination of content increases the Association7 84% of the 88 investigated 5 million eBooks (including free eBooks) chances of social participation in cultural countries charge VAT on printed books from Apple’s store in the two months education, the current unequal tax at a reduced rate. On the other hand, following the market launch. treatment of physical and digital books is 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 mysteries in order to create a new reading The development of the digital value rates of VAT. This directive permits experience. Also, the reader could be chain is being driven primarily by the member states to apply a reduced rate of enabled to intervene directly in the story shift toward end-consumer business and 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 development are evident in the United script and structure. In addition, special- Intermediaries with considerable States: Barnes & Noble has invested in interest publishers will have to develop additional costs both hardware sales and eBooks with new revenue models, such as sales of the Nook. Meanwhile, the Kindle has individual chapters and sections from The role of intermediaries within the transformed Amazon from an online their books, and offer additional content value chain will be redefined in the digital retailer to a hardware and software in order to provide consumers with environment. Production and distribution developer and online content provider. added value in relation to their content. processes for eBooks are not comparable Sony, which previously focused on selling Because the increasing digitization of with those for printed books. It is true eReaders but now wants to provide both the special-interest book market means that traditional functions will continue the hardware and content, has opened an that printed circulations will become less in parallel, but they will be increasingly electronic bookstore. All three examples: significant, new revenue models and the redefined and substituted. This is because the Nook, Kindle, and Sony Reader, show integration of upstream distribution stages core functions, such as the transportation how companies are extending beyond their are particularly important. In these areas, and storage of printed books, are becoming traditional lines of business and redefining the printing and storage stages no longer less significant in the digital environment. themselves in the eReader and eBook will be applicable and will be replaced by In order to fill this gap, numerous new environment. digital production, digital storage, updates, services can be provided by intermediaries, and books on demand. such as the creation of an eBook platform, Publishers: same role, new tasks handling of payments, support for digital Authors: Time for self marketing? conversion, and establishment of a digital Initially, eBooks and eReaders will not content system. But they are not the only significantly change the role of mass In addition to content production, authors ones: International Internet or startup publishers. They will continue to search are able to extend their role to include companies, which can handle distribution for, aggregate, filter, process, and distribute further stages of the value chain. Rather operations for publishers too, will increase content. The change, of course, is that than requiring traditional publishers to the competition. in addition to creating paperbacks and market their titles, successful authors may hardcovers, publishers also will need to take on responsibility for distributing their Shifting of business models into the provide eBooks. Digital transformation books, as Stephen King and Paulo Coelho Internet will not eliminate paper books, but it will have done. The advantage is obvious: create new formats for publishers, with They not only receive the author’s fee, Online sales of books will increase by new responsibilities and opportunities. but also retain sales for themselves. One way of eBooks. The Internet and online There will always be demand for books disadvantage is that authors are unable bookstores will become the key distribution in printed form. The digital environment to access publishers’ editing, marketing channels and will take on more tasks. In also opens doors to new sources of income and distribution services. However, they addition to aggregating the publisher’s not possible with ink-and-paper products, could license their books directly to online content, the online bookstore will also take such as apps, and special eBook editions bookstores. In the United States, agency on the traditional functions of physical enriched with music and video. Some US Andrew Wylies stirred up sentiment among bookstores, such as offering advice and publishers are exploring these revenue publishers when it secured exclusive customer service. These will become more sources already.8 Publishers also should distribution rights for 20 books for the important as a result of online reviews. gain a greater ability to distribute content Kindle store. Publisher Random House, As a result of the comparatively low themselves, either through their own who published 13 of the 20 books, stopped barriers to entering the digital market, all digital platforms or shared platforms. For acquiring new books from the agency’s players in the value chain will continue instance, in July 2010, the Bertelsmann more than 700 clients immediately. After to expand their operations into the Group and the publishing group intense negotiations, Random House was Internet– starting with the authors (self- Holtzbrinck established a joint venture to granted the right to publish the 13 books marketing), publishers (own distribution), distribute eBooks in Germany. digitally and reentered into business with and intermediaries (directly via their Andrew Wylies. The 13 books will now be own platform or indirectly via platforms Special-interest publishers: Developing available through a variety of distribution for bookstores), right through to the new sources of revenue channels, including Amazon and the bookstores themselves (own online shops). Barnes & Noble store. The entire value process for special- In addition, competition will increase as a interest publishers is changing, from However, a self-marketing model can only result of mass aggregators such as Amazon, aggregation right through to distribution. be successful if authors are well-known, Apple, and Google, which also boost the Electronic and special interest book and an author is not likely to be well known market with their own devices. contents differ significantly in terms of without the help of a publisher.

Print Content Aggregation Production Marketing Distribution Sale Consumption

No printing, only editing Setup of CMS instead of and digital production storage and delivery

Digital Content Aggregation Production Marketing Distribution Sale Consumption

eBooks need terminal device

Fig. 3 New value chain of the book publishing industry

8 The Hachette Book Group, Penguin, and Simon & Schuster already offer enriched eBooks. David Baldacci’s Deliver Us From Evil, Ken Follet’s Pillars of the Earth and Rick Perlstein’s Nixonland also contain video clips (Nixonland, Pillars of the Earth), research photos of the author and deleted sections from the manuscript (Deliver Us From Evil) and are offered at a higher price than the standard editions. For instance, the enriched version of Nixonland costs US$15.99, US$1 more than the regular eBook.

Turning the Page: The Future of eBooks 11 Experts are also convinced that eBooks will continue to be established in the field of professional books. This result is hardly surprising, as eBooks have already made a significant share of revenue in What do the the professional book market segment for several years. experts say? Opportunities outweigh risks Most experts interviewed consider digital advances in the book industry to be an opportunity. Accordingly, they hope that new target groups can be addressed with 1.1 eBooks: An Opportunity or The breakthrough will be achieved in the eBooks (young consumers, sight-impaired Risk? course of the next few years. We are at the persons, or certain professional groups) The book market is undergoing a phase beginning. and that new sources of revenue can be of transition. Developers are introducing generated by means of impulse buying and Most experts are convinced that eBooks new formats, manufacturers are building personalized offers. They believe eBooks will achieve a significant share of the mass new devices, companies are creating new complement printed formats. market in the course of the next few years. business models, and – most importantly However, there are reservations regarding – new readers are making the leap from However, some dispute the contention that the extent of this development. paper books to eBooks. Experts agree new target groups can be addressed with eBooks. Critics say new types of reading that eBooks and eReaders are gaining The following factors were cited: momentum and are poised to make the devices are not likely to convert nonreaders into voracious readers. It is more probable breakthrough that will significantly change • The development, marketing, and that people who read a lot of books today the book industry. But just what does decreasing costs for eReaders with will buy eReaders and continue to buy this transformation mean? What will the eInk screens have attracted customers a lot of eBooks tomorrow. As a result, market look like? What will consumers pay because the devices simulate the publishers may see an increase in digital for eBooks and eReaders, and what do they experience of reading ink on paper. truly want? Which formats will become sales but lose hardcover and paperback industry standards, how long will change • Consumer behavior is changing, with sales. The increase in overall sales would take, and how many eBooks will people the Internet becoming more pervasive be negligible. in all areas of life and mobile devices buy? The chorus of critics includes some – such as MP3 players, smartphones, publishers, who say that eBooks represent To determine the opportunities, potential, and portable game players – becoming an increase in costs but not in sales. They risks and significance of this digital commonplace companions. Because predict the digitizing process will require transformation, PwC in Germany spoke consumers are used to carrying investments that will not be offset, initially, to more than 40 experts from companies devices, familiar with technology, and by additional income.9 Printed books in the book industry. The survey included accustomed to reading onscreen, they would still be in demand, but likely with senior executives from mass market are also receptive to eReaders. Apple’s lower circulations, and this would actually and special-interest book publishers, iPad, although not designed solely to increase their unit costs of production. physical bookstores, online book­stores, read eBooks, has raised the profile of intermediaries, device manufacturers, and eReaders and tablets. More books are Some online bookstores also have libraries. available than in the past, and more identified risks with eReaders and eBooks. content is made available every day. Here is what the survey revealed: They say competition is becoming fiercer The lack of content hindered eReader because companies such as Google, Apple, adoption as recently as a few years ago. and Amazon have extended their business models to include sales of electronic books.

9 Publishers that have already invested in digital production systems may find the transition less costly and disruptive than those that have not. In the United States, publishers say the cost of producing an eBook is low because the manuscript, editing, layout and production were already handled digitally.

12 PwC 1.2 Market Drivers the publishers or do not agree to digital Additional content and updates The eBook market is in its infancy, marketing. They also fail because of wide Publishers have different views with particularly with regard to mass market discrepancies between authors’ fees and respect to additional content and publishers. What factors will significantly the prices publishers are willing to pay. multimedia enrichment. While all special- enhance the development of the market In addition, eBooks require a level of interest publishers surveyed stated this and pave the way to a mass market? In the investment that is particularly difficult for was important, most mass publishers said opinion of experts, two aspects are relevant smaller publishers. such features were of minor importance. in this respect: attractive devices and the The supplementary range of free content, This trend is understandable if we availability of content. such as that provided by the Gutenberg consider that, for instance, an animation Choice of attractive devices is important Project or Google Books, is considered of the blood circulation in a medical book to be less important. This is, at best, can significantly enhance the reader’s Devices are driving the market. For an additional driver for encouraging understanding of the organism, whereas almost all experts, it is very important consumers to enter this market. However, a video in a novel would be a hindrance or important that consumers are able this is not a crucial factor for market to relaxed and in-depth reading. Indeed, to access a choice of attractive devices. success, according to the experts. according to experts, additional content Experts agree that Apple, in particular, is a crucial criterion for special interest will stimulate the market with the iPad. Closed systems literature because it creates added value for This device addresses a large mass of consumers and opens up further revenue Experts are of divided opinions with regard consumers, and enables eBooks to be possibilities in the digital environment. to user friendliness and closed systems downloaded simply by way of iBooks. However, it is necessary to consider how (so-called walled-garden models). It is true added value can be offered to consumers that the Kindle and iPad’s user-friendly Increasing number of eBooks with publisher’s content and also what experiences have helped kick-start the services would have to be developed to market. However, it was thought that In addition to the devices, most experts make the content interesting. agree that a wide range of available such models in the long term would result eBooks is key. Indeed, the shortage of in frustration and a lack of acceptance 1.3 Market Barriers eBooks in the past was one of the main because consumers are critical with regard According to experts, obstacles are posed reasons why the market did not develop. to access restrictions. by the prices of electronic reading devices, Many publishers now recognize the the lack of compatibility of the devices with attractiveness of the eBook opportunity, At present, it is not possible to foresee different formats, and restrictions posed by both in terms of volume and margins. whether open or closed systems will digital rights management (DRM). Accordingly, larger publishing houses, in become commonplace. Special-interest publishers, in particular, are critical when particular, have significantly expanded Prices of eReaders are still too high10 their eBook portfolio, and most of them discussing the chances of the success of publish all new books in printed and digital walled-garden models; because users of Even if the experts praise the attractiveness form. special interest information primarily work of eReaders, they are still too expensive with a laptop, any user restriction might for the mass market. In order to energize However, the digitizing process is posing quickly deter them. On the other hand, the market, eReaders should cost no more several problems for publishers that should in the mass market, it would take longer than €100 (about US$135). At this point, not be under­estimated. For example, before consumers expressed concern over only the U.S. and lately also the German publishers frequently have the marketing restrictions. Not surprisingly, executives market seeing such affordable pricing. rights only for the printed and audio from online bookstores hope that open The publishing industry representatives content, particularly in the case of older systems will become established so that involved in this survey were emphatic books. Therefore, further negotiations they will be able to gain a slice of the about low prices. They said that ideally with the authors will be required. These digital pie. The industry also tends to be a reader should cost about €50 (about negotiations frequently fail because critical with regard to closed models. US$70), with a few bestsellers already authors do not respond to the request of installed.

Devices 59% 38% Availability of 69% 24% content Lower price 38% 55% Changing 46% 43% consumer habits Mobile connectivity 45% 34%

Additional content 18% 46%

User-friendliness 31% 31%

Free content 11% 33%

0% 25% 50% 75% 100% very important important

Fig. 4 Drivers for eBooks and eReaders in the opinion of the experts

10 Rate of exchange: 1€ = US$1.35

Turning the Page: The Future of eBooks 13 Lack of available eBooks 38% 45%

Overpriced devices 36% 43%

Compatibility of devices 28% 41%

DRM 35% 31%

Technical complexity 18% 43%

Haptic 24% 24%

No interest in eBooks 4% 22%

0% 25% 50% 75% 100% very important important

Fig. 5 Obstacles for eBooks and eReaders in the opinion of experts

Digital rights management (DRM) – not an The advantage of soft DRM is that the legal against eBooks: The book on the shelf and inherent problem owner is easy to identify, and that the use the book as a gift. Books are a prestige and forwarding of the electronic book is object frequently used to demonstrate the Scarcely any other subject has stirred more not affected by the watermark. owner’s authority, taste, and education. intense discussions in relation to eBooks They are also a popular gift for birthdays, as DRM. The publisher or the author is Technical complexity – not an issue for holidays and other special occasions. responsible for deciding whether eBooks everybody are granted protection. DRM is not limited 1.4 Pricing and Distribution to one format and is fundamentally Online bookstores and physical bookstores Models also complain about the technical conceivable in all formats. In general, There are also major differences among complexity of the devices and claim that (ADE) copy experts with regard to the pricing of eReaders should be intuitive. protection is used for this purpose. In order eBooks. Overall, approximately half of to read text, users must first install ADE On the other hand, for experts of industry representatives consider that on their PC or mobile reading device, and publishers or special interest publishers, a discount of between 20% and 30% then register with an Adobe ID. This is a technical complexity is less important. compared with the paperback price is relatively complicated process and distracts In their opinion, the problem is the necessary to kick-start the market. Even the user experience. willingness of consumers to tackle the publishers believe eBooks should cost less than printed books to encourage the One alternative to Adobe Digital problems associated with new devices for development of the market. Consumers Editions may be a watermark, which is reading books. are less willing to pay for eBooks because partially visible for the consumer but not Customer interest and look and feel they do not believe they are acquiring a distracting. This means that purchased tangible object: they receive the rights to a eBooks can be uniquely allocated to one Nevertheles, experts believe that virtual asset instead of a physical product consumer. The advantage of a so-called consumers are (at least potentially) made of paper and ink that has been soft DRM strategy is that it does not have a interested in eBooks. Even the look and printed and shipped. Online bookstores, negative impact on the process of reading feel argument – that consumers would intermediaries, and device manufacturers eBooks. prefer to hold a book in their hands and therefore believe that publishers should thumb through the pages – appears to be Another option is the model introduced permit a discount compared with the prices an unimportant factor. On the contrary, in the US by Amazon and Apple, in which of printed products. industry representatives agree that this content is registered to one user. This attitude will change as soon as consumers Mass publishers and also most special DRM policy allows the user to read eBooks have tried out eBooks and eReaders. interest publishers, on the other hand, are on many devices, but not to transfer it convinced that there is justification for to a device registered to someone else. No Oprah Winfrey effect setting the price of eBooks at least at the The restriction often goes unnoticed and level of paperback editions. This is because usually does not affect consumers. Most experts believe Oprah-moment publishers incur additional costs as a result consumers have not yet been adequately In the long term, most experts expect of the production of eBooks; together informed of the advantages of electronic with the full VAT rate of 19% charged for cumbersome DRM will disappear and that reading. One expert believes that, in developments on the eBook market will digital content, this exerts pressure on Germany, there has not been an Oprah- margins. This is especially true in an early follow those that have been seen on the moment for eReaders. “When Oprah music market. Music publishers abandoned market state. A further aspect is that some Winfrey holds the Kindle up to the camera authors demand higher fees for the digital DRM in spring 2009, after a lengthy battle and says, ’I love this device’, at once, the against file sharing. Experts believe that marketing rights. In the opinion of the target group that identifies itself with publishers, this does not appear to be very abolishing DRM is necessary sooner rather Oprah Winfrey will consider whether to than later because illegal content will be acceptable. Some publishers also believe purchase such a device. This still has to that the prices of eBooks should be higher available anyway as the market develops, happen in Germany.” and that DRM will not be able to perform than the prices of printed books if the eBooks contain multimedia enrichments. its protection function. Most experts expect The experts consider that there are two that soft DRM will become established. not-to-be underestimated arguments

14 PwC Club and subscription models as well as In view of the strong market success in take the opportunity, it might find itself product combinations are conceivable the United States, and notwithstanding at a disadvantage with regard to the the defects of and criticism leveled at competition and may lose revenue and Club or subscription models, in which the eReaders, most experts expect that both market share. consumer purchases an eReader for a low device categories will co-exist. However, or subsidized price and pays a certain flat the prices of eReaders will have to drop Publishers: Transfer the business model to rate per month for books, are considered further for this to occur. the digital environment feasible by most industry experts. This would increase penetration of the devices Representatives of the industry assume The main challenge facing publishers, in the market, and sales of eBooks might eReaders will occupy a niche market. according to the experts, is to avoid making surge, assuming that the devices are They are suitable for people who read a the same errors as the music industry. indeed used for reading books. However, lot and who do not wish to be disturbed by This will require a new business model, a publishers consider that the specific design other functions, such as incoming emails. wider range of content, and clarifications of such models might be an obstacle to eReaders might also be attractive for regarding the question of copyright. In market success. There are problems, for elderly readers: those with weak eyesight order to meet these challenges, publishers instance, with regard to legal issues and can adjust the typesize and font size to will need to adapt their business processes. authors’ fees. make reading easier, while those with To integrate content properly, editors will impaired mobility can purchase new books have to become familiar with the special Most experts believe there will also be a from the comfort of home. features of the eBook. Legal departments market for jointly distributing eBooks and will have to devote more attention to rights printed books. It is also conceivable that The experts are convinced that both breeds for eBooks and draw up fee models to take consumers might read an eBook on their of devices – tablets and eReaders – are new circumstances into account. Publishers mobile reading device during the day when at the early stages of evolution and will will have to concentrate to an even greater traveling and that they would then have undergo significant changes. The experts extent on the role of a content provider. It the printed version on their desk when expect that the devices will be merged, is, therefore, essential for these ideas to be they arrive home. Such solutions would particularly if color eInk displays become established in the minds of employees, and be attractive, for instance, in conjunction marketable. The trend is going clearly in for these employees to incorporate these with a cloud model, in which consumers the direction of more usability, connection technological aspects and ideas in relation acquire the rights to access digital books to mobile networks, and color. to eBooks. and would be able to access their eBooks with any device with online capability via 1.6 Looking to the Future Special-interest publishers, in particular, their secured online access. In this case, the All experts agree: eBooks and printed will face a greater challenge. They will book would not be stored on the devices; it books will co-exist. In certain cases, have to generate products with additional would be stored in the cloud, as it would be printed editions will be replaced by digital content to meet their customers’ needs. the case with Google Digital Editions. editions, but in other cases both media will These products will have to offer complement each other. In the long term, additional value to generate sales. It is No advertising banners between the lines only one representative of the industry true that customers are prepared to pay expects that demand will dry up for printed for additional content, if they can clearly Advertising might also be integrated in books. Most experts believe eBooks will derive its benefit. This is also confirmed eBooks to reduce the prices of electronic partially replace the paperback. This is by a current study of PwC concerning the books or to open up new sources of probable particularly in the case of special development of the market for special- revenue. However, most respondents interest and travel books and in areas in interest information: Consumers expect agree that such models could only which only sections of books are read. to receive greater support in their work function in conjunction with electronic processes– irrespective of the media form sales of newspapers and magazines. Here, On the other hand, experts are less and in line with the individual needs of the new types of digital ad models (beyond optimistic with regard to printed specific work situation.11 conventional online display and search) newspapers and periodicals. The vote in might present ad opportunities that are this case is by no means clear. Tablets such No threat due to self-marketing of more appealing to consumers, advertisers, as the iPad will ensure that newspapers authors, so continue maintaining strong and publishers, such as a video pre-roll and periodicals can be attractively relationships prior to a download or the placement of displayed in digital form and that they Despite the digitizing process, publishers logos, ads, or coupons on the device home can be purchased or acquired as part of a do not fear a significantly negative impact screen. subscription at any time as a result of the on sales. In particular, they are relatively integrated Internet access. Accordingly, Not only consumers may not accept unconcerned with regard to the risk of experts expect that the newspaper and advertising in eBooks, also advertisers self-marketing of authors via the Internet. periodical publishers will have to devote are unlikely find advertising in eBooks Nonetheless, some bestselling authors have more attention to the digitizing process attractive. Devices on the market lack the proven successful at marketing their own because, according to the majority, some functionality to implement advertising. books and related products. Publishers editions will be replaced by apps. And authors may take a critical stance should not take their relationship with with regard to advertising banners in 1.7 Challenges Facing Companies authors for granted. They should continue their books. Only some special interest to work as the authors’ partners in eBooks are changing the value chain in the publishers could imagine using advertising marketing, selling, and promoting books. book industry. The challenges are great in eBooks. for all parties involved, but experts say Online bookstores: Generating content and 1.5 eReaders or Tablets? the opportunities are also great. This is assuring unique selling points because any company establishing a well- Will multifunction tablet devices such as thought-out position will have the prospect Experts in online bookstores agree that a the iPad push eReaders out of the market? of additional business in the digital market. comprehensive range of products is the On the other hand, if a company fails to most important factor for distinguishing a

11 PwC: From paper to platform: transforming the B2B publishing business model, 2009.

Turning the Page: The Future of eBooks 15 company from its competitors. According The intermediary market is changing to the experts, the range of products must Discussion: be compatible with the devices in order Wholesalers and intermediaries are also to provide various customer groups with facing several changes. It is true that Electronic the best reading experience. In addition services such as transport and storage to PDF, an extensive range of books in are no longer applicable. However, Newspapers the ePUB format is therefore particularly intermediaries have retained their crucial factor. Simple user guidance is clearing functions. In addition, they could also essential. In addition, the online also provide services such as hosting, and Magazines bookstores state that the arrival of new conversion, storage, or delivery, and players in the market (for example, Google would be able to assume responsibility and Apple) represents the most significant for optimizing processes and economic challenge. It will be crucial for players to procedures. They might also offer contract gain a strong market position, especially in clearing. Europe, through a first mover advantage. The main challenge facing intermediaries Bookstores will have to restructure is that they will also have to position themselves themselves as relevant service providers in digital business. To do so, they would “I would not want to be a bookstore in this have to invest in technology and skills. business”, said one of the experts. He was Even if new services such as hosting for not alone with this opinion. Most experts documents, conversion, eBook storage, or are predicting lower sales of physical delivery of eBooks were to be added, it is books, due mainly to the success of the not necessarily the case that intermediaries online bookstore Amazon. In addition, the would provide these services. increasing distribution of eBooks will be a big factor in future business models. The following chapter summarizes consumers’ attitude with regard to eBooks and eReaders allow authors and the new type of reading: whether publishers to circumvent the bookstore and they will buy eBooks and eReaders reach end consumers directly. Bookstores or tablets; what conditions will will have to work hard to build, maintain, factor into whether they choose and strengthen relationships with to buy; and what expectations customers through consumer knowledge, they have with regard to the profiling, customized recommendations, development of the book market. and the ability to complement local selection with online products.

Even small bookstores will have to meet the challenge posed by the digitizing process

Internet sales also offer smaller bookstores the opportunity to participate in digital business. This is because the market’s systems enable an independent online shop to establish itself. However, many experts believe that bookstores have a long way to catch up in this respect.

16 PwC The development so far has so far been in vain. And for a good Consumers are considering Newspaper and periodical publishers reason: The devices available on the newspaper and periodical have been affected by the same trend European market do not have mobile access, which makes it difficult to subscriptions on tablets and for many years: Circulation figures are readers, but the focus is on declining, and advertising budgets are download subscriptions to newspapers increasingly being shifted to the Internet. and periodicals onto the device. In reading books. In addition, readers are going online addition, eReaders are scarcely suitable The fact that publishers have taken a step more frequently, demanding their news in for newspapers and even less suitable in the right direction is also confirmed by digital form, but they are not prepared to for periodicals because of their small a PwC consumer survey. Consumers are pay for such a service. In order to open up size, their monochrome displays, and the receptive to digital reading of newspapers new sources of revenue, compensate for limited facility for displaying images and and periodicals. Although book reading falling circulation figures and stagnating graphics. is considered to be the more important advertising revenue, and make themselves function, 36% to 49% of periodical more independent of advertising business, Tablets – A success model for subscribers and 30% to 48% of newspaper publishers are increasingly concentrating paid content? subscribers would use the iPad for reading on paid content for their online products Tablets are expected to be the electronic newspapers and periodicals. and digital revenue models. For example, breakthrough product for newspapers and The situation with eReaders is similar: USA Today announced in August 2010 a periodicals. With mobile Internet access, Approximately one in three newspaper strategy that places digital content in the color diagrams, good display quality, subscribers considers that reading center of all activities. Apple is considered the possibility of displaying videos, and magazines on the eReader is a possibility, to be the solution in this respect because accepted distribution channels, they form and 29% to 34% of newspaper subscribers the company with its App Store has been a virtually ideal platform for the digital also consider that it is conceivable that the first company to make paid content range of newspapers and periodicals. acceptable. Apps for mobile devices are they would page through their newspapers expected to curtail users’ expectations The United States is, once again, the on an eReader. However, the focus with for free content from the Internet, and to pioneer. Major newspapers such as The eReaders is also on reading books: About create new revenue streams for publishers. New York Times, The Wall Street Journal 70% of consumers would use the eReader The App Store is proving fertile ground and USA Today as well as periodicals for purchasing and reading mass market for publishers. So is the Kindle, which such as Time or Newsweek offer apps titles. with functionalities and content that go allows customers to buy single copies If consumers are asked to describe far beyond what is available in Europe or subscriptions to newspapers and their attitude toward digital publishing (especially concerning non-English magazines. products, one in ten consumers says content). The free and advertising-financed that he or she might subscribe to digital No wonder publishers were excited app of the The New York Times had been newspapers and periodicals; the figure in when Apple announced the iPad, a tablet downloaded more than 400,000 times the United States is 16%. Indeed, half of all that resembles an iPhone with a larger by the end of July 2010. And more than people covered by the survey are thinking screen. In the weeks leading up to the 10,000 iPad users have subscribed to The about an electronic periodical subscription. iPad’s launch, it was nearly impossible Wall Street Journal for a monthly fee of Subscribers and nonsubscribers are also to find a newspaper, website, blog, TV US$17.99. The advertising space within in agreement with regard to the future station, or radio that did not mention the the apps was in demand even before the viability of printed products. About two- device. Mathias Döpfner, CEO of German launch of the iPad; for instance, Morgan thirds believe that digitally distributed newspaper publisher Axel Springer, Chase booked all advertising space of newspapers will at least partially replace said, “Every publisher should thank God The New York Times app for 60 days, and the printed editions; only 24% (US) to every day that Steve Jobs is rescuing the advertising space of The Wall Street 45% (UK) of people covered by the survey the publishing industry with the iPad.” Journal was overbooked at the beginning. Several US newspapers and magazines continue to believe in the printed edition have launched apps for the iPad. Free apps Despite the success of the apps, some without any restriction. include the The New York Times Daily consumers use the iPad to simply go to Edition and USA Today. Paid apps, which websites, which are way more appealing cost between US$3.99 and US$4.99 for on the larger screen of tablets than they are each issue, include Wired, the New Yorker, on smartphone screens. With more tablets and Vanity Fair. joining the market, a possible development could be that apps will give way to specially Range of products for designed web pages, which offer the same eReaders: Different from one functions but are not accessed by a store country to another and are free on the Internet. In America, the choice of electronic However, the response of numerous publishing products for eReaders is much European publishers is moderate compared larger than is the case in other countries: with the restrictive business policy of Amazon is offering 132 newspapers and 40 Apple, which currently dominates the periodicals for its Kindle as a subscription market with the iPad. Indeed, the company or single issue. Barnes & Noble has demands a sales commission of 30%, announced to expand the range of offered controls the content, and blocks access newspapers and periodicals for its Nook to all user data. In order to stimulate the with a colored screen. competition, numerous publishers are working on producing a generic solution, However, the search for specially processed as further tablets will be launched on digital newspapers and magazines for the market in the course of the next few electronic readers in European countries months.

Turning the Page: The Future of eBooks 17 like to read. On the other hand, nonbuyers tend to be older and female consumers who read and buy books less frequently.

About one-third of Germans surveyed have What do not heard of an eReader. In comparison, fewer than one-fifth of the people interviewed in the United States, UK, and the Netherlands said they were unfamiliar customers want? with such devices.

The distribution of eReaders is (unsurprisingly) most pronounced in the United States, where 7% of survey Are consumers aware of the possibility of people between 18 and 65 in each of the participants have an eReader. The latest taking their library with them everywhere? surveyed countries. reduction in the prices of eReaders is What do they think of electronic reading likely to boost the market even further: devices? What product characteristics are 1.1 Popularity of eBooks The results of the consumer survey show important for them? Are they willing and and eReaders that only 15% of US consumers would prepared to purchase eBooks in the future? Even without much advertising, consumers pay more than US$200 for a device, but If so, at what price? Are there regional have at least a vague idea that books can that an additional 31% would consider differences among eBook and eReader also be read in digital form and on specific purchasing an eReader for a price between consumers in the United States, UK, devices. The concept of the eBook is known US$100 and US$200. The Nook and the Germany, and the Netherlands? What are equally in all countries. Fewer than one- Kindle have fallen below this critical price the reasons for such differences? fifth of respondents in Germany, the United threshold. This will not only boost sales in States, and UK said they owned at least one the US. Also on the international scene, In order to be in a position to answer these eBook; in the Netherlands, only 8 percent demand is likely to rise appreciably due to and other questions, PwC has carried out said they had an eBook. the now affordable devices. a quantitative survey of end customers in the aforementioned countries. An online In general, eBooks are purchased by The distribution of eBooks is comparatively questionnaire was used to interview 1,000 younger, well-educated adult males who low, and most survey participants do not

Have you heard of eBooks?

9% No, I have never heard of 9% them. 9% 11% 12% I have heard of them but I 12% do not know what they are. 11% 15% I have heard of them and 34% 33% know a little bit about 36% them. 35% 27% I have heard of them and 27% know a lot about them. 27% 31% 18% I own one or more 19% eBooks. 17% 8%

0% 5% 10% 15% 20% 25% 30% 35% 40% Basis: All respondents Germany US UK Netherlands

Fig. 6 Popularity of eBooks

18 PwC own any eBooks – except in the United Country-specific differences with regard to prepared to apply an eBook. Moreover, States, where 7% of consumers already the appreciation of eReader functions a wide range of eBooks is particularly possesses an eReader. But the market is important for Americans and the British. gradually picking up pace. Indeed, 20% of There are various differences in the This is not surprising because they already people surveyed in the United States, 17% individual countries what consumers have the advantages of a choice of several in the UK and 14% in Germany purchased consider as important criteria for eReaders. hundred thousand books. As specific at least one electronic book last year. In The look and feel aspect is a major element advantages of eReaders, consumers general, consumers offen still use their particularly in the Netherlands and in in other countries also appreciate the computer for reading eBooks; eReaders Germany, and is an argument against mobility, space savings, rapid availability, have not been established as reading buying eBooks. On the other hand, and environmental friendliness. devices. US-Americans and the British are more

Have you heard of eReaders?

35% No, I have never heard of 17% them. 16% 18% 21% I have heard of them but I 16% do not know what they are. 18% 22% I have heard of them and 22% 29% know a little bit about 33% them. 29% 20% I have heard of them and 31% know a lot about them. 30% 30% 2% 7% I own an eReader. 3% 1%

0% 5% 10% 15% 20% 25% 30% 35% Germany US UK Netherlands

Basis: All respondents

Fig. 7 Popularity of eReaders

How many eBooks did you buy in the last 12 months? 86% 80% None 83% 93% 9% 8% 1 to 4 7% 3% 3% 5% 5 to 9 5% 2% 1% 4% 10 to 14 3% 1% 1% 2% 15 to 29 1% 1% 0% 1% 30 or more 1% 0%

0% 20% 40% 60% 80% 100% Germany US UK Netherlands

Basis: All respondents

Fig. 8 Number of bought eBooks in the last twelve months

Turning the Page: The Future of eBooks 19 How many printed books do you approximately buy per year? 16% 22% None 17% 40% 28% 26% 1 to 4 25% 26% 26% 20% 5 to 9 23% 17% 17% 17% 10 to 14 17% 10% 9% 8% 15 to 29 11% 4% 5% 7% 30 or more 7% 3%

0% 10% 20% 30% 40% Germany US UK Netherlands

Basis: All respondents

Fig. 9 Number of bought printed books in the last twelve months

More respondents in the United States On the other hand, there are no differences and UK said direct mobile access to an with regard to the competition of eReaders eBook store is important than respondents and tablets.However, consumers tend to from Germany and the Netherlands. prefer to use eReaders over multifunctional This is probably also due to the fact devices. This is due mainly to the fact that that many devices distributed in the add-on functions such as music, camera, United States and UK (the Kindle, Nook, telephone, video, and other applications Sony Digital Editions, iRiver Story) are result in a higher price. already equipped with this function, and because consumers would consider that it is relatively impractical to purchase and transfer the books via the PC. In general, there is much stronger interest in eReaders in the United States and UK, and considerably more consumers in these countries are intending to purchase eReaders than in Germany and in the Netherlands.

20 PwC How important are the following features of an eReader for you?

Long battery life

Resists damage and easy to keep clean

User-friendly operation

High storage capacity

Display size

Wide range of eBooks

Works with many different file types

Low weight

Displays pictures, tables, and graphics

Quick scrolling

Access to newspapers and magazines

Colored display

File sharing capabilities

Touchscreen

Integrated eBook store

Bookmark, highlight, and note functions

Lending service from a library

Mobile Internet access to visit websites and check e-mail

Attractivedesign

Ability to download non-book content, such as music or graphics

A wide range of features

Gaming features

0% 10% 20% 30% 40% 50% 60% 70% 80% Germany US UK Netherlands

Basis: Only Owners and Interested in eReader

Fig. 10 Appreciation of product characteristics of eReaders

Turning the Page: The Future of eBooks 21 1.2 Revenue Models Netherlands, and Germany is about 60% of Price is an obstacle to market success. the price for a paperback edition (or €6), Consumers are expecting much lower while US$10 is perceived as acceptable in prices for the readers and electronic the United States. The US result is hardly books. Approximately half of all people surprising, considering that Amazon surveyed said eBooks and eReaders are conditioned the market with its US$9.99 too expensive. Only 15% of the consumers price policy starting in 2007 – and this interested in buying would pay more than also has to be considered in conjunction €150 (about US$210) for an eReader, and with a much higher hardcover price in more than 60% said the price should be the United States. Even the recent price below €100 (about US$140). increases evident for eBooks will probably have virtually no impact on the popularity Consumers said eBooks should be less of electronic books in the US because most expensive than paperbacks. Respondents eBooks (about 80%) are available for about from Germany, the Netherlands, and the US$10 and because Amazon has reduced UK had similar ideas about eBook pricing; the prices of its eReaders. only those from the United States said price is not a critical factor. The highest price people are willing to pay in the UK, the

How much you are willing to spend on an eReader?

€50/ 22% 21% US$50/ 35% £50 22% €50– €100/ 41% 33% US$50–US$100/ 36% £50–£100 38% €100– €150/ 22% US$100–US$150/ 31% 17% £100–£150 27% €150– €200/ 11% 11% US$200–US$300/ 8% £150– £200 9% €200–€300/ 3% 3% US$300–US$400/ 3% £200–£300 3% ≥€300/ 1% 1% ≥US$400/ 1% ≥£300 1%

0% 10% 20% 30% 40% 50% Germany US UK Netherlands

Basis: Interested in eReader

Fig. 11 Willingness to pay for eReaders

22 PwC How much you are willing to pay at most for an eBook if the price of the corresponding paperback is €10/US$14/£8?

up to €2 28% €2–€3.99 28% €4–€5.99 26% €6–€7.99 9% €8–€9.99 6% ≥€10 3% up to US$2 17% US$2–US$3.99 17% US$4–US$5.99 16% US$6–US$7.99 16% US$8–US$9.99 14% US$10–US$11.99 5% US$12–US$13.99 4% ≥US$14 4% up to £2 29% £2–£3.99 36% £4–£5.99 25% £ 6 – £7.99 7% ≥£8 3% up to €2 29% €2–€3.99 29% €4–€5.99 24% €6–€7.99 8% €8–€9.99 7% ≥€10 3% 0% 10% 20% 30% 40% Germany US UK Netherlands

Basis: All respondents

Fig. 12 Willingness to pay for an eBook

Turning the Page: The Future of eBooks 23 How many eBooks would you buy in one year for this price?

20% 13% None 20% 26% 25% 19% 1 to 4 24% 23% 27% 5 to 9 24% 21% 23% 18% 26% 10 to 14 21% 18% 6% 10% 15 to 29 8% 7% 4% 8% 30 or more 6% 3%

0% 10% 20% 30% Germany US UK Netherlands

Basis: All respondents

Fig. 13 Number of potential eBooks bought per year (acceptable price)

How many eBooks would you buy in one year if the price for one eBook is on par with the corresponding paperback?

53% 34% None 42% 53% 26% 33% 1 to 4 29% 27% 14% 18% 5 to 9 16% 13% 5% 9% 10 to 14 8% 6% 1% 3% 15 to 29 4% 1% 1% 3% 30 or more 1% 0%

0% 10% 20% 30% 40% 50% 60% Germany US UK Netherlands

Basis: All respondents

Fig. 14 Number of potential eBooks bought per year (at price of paperback)

24 PwC 1.3 Purchase Intentions: most of the consumers covered by the 17% said they would use an iPad or similar Tablet or eReader? survey prefer a reader, which can be tablet as an alternative to an eReader for Would consumers buy an eReader if the used only for displaying books, instead mass market titles. price was right? Most people in the survey of a multifunctional device, provided the As is the case with eReaders, there is a gap would consider this, but only 3% to 8% eReader costs less than a tablet. Survey between the number of people interested in said they intended to buy a device in the participants would also use a tablet as tablets and the number actually planning next six months. an eReader if they purchased one. More than half the people interviewed said they to buy them. The survey shows that 53% On the other hand, what is the situation would use the tablet for reading mass to 63% of participants are interested in a with regard to tablets such as the iPad? Do market books, while 29% to 41% would tablet, compared with 56% to 76% who are consumers prefer a multifunction device also consider using a tablet for reading interested in an eReader. However, only compared with a simple eReader? Does the special interest books, and one-fourth to 1% to 5% said they intend to buy a tablet in iPad make the eReader device superfluous one-third would use it to read newspapers the next six months (Fig. 15). or redundant? Or do the two devices and magazines. Only respondents from the complement each other? Surprisingly, Netherlands stood out in the survey: just

Could you imagine buying an eReader and reading eBooks with it in future?

I am planning to buy 3% 8% an eReader within 5% the next 6 months 3% 5% I am planning to buy 8% an eReader sometime 6% 9% I can imagine buying 31% 32% an eReader but have 26% not made plans yet 24% 19% 28% Maybe, maybe not 31% 22% 30% 12% Rather not 16% 17% 12% 12% No, never 16% 25%

0% 10% 20% 30% 40% Germany US UK Netherlands Basis: Respondents, who do not own an eReader

Fig. 15 Buying interest eReader

Turning the Page: The Future of eBooks 25 Which type of reading device would you prefer? Germany US UK Netherlands

39% 31% 37% 37%

61% 69% 63% 63%

Only reading device Multifunctional device

Basis: Interested buyers, who do not own an eReader

Fig. 16 Preferred device

Can you imagine buying an iPad?

I am planning to buy 2% 5% an iPad within the 3% next 6 months 1% 4% I am planning to buy 5% an iPad sometime 5% 4% I can imagine buying 24% an iPad but have not 23% 21% made plans yet 18% 23% 30% Maybe, maybe not 32% 24% 30% 18% Rather not 19% 18% 17% 17% No, never 20% 35%

0% 10% 20% 30% 40% Germany US UK Netherlands

Basis: All respondents

Fig. 17 Buying interest iPad

26 PwC 1.4 The Future Survey participants assume that printed books and eBooks will co-exist. Acceptance of eBooks appears somewhat stronger in the United States and UK. In the United States, for example, 7% of respondents said they plan to only read eBooks, online newspapers, and online magazines.

Fig. 18 summarizes the assessments of the future in the various countries.

What are your future plans regarding eBooks and eReaders?

42% I will read printed products, but also 51% eBooks 50% 31% I will not change my behavior and 29% 16% refuse buying electronic books, 21% newspapers or magazines 30% I will still read printed products, but 18% 19% also electronic newspapers/ 16% magazines 20% 3% In future, I will only read eBooks and 7% electronic newspapers/magazines 4% 6% 8% 7% None of these possibilities 9% 13%

0% 10% 20% 30% 40% 50% 60% Germany US UK Netherlands

Basis: Respondents, who do not own an eReader

Fig. 18 Future behavior

What conclusions can be drawn from the assessments of the experts and the consumer survey?

How will the book market develop?

What action can be recommended for the various players in the market?

These final questions will be answered in chapter D.

Turning the Page: The Future of eBooks 27 • Demand for certain types of books will remain strong. These include religious books such as the Bible and Koran, children’s books, and books for gifts Outlook and and special occasions. We expect eBook sales will gradually but constantly drive revenue. The United States, which had recommended action 3.7 million eReader owners at the end of 2009, leads the world. Many earlier predictions about an eBook and eReader breakthrough did not come to fruition. What is different now? First, the new 1. The Situation in the Year remain less expensive than tablets, and generation of eReaders promises to 2015 have fewer features to disrupt readers. meet consumers’ needs for simple, easy- to-use devices with improved screen The Gutenberg era is not about to come • Tablets will be lighter and have longer technology and integrated mobile and wi-fi to an end. Printed books will still exist. battery life than today’s models. They connections that streamline the purchasing After television, we still have cinema and will remain attractive options for and downloading of eBooks. Second, radio. There is no need to fear that bound people wanting to read eBooks but customers are ready for eBooks and books will only be found in museums, will not take the place of dedicated eReaders – their consumption patterns are connoisseurs’ collections, and in antique eReaders. markets, or considered curiosities the evolving, they have become accustomed to same way we now view eight-track tapes. • Tablets will take the place of printed buying digital music and video, and their The book industry that we know and magazines and newspapers, especially reading habits have evolved. understand today will continue to thrive, for men and young adults. In addition, a majority of consumers are but it will be transformed by eBooks and still not aware of eReaders and eBooks, or eReaders. • More publishers will offer multimedia content in eBooks. have only a vague imagination of digital In coming years, printed books will reading – even in the United States. With still account for the majority of sales. • ‘Special interest books’ will be sold on a eReader sales and market awareness rising Technology may change rapidly, but chapter-by-chapter basis. more consumers will be attracted to digital people’s habits do not. People will continue reading, which will further boost sales. • More special interest books, such as to want books to fill their shelves, give as cookbooks and travel guides, will The US market is by far the most mature, gifts, and place on their bedside. But make be offered as apps or eBooks with with eBook revenue expected to account no mistake – modern reading devices such interactive features, online updates, for 7.2% of all consumer book sales in as the Kindle and iPad mark the beginning and subscriptions. 2010. The majority of eReaders have been of a digital transformation, and the book sold there, and with Amazon announcing market has taken its first, irreversible steps • Libraries may invest in eBooks rapid sales of the new Kindle, there is no into new territory. and eReaders to complement their indication that momentum is slowing. collection of print books. At this point, it is difficult to predict how Furthermore, we expect strong sales of tablets in the next few years, outpacing quickly developments in the book industry • As demand decreases for print books, will play out. The momentum in the US sales of eReaders in 2012. These will some titles may no longer become stimulate the market because tablets eBook and eReader market shows what is available in print. Others may be possible in Europe. What’s to come soon: are recognized as reading devices by offered in a customized, on-demand consumers. However, we believe that by basis. • Prices for eReaders will fall, and color the end of 2012, most avid readers will screens and Internet connectivity be equipped with an eReader and the will become commonplace. They will growth will therefore slow down, because

28 PwC eReaders will continue to be the primary in the ePub format rose significantly in 2. Critical Factors of reading device for eBooks. We expect that both countries from 2009 to 2010. And Success for Different eBooks will have a market share of 22.5% apart from Apple’s iPad, eReaders with of consumer books in 2015. a wi-fi function have been introduced to Business Models the market, including the BeBook Neo in 2.1 Publishers The UK is lagging behind the US in terms the Netherlands or the Oyo Reader by the Adapting for the future of supply of devices and availability of German bookstore chain thalia.de. eBooks and eReaders represent both a content. However, market conditions are risk and an opportunity. If publishers changing, which is reflected by market By 2015, we expect eBooks to make up accept change, transform their processes, participants reporting rising sales of 6.3% of all book sales in Germany, and train employees, and offer their content eBooks. Furthermore, new attractive 4.4% of all book sales in the Netherlands. in multiple formats – in digital or printed devices such as the Kindle are now sold The projection for eBook sales in the form, bound or on demand, as a PDF or in the UK, and it quickly sold out after its Netherlands is lower than in the UK, US, ePUB – and on all platforms, they will introduction. We expect that the eBook and Germany, and reflects several trends have a good chance of developing a viable market in the UK will, to a certain extent, that emerged during our consumer survey. digital business model. Publishers that mirror the development that can be seen Dutch consumers expressed the least resist change, consider the digitizing in the United States. In 2010, we expect a amount of interest in eBooks and eReaders process to be merely an additional cost, market share of 1.5%, which will rise to among the countries we surveyed and were and attempt to defend their existing 14.2% in 2015. least interested in using iPads or other content and business models, will face the tablet computers as reading devices. In greatest risks. Germany and the Netherlands show addition, the eBook and eReader market similar characteristics. The supply of is less mature than in other countries Illegal products threaten the book industry eBooks in the ePub format is limited to and eReaders in the Netherlands are still a small percentage of available books. comparatively expensive. Finally, few Many current bestsellers are available for Furthermore, available eReaders still lack eBooks are available in Dutch. people who wish to download them. But the ability to satisfy customers’ needs also people can download illegal copies concerning usability, connectivity, and The book industry is undergoing a process even if they are not yet on sale in a digital pricing. But the situation is changing of change. And it is up to the industry format. Frequently, these illegal issues are rapidly. itself to ensure that the digitizing process scanned copies in PDF and lack the quality does not pass by. The industry should take of a legally distributed book or eBook. In both countries, 2010 will be the first the opportunity of supplying the market However, consumers will not care about year with significant sales of eBooks. We now with innovative products before quality if they cannot obtain an eBook expect a market share of 0.4% in Germany others do so. What aspects should the through legal distribution channels, or and 0.3% in the Netherlands. The market companies consider to ensure that eBooks if they cannot obtain it at an acceptable shares will rise because of increasing become more than merely a cost factor price. availability of content in German and for publishers and a new sales driver for Dutch, increasing consumer awareness, Apple, Amazon, and others? What action The current state of illegal eBook and advancements in eReaders and is recommended for the players on the distribution does not mean that publishers tablets. The numbers of eBooks available market? face the same consequences as their

CAGR 2009 2010 2011 2012 2013 2014 2015 2010-2015 Germany eBooks 4 28 95 190 299 394 490 77.1% Print/Audio 6,665 6,756 6,849 6,956 7,061 7,194 7,326 1.6% Total 6,669 6,785 6,944 7,146 7,360 7,588 7,816 2.9% Share eBooks 0.1% 0.4% 1.4% 2.7% 4.1% 5.2% 6.3% Netherlands eBooks 1 2 7 14 24 33 41 77.5% Print/Audio 808 812 819 829 843 861 880 1.6% Total 809 815 826 843 868 894 920 2.5% Share eBooks 0.2% 0.3% 0.8% 1.6% 2.8% 3.7% 4.4% UK eBooks 8 52 121 214 320 427 534 59.3% Print/Audio 3,541 3,484 3,429 3,370 3,322 3,280 3,238 –1.5% Total 3,549 3,536 3,550 3,584 3,642 3,707 3,772 1.3% Share eBooks 0.2% 1.5% 3.4% 6.0% 8.8% 11.5% 14.2% US eBooks 551 1,518 2,569 3,371 4,302 5,022 5,571 29.7% Print/Audio 19,890 19,620 19,359 19,224 19,110 19,113 19,169 –0.5% Total 20,441 21,138 21,928 22,595 23,411 24,135 24,739 3.2% Share eBooks 2.7% 7.2% 11.7% 14.9% 18.4% 20.8% 22.5% PwC: Global Entertainment and Media Outlook: 2010–2014, German Entertainment and Media Outlook: 2010-2014, PwC Research. Numbers are calculated using the average exchange rates of 2009. Fig. 19 Market data books and eBooks (Books, million US$)

Turning the Page: The Future of eBooks 29 Pricing: Customers demand a discount – or 25% identifiable added value 22.5% To convince consumers of the benefits of 20% buying legal eBooks, publishers will need a well-thought-out price policy and a broad, attractive range of products. The aim for 15% 14.2% publishers cannot be to undermine the value of their books with low prices. The 10% development in the newspaper industry 6.3% shows how difficult it is to get away from 5% 4.4% the free mentality of the Internet. It is the responsibility of publishers to convince 0% consumers of the benefits of digital books to gain new target groups. Amazon has shown the way with its US$9.99 Germany US UK Netherlands price policy in the United States, while the current pricing struggle in the UK Fig. 20 Market share of eBooks 2009–2015 in % (mass market books) demonstrates how a weak strategy can prove challenging for publishers. peers in the music industry. Unlike music take on tasks such as selection, editing, and video games, there is little overlap and marketing in the digital environment. To prepare the way for lower-priced between the demographic groups that However, it will be essential to concentrate eBooks, the European Commission should are most often associated with digital on the role of the content provider. They be encouraged to remove the unequal VAT piracy (generally men between 20 and 39 will need to offer new training to their rates for printed and digital books. years old) and those demographics that employees and modify their business are typically associated with high-volume processes. For example, editors will have to Developing new distribution models reading of mass market books (in general adapt content to meet consumers’ changing Club and subscription models present an women age 40 and older). Among this reading and shopping habits. Publishers attractive alternative to traditional sales latter target group, the interest in and the also require technical skills that will ensure of eBooks via online bookstores. Such resistance to using illegal downloads will content can be transferred and enriched models offer an advantage with regard probably be much greater. Secondly, any smoothly. Some companies may need to to the constant buying of eBooks when comparisons to the music industry and acquire new staff members with advanced mobile or online access for eReaders is not the potential impact of piracy must also be technical skills. The legal department will readily available. However, such ties will weighed against the differences in the way have to establish rights for eBooks, draw interest consumers only if they are notified consumers engage with books and the way up fee models to reflect digital content, of the latest books of their favorite authors they engage with music. We may listen to and review existing contracts to ensure and bestsellers through their Reader or the same song from one album over and that digital rights are in place or can be their mobile phone, and if they are able over, but we rarely re-read a single chapter negotiated. Finally, finance departments to receive these books and bestsellers on more than once. We may listen to 10 or 12 will need to assess tax law and consider their device without any hassle. To ensure different artists in the course of an hour’s whether accounting policy changes that this can be implemented successfully, music listening, but we will devote several might be required around either agent or publishers should start to think about the hours to completing a single book. These principal relationships, or new retailing contractual form of such models and clarify differences probably make it less likely that activities. the legal questions, including those in potential eBook buyers will choose to take connection with the authors. on the technical complexities and legal Additional content issues surrounding the use of piracy sites. Special-interest publishers should consider Product bundles, in which the printed and Nevertheless, if publishers do not make offering additional content in eBooks the digital books are sold as a package for their products available in digital form, because it increases the value of digital an attractive price, offer another option. they will lose potential revenue and will publications. Multimedia enrichment may However, they are probably attractive for a facilitate the creation of an illegal market justify higher pricing, or attract customers relatively small but active target group, one for eBooks. that would not have been interested in that enjoys reading only. Again, the first a book without sound and video. With step to make these models work will be to Piracy poses a significant threat to the additional content, publishers may be carry out preparatory tasks. educational market, where the incentive to able to customize eBooks in a way not copy books illegally is higher than on the possible with printed books, creating loyal Clarify the format issue, reconsider consumer book market because textbooks customers that will return to buy updated copyright can be expensive. To protect revenue while editions and related volumes that interact The variety of formats – ePUB, PDF, meeting the needs of students, publishers with their existing titles. AZW, Mobipocket, and so on – is delaying could establish basic contracts with the market success by creating concern university libraries to offer free eBooks Additional content may provide new among consumers and additional costs for for students or offer special editions revenue opportunities, as publishers may publishers. Consumers generally wait until exclusively to students for a discounted be able to offer supplemental or updated a format is established in the marketplace price, like Springer Science and Business information, music, or video for an before investing in a product. Consider the Media. additional fee. Instead of abandoning this examples of HD-DVD and Blu-ray players, business to others, publishers should enter Betamax and VHS video players as well Adjust business procedures; ensure new into partnerships with innovative software as Minidisc and CD players. Accordingly, ideas in the minds of employees companies that can offer such applications. publishers would benefit from an agreed- Publishers will retain their traditional upon uniform format with all players on mediator functions between the author the market. Consumers appear to be in and consumers and will continue to favor of two systems: PDFs for special

30 PwC interest books and ePUB for the mass period, Barnes & Noble has succeeded the national online stores need to convince market. It is now up to publishers, online in increasing its market share for eBooks customers of the value they provide by bookstores, and device manufacturers to while its traditional bookstore business has offering a wide range of products, user- join forces, press ahead, and develop a shrunk. As a bookstore chain, the company friendly service, and features like reviews format that provides the greatest benefit to has an advantage over Amazon: customers and social networking. Stores should also content owners and customers. The format across the United States can visit one of develop apps so customers can shop from issue is less important for walled-garden its stores and test the Nook. Owners of the their smartphone or tablet. These efforts environments because consumers are Nook can visit any Barnes & Noble location can improve customer retention, loyalty, highly satisfied with the user experience. for free wi-fi, download free content, and interaction, and revenue potential. However it will become an issue if other receive other in-store promotions. Amazon market players such as Barnes & Noble has no retail locations and has only What do the international online stores or Borders become more powerful and recently started selling the Kindle through offer customers? Consider one of the consumers wish to move books they have other retailers. Barnes & Noble also sells advantages of Amazon’s Kindle. eBooks purchased to a non-Amazon or non-Apple the Nook through another retailer, i.e. are available not only for the Kindle but device. electronics giant Best Buy. In 2009, Barnes also for nearly every type of computer or & Noble’s online revenue increased 24% to gadget a user is likely to own: a PC, Mac, Publishers – and also authors – should US$573 million: digital revenue is expected iPhone, iPad, iPod, Android smartphone, rethink their stance on digital rights to double this year. Bookstores should or late-model BlackBerry. The applications management (DRM). As Apple and consider Barnes & Noble’s experience with are synchronized to users’ Kindle accounts, Amazon have successfully demonstrated, the Nook as they plan their own eBook and so when they pick up a book on another DRM can be user-friendly. Publishers eReader strategies. device they will continue at the place should strive to embrace DRM systems they stopped reading on the last device. that do not act as a deterrent by making it Consider cooperations for online sales Bookmarks, notes, and highlights are also difficult to buy or use digital content. Large bookstores may have the resources synchronized across all the devices. to open online stores or even develop Cooperation: To be represented on all As is the case with physical bookstores, their own eReader. However, even small platforms online stores should explore the integrated and special-interest bookstores will range of products with their own reader. For publishers, it is important to establish need to participate in the digital book Online stores do not have to enter the a presence with content on all platforms: environment. In order to get the most hardware market for this purpose. They in bookstores, online, and as apps. A more from investments, smaller companies may may seek out suitable arrangements with open attitude with regard to ooperation consider working with external providers, device manufacturers that integrate the and more courage are necessary in this such as intermediaries, to develop an online platform on their gadget. In such a respect. online shop. In addition, smaller stores scenario, the online stores would assume should analyze their strengths and responsibility for actively marketing the 2.2 Physical Bookstores develop strategies to exploit them in an products through their platform. Physical bookstores have much to do in eBook and eReader world. For example, order to prevent the digitizing process a small bookstore may consider creating 2.4 Device Manufacturers from passing them by. The United customized book and eBook packages for Amazon (with the Kindle) and Apple States has seen an increase in bookstore institutional clients, or setting up terminals (with the iPhone and iPad) have closings in the past few years, although for customers whose eReaders do not have demonstrated how sales and reader can this may be partly due to economic an integrated Internet connection. be skillfully combined. In conjunction conditions. Bookstores must emphasize with a well-planned communication and their strengths in customer knowledge, Just as eBooks cannot replace printed business strategy, the two companies customer retention, and related skills, books as gifts or on bookshelves, online have encouraged demand to a previously and sell book content in all formats and bookstores cannot replace physical unknown extent and have revived the across all channels. Bookstores should bookstores as: market with user-friendly and attractive embrace a multichannel strategy, in which • Locations for book club meetings devices. the Internet, physical bookstores, and catalogues complement one another. In • Author signings and speeches Adapt devices to customer requirements particular, the bookstores that have a Device manufacturers that are active in the strong presence in inner-city locations and • Cafes, lounges, coffee shops are able to transfer this to the Internet European market would be well advised enjoy a good starting position in this • A place where customers can relax and to learn from the successes in the United respect. browse books at their leisure States. The Kindle and Nook are easy to operate, with Internet access, integrated Rethink integration of the value chain – or As the digital environment becomes more shops, eInk screens, and pages that turn enter into co-operations important to readers, bookstores that rapidly. emphasize their real-world advantages Despite the delayed launch (the Nook has will remain relevant, retain customers, and Manufacturers for European devices only been available on the market since target new revenue streams. should consider partnerships with leading 2010), Barnes & Noble has successfully mobile network operators and online established a position against Amazon. 2.3 Online Stores stores. These devices may be distributed As a result of its own reading device, to customers either in a proprietary or Barnes & Noble has been able to at least Competition posed by global players requires a multiplatform strategy in a branded format. In addition, active partially compensate for the decline in market communication is also of crucial physical bookstores, although the company The outlook is rosy for national online importance. The market has so far been had to close one of its largest New York bookstores, but there will be challenges. passing by the most important target City locations, along with other stores The primary hurdle is competition from group. throughout the country. But within a short international major players. To respond,

11 PwC: From paper to platform: transforming the B2B publishing business model, 2009.

Turning the Page: The Future of eBooks 31 Buyers of eReaders at present are mostly Support for small stores with modern shop technophile men who do not necessarily system read a lot. In order to convince avid In addition, a possible solution would readers of the advantages of buying such be to handle online sales by way of an devices, it will be necessary to emphasize integrated shop system for physical stores. the benefits of simple use, which requires This would involve technical and financial an integrated mobile access and shop processing, as well as new functions such (as is the case with the Kindle and as the integration of customer reviews or Nook) as well as a light gadget with an social networks. To successfully stand up to attractive design. Significant promotion the increasing competition posed by small and consumer education will also be independent companies, intermediaries necessary, particularly in Germany and will have to ensure that they have lean the Netherlands, where the look and feel operations and position themselves argument (contrary to the opinion of as experienced and accepted service many experts) is more significant among providers. They should also establish consumers than in other countries. agreements with numerous small stores and publishers to cover the fixed costs of In the United States and Europe, the the systems. primary goal of device manufacturers should be to gain and retain their market share because this strategy will strengthen 3. Conclusion their position automatically as the market eBooks will become established as a further grows. One strategy involves entering into book format in addition to paperbacks and agreements with retail chains like Amazon hardcover. With the Kindle, Amazon has did; the online retailer is selling the Kindle demonstrated the necessary criteria in this through Target and Staples. respect. At the end of July 2010, Amazon reported it had sold 1 million copies of Rethink price policy – low price devices with Stieg Larsson’s Millennium trilogy books a clear reading focus through the Kindle store.12 If markets for In addition, device manufacturers will legal eBooks are to become established, have to rethink their price strategy. With and if publishers are to be able to benefit its wide range of potential uses, the iPad from the development, it is essential is exerting considerable pressure on that all providers consider the process pricing. The performance of eReaders on of digitizing the book industry to be an the market can hardly be compared in any opportunity of establishing book reading way with the performance of tablets that as a popular leisure-time occupation in offer the facility for reading books as one all target groups, including the younger of many functions. To avoid sinking into generation. Generating profits with eBooks insignificance, manufacturers will have to will not be easy, but publishers, device concede to a clear price reduction for the manufacturers, and online stores will have current devices and emphasize the benefits to work together and focus on the needs of of eInk technology. Moreover, they will customers to ensure that the transition is have to use specific advertising to convince smooth and successful. their most important target group, namely Because habits of media usage are avid readers, of the product’s advantages. changing gradually, book readers will 2.5 Intermediaries initially have to be nudged in the direction of the new possibilities. Publishers will Transfer services to the digital environment need to explain the benefit of eBooks and Intermediaries will have to redefine eReaders: reliability, functionality, and themselves in the digital environment. It ease of use. In addition, user-friendly is true that numerous tasks will continue readers with a permanent link to the online to exist as a result of the co-existence of shop, a clearly communicated customer digital and printed books, but they will benefit, an intelligent combination of all become less important. The intermediaries distribution channels and a wide range of would therefore be well advised to adapt content are key factors for success. eBooks to the new requirements and to develop will not replace the printed book. They will services for publishers and stores that be available in parallel with printed books have difficulty in providing such services and will stimulate reading behavior. The on their own due to their weak financial book market is facing an exciting future. If position or lack of technical skills. publishers are to benefit from this process, they must invest now. This includes support for converting content to an eBook format, the establishment and maintenance of a content management system and payment processing, document hosting, eBook storage, and digital delivery of eBooks.

32 PwC Methodology

1 Analysis Framework 4 Consumer Survey This study investigates the latest trends An online survey was held among 1,000 and developments on the book market. It consumers aged between 18 and 65 is based on extensive market research of years in each of the following countries PwC, in which current sources concerning Germany, the Netherlands, UK, and US. the subject of eBooks and electronic The consumers were selected in a census- readers have been brought together. The representative manner with regard to sex, study discusses developments and propects age, and profession. of the markets in Germany, US, UK, and the Netherlands. These countries were chosen Methodology because of their different market maturity. Method Online survey of approximately 10 minutes Random sample • 1,000 people per country 2 Timescale and Method • Between 18 and 65 years old PwC has carried out expert interviews • Online panel in Germany, United Kingdom, and consumer surveys in order to assess the Netherlands and the United States the significance, market potential, and • Census-representative with regard to sex, the opportunities and risks of eBooks and age, and profession eReaders. Field work May 2010 Carried out by GIM, Gesellschaft für innovative The consumer survey was carried out Marktforschung mbH, Germany online. Results were evaluated by the Fig. 21 Consumer Research German market research institute GIM; the more than 40 interviews with representatives from the industry were managed by eBook experts of PwC. The expert survey and the consumer survey were carried out in May 2010. 3 Expert Interviews Experts of leading publishing houses (special interest books and the mass market), intermediaries, online stores, device manufacturers as well as a telecommunication company were included in the survey for the study.

Turning the Page: The Future of eBooks 33 Axel Springer AG, Bauer Media PricewaterhouseCoopers Bibliography AG (2009) (2010c) Verbraucher Analyse 2009: Ignorieren From paper to platform: transforming the B2B die Deutschen die Wirtschaftskrise? Drei publishing business model: Outlook for B2B Generationen im Vergleich publishing in the digital age

PricewaterhouseCoopers PricewaterhouseCoopers (2010a) (2010d) Global Entertainment and Media Outlook: Entertainment and Media Outlook for the 2010–2014 Netherlands: 2010–2014

PricewaterhouseCoopers PricewaterhouseCoopers, (2010b) International Publishers German Entertainment and Media Outlook: Association (2010) 2010–2014 VAT/GST/Sales Tax rates: Global survey on books and electronic publications

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36 PwC Design: HB07252/ep6:design_ 1002367