E-Book Market Recent Developments and Competitive Concerns
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MASTER PROJECT E-book market Recent developments and competitive concerns June, 2011 Rocío Prieto Julieta Schiro Master in Competition and Market Regulation 2010/2011 E-BOOKS MARKET Recent developments and competitive concerns by Rocío Prieto and Julieta Schiro Abstract The e-book market is starting to take off in the EU and several competition concerns are arising. Due to the novelty of this market and the lack of information and studies on the topic, it is worth analyzing the main patterns, players, and strategies that have been observed so far, both in the US, where the market is more developed, and in the EU, where the market is still in an initial phase. In both cases, a main feature is the pricing arrangement in place between publishers and retailers (i.e. wholesale model vs. agency model). Each of these models implies different competition concerns (predation vs. collusion, respectively) but a common aspect is that, to be able to deal with these behaviors from a European standpoint, a higher degree of harmonization in countries’ policies is necessary. Contents 1. Introduction ....................................................................................................................1 2. Background.....................................................................................................................1 2.1. Brief characterization of e-books ...........................................................................1 2.2. Development over time ..........................................................................................2 2.3. Devices: e-readers...................................................................................................4 3. Main players in the e-book market.................................................................................7 3.1. Publishers (wholesale market)................................................................................7 3.2. Retailers..................................................................................................................7 4. Pricing models: Wholesale versus Agency model .........................................................8 4.1. The wholesale model..............................................................................................9 4.2. The agency model...................................................................................................9 5. Competitive Concerns ..................................................................................................11 5.1. The wholesale model............................................................................................11 5.2. The agency model.................................................................................................12 5.3. International experience .......................................................................................14 5.3.1. US .................................................................................................................14 5.3.2. EU.................................................................................................................16 6. Concluding remarks......................................................................................................17 7. References ....................................................................................................................19 8. Appendix ......................................................................................................................23 A.1: Main e-readers ..........................................................................................................23 A.2: Main publishers ........................................................................................................24 A.3: Main retailers............................................................................................................25 1. Introduction This project is aimed at providing a descriptive analysis of the newly developed e-book market and, in particular, at describing the main sources of competitive concerns that may arise within it. Indeed, one of the motivations of this study comes from the fact that investigations by the European Commission (EC, hereafter) and several National Competition Authorities are being carried out concerning price fixing on the part of e- books’ publishers after the adoption/undertaking of the agency pricing model. The report is organized as follows: in Section 2, a brief description of the e-book, of its development over time, and of the supporting devices is provided. Section 3 analyses the main players in the industry -publishers and retailers. Sections 4 and 5 deal with the pricing models more generally applied in the e-book market -wholesale model and agency model- and the competitive concerns arising from them. Finally, concluding remarks are provided in Section 6. 2. Background 2.1. Brief characterization of e-books Following Gardiner, Eileen and Ronald G. Musto, an e-book is a book-length publication in digital form, consisting of text, images, or both, and produced on, published through, and readable on computers or other electronic devices 1. It must be noticed that some books are born digital , i.e. there is no equivalent printed version. E-books are often read on specialized hardware devices called e-readers or e-book devices. Additionally, personal computers and some mobile phones can also be used to read e- books. 1 Gardiner, Eileen and Ronald G. Musto. “The Electronic Book.” In Suarez, Michael Felix, and H. R. Woudhuysen. The Oxford Companion to the Book. Oxford: Oxford University Press, 2010, p. 164. 1 There are over 25 different e-books formats, differing in many features, such as the content they support (only text, images, tables, colors, sound, interactivity, etc.) and the devices in which they can be read (supporting hardware). 2.2. Development over time The origin of e-books can be traced to the beginning of the 70´s, when Michael S. Hart, a student in the University of Illinois, started the Project Gutenberg with the objective of making works of literature available in electronic format for free. Project Gutenberg grew and became an organization that, nowadays, offers over 36.000 2 free e-books that can be read in many devices. In accordance to the limited use of the Internet, and even computers, early e-books were generally written for specialty areas and a limited audience (i.e. technical manuals for hardware, manufacturing techniques, etc). The general availability of the Internet in the early 90´s made transferring electronic files much easier, including e-books. As a result, many e-book formats emerged and proliferated, some supported by major software companies such as Adobe with its PDF format, and others supported by independent and open-source programmers. These formats gave rise to the development of multiple devices, most of them specializing in only one format, and thereby fragmenting the e-book market. How this market has evolved around the world is, by no means, equivalent. In the United States, the success of e-books started mainly in public libraries, which began providing them for free in 1998 through their websites and associated services, though they were not downloadable. Later on, in 2003, libraries began offering free downloadable popular fiction and non-fiction e-books to the public. This trend has continuously grown over time, with 66% of public libraries offering this service nowadays in that country. 2 http://www.gutenberg.org/wiki/Main_Page. 2 The use of e-books has extended widely ever since, ranking as the top selling format among all categories of trade publishing in February 2011. During that month, e-book sales totaled $90.3 million, expanding 202 percent compared to the same period last year. The story has been different in Europe, where even today “selling e-books can be a challenge”, as was stated by Cristina Mussinelli, a digital publishing consultant at the Italian Publishers Association. Europeans consumers apparently have been slower than their American counterparts to adopt e-readers. In 2010, Europe experienced a 20% growth in e-commerce book sales, but in some continental countries the e-book share of the market is still only 1%. The recently growing adoption of the iPad is expected to foster e-books penetration. In any case, until recently, e-books seemed to be mostly ground of early adopters. A fundamental problem faced when assessing the state of an European-level e-books market is the fact that there is no central entity collecting information in an organized way, and how the different countries collect data may not be comparable. In the rest of the world, with the noticeable exception of Japan, the scope and penetration of e-books is really limited. The most fundamental milestones that took place in the e-books industry are shown in the following table. Table 1 1971 • Michael S. Hart launches Project Gutenberg • Digital Book, the first software to read digital books, is patented. First digital book is published 1993 • Digital Book, Inc. offers the first 50 digital books in floppy disk with Digital Book Format (DBF) • Bibliobytes, a project of free digital books online in Internet 1995 • Amazon starts to sell physical books on the Internet • First e-book readers: Rocket ebook and SoftBook 1998 • Cybook / Cybook Gen1 (by French Cytale until 2003, then by Bookeen) • Websites selling e-books in English, like eReader.com and eReads.com • American publishing Baen Books opens up Baen Free