By Jason Simpkins
MP3 and audio downloads wreaked havoc on the music industry, siphoning revenue away from record labels and driving many traditional brick-and-mortar music retailers out of business.
Now, publishers and retail bookstores are standing at the precipice of a similar fate as digital readers – like Amazon.com Inc.'s (Nasdaq: AMZN) Kindle and Sony Corp.'s (NYSE ADR: SNE) Reader Digital Book – lure readers out of the cozy confines of Barnes & Noble and Borders Books and Music by offering a wide selection of portable e-books.
Barnes & Noble Inc. (NYSE: BKS) fell short of expectations in the first quarter with a net loss of $2.2 million, or $0.04 per share. The company also lowered its full-year comparable store sales guidance at Barnes & Noble stores from slightly positive to slightly negative.
Eager not to become a relic, Barnes & Noble last week launched the world's largest e-book store – an online bazaar that will make roughly 700,000 titles available for download. New releases and best sellers will cost $9.95 each, but the site will also offer nearly 500,000 public-domain books for free.
"Today marks the first phase of our digital strategy, which is rooted in the belief that readers should have access to the books in their digital library from any device, from anywhere, at any time," said William J. Lynch, president of BN.com.
Barnes & Noble's e-bookstore will ratchet up competition with Amazon.com, whose critically acclaimed Kindle has been building a solid user base.
Amazon does not release specific sales figures pertaining to its Kindle, but Credit Suisse Group AG (NYSE ADR: CS) estimates that the company will sell 1.8 million of the electronic reading devices in 2009, TWICE.com reported. That figure could increase to 2.9 million units in 2010 and 8.5 million in 2014. Revenue from the device could climb from $623.6 million in 2009 to $813.7 million in 2010 and $1.8 billion in 2014, the bank said.
While sales of the Kindle are profitable, each e-book Amazon sells costs the company $1.50, Credit Suisse analysts estimate. However, that is expected to change by 2012 as Amazon's costs come down. At that point Amazon's profit on e-book sales will soar to $31 million.
However, Amazon only offers about 330,000 e-books for its Kindle, and does not have the rights to publish the roughly 500,000 public-domain books that B&N acquired through a deal with Google Inc. (Nasdaq: GOOG).
And while Barnes & Noble does not have a reading device of its own, its catalogue of 700,000 titles will be available for download on a wide range of devices, including the iPhone, BlackBerry, Windows-based PCs and Macs. Amazon's e-books are only available for the Kindle and iPhone.
The Plastic Logic reader "has the potential to blow the Kindle out of the water," Michael Norris, an analyst with media researcher Simba Information, told BusinessWeek. "It's Barnes & Noble's way of hedging their bets and being able to attach their name to a cool electronic device."
Of course, some analysts are skeptical that Barnes & Noble's e-bookstore, and its new deal with Plastic Logic, will be able to compete with the Kindle.
"I don't think they will be stealing market share from Amazon," Sarah Rotman Epps, a media analyst with Forrester Research told the New York Times. "If anything, I think they are contributing to the growth of the whole category of digital reading."
But even if B&N fails to wrestle market share away from Amazon and its Kindle, it will still gain a valuable foothold in a fast-growing market.
Sales of e-books grew to $113 million in 2008, up 69% from the year prior, according to the Association of American Publishers.
E-readers will account for about a third of the U.S. adult book-reading population in just five years, according to Credit Suisse. The installed base of e-readers will rise from 1 million in 2008 to 4 million this year and 32 million in 2014, the bank estimates.
Meanwhile, the total U.S. e-book wholesale industry will grow from $52.3 million in 2008 to $196.6 million in 2009 and $1.8 billion in 2014.
The International Digital Publishing Forum says that wholesale e-book revenue exceeded $25 million in the first quarter of this year, compared to $7.5 million in the same period last year.
News and Related Story Links:
New York Times:
Barnes & Noble Plans an Extensive E-Bookstore
Can E-Books Save Barnes & Noble?
International Digital Publishing Forum:
Barnes & Noble:
Barnes & Noble Reports First Quarter Financial Results
Barnes & Noble:
Barnes & Noble:
Barnes & Noble Launches World's Largest eBookstore