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UPDATED: August 30, 2010 NO. 35 SEPTEMBER 2, 2010
The E-Reader Boom
China's sizzling, but still infant, e-reader industry faces obstacles as it tries to replicate the Kindle's success
By YU SHUJUN
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Currently, Chinese e-reader market is still a high-end gift market, said a report on China's e-reader market by Zero2IPO, a service provider in China's venture capital and private equity industry.

Why are the prices for domestically made e-readers, which use the same technology as the Kindle, so much higher? The difference lies in the business models of Chinese and U.S. e-reader providers. Amazon.com, the largest online book retailer, sells e-books through its Kindle, while Chinese market players, mostly IT companies, have to profit from the devices alone.

In August, Shanda Literature's Bambook, backed by its online literature website, shocked the market with its 998-yuan ($146) test-period price. An official debut, at 999 yuan ($146.9), is slated for September 28 of this year. Shanda Literature expects the low price will bring about an e-reader sales frenzy in China. In the meantime, many industry insiders say it will possibly spark a price war. Despite this, an Analysys International survey shows 82.2 percent of people accustomed to reading via mobile phones won't buy an e-reader until prices drop below 500 yuan ($73.5).

Content is king

Domestic device makers have realized that Kindle's success stems not only from its cheap price, but, more importantly, from the number of e-books Amazon.com can provide for Kindle users to download. IT giant Sony also has an e-book store for its Sony Reader.

Most Chinese device makers have launched their own online stores for customers to buy and download books. They've also been busy negotiating with publishing houses to stock their own e-book stores. Following the steps of Shanghai Century Publishing Group, several publishers have worked with device makers to tap their book resources.

Despite their efforts, they are still not comparable to their U.S. counterparts in the number of available e-books. Earlier this year, Amazon.com's first-quarter financial report said it offered more than 500,000 titles, including 100 of the 111 New York Times bestsellers. Barnes & Nobles, the largest U.S. book retailer, is another major e-reader vendor offering a growing collection of e-books.

In comparison, Hanvon only provides about 100,000 titles through its online bookstore but aims to double its list by the end of the year.

Lacking a large enough collection of e-books makes profiting from content difficult. And to see any profits, domestic device makers such as Hanvon will have to invest heavily in building and expanding their own e-book stores. Hanvon said this year it would triple its investment in its e-book store from last year's figures to 30 million yuan ($4.4 million).

In addition, rampant online book piracy in China is also a barrier for their e-book businesses.

Payment awareness among Chinese online readers is still low. According to the China E-book Market Development Report, jointly released by China Business Book Report and e-book portal Du8.com, 95 percent of Chinese people reading e-books download unauthorized works from the Internet.

To attract buyers, most Chinese e-readers come equipped with memory cards and support a large number of e-book formats so users can get e-books from various sources.

As a result, e-book content sales through e-readers in China remained small—totaling only 7 million yuan ($1.03 million) in 2009, accounting for 0.54 percent of the 1.3 billion yuan ($190 million) in market scale propped up by device sales, said the China e-book report.

A fight against piracy will be necessary to encourage more publishers and authors to cooperate with e-reader makers. Already, Shanghai-based Yeahmore E-Reading Media has set up a digital rights management system to prevent its e-books from being pirated after being downloaded.

More pages to turn

Chinese e-reader makers hope to entice more customers to their e-reader camp to duplicate Kindle's success. But the market still lacks real customer demand and the boom in the market is actually being driven by device makers, said the Zero2IPO's report.

However, the manufacturing fire will finally be put out—those who can't find a niche will soon be eliminated. Along with fast growth in market size, industrial consolidation will soon appear, Zero2IPO says.

Chinese e-reader makers will also be challenged by external competitors.

Reports hold that Amazon.com and Sony both plan to officially launch their e-readers in China. Apple's fancy, multi-functional iPad will also appear on Chinese store shelves.

That'll be a true threat, as the iPad is already eclipsing the Kindle's market share in the United States. The iPad's emergence has even aroused concerns about the end of dedicated e-readers.

But the more imminent threat may come from mobile phones. Reading via mobile phones has already become a trend. China's Ministry of Industry and Information Technology said there had been 155 million Chinese reading via mobile phones as of the end of last year. Meanwhile, creating larger screens suitable for reading e-books hasn't been a difficulty for smart phone makers.

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