Despite slow consumer acceptance of e-books, Franklin Electronic Publishers continues to press ahead with initiatives that it hopes will make it a leader in the e-book market. Although Franklin has been making money selling reference materials for its own dedicated devices, sales of its eBookMan device have been much lower than anticipated and the product line had negative sales of $1.1 million in the second quarter ended September 30, 2001, as returns exceeded sales. Its e-book line had a loss of $2.8 million in the quarter, and Franklin recorded a corporate charge of $4.2 million related to writedowns of certain eBookMan assets and accrual of liabilities.

Barry Lipsky, CEO of Franklin, acknowledged the slow consumer acceptance of its eBookman. He said, "We don't have great retail placement; it's an uncertain market; and we think the devices should be sold in bookstores rather than appliance stores."

But despite the obstacles involved in launching a new e-book reading device (as well as a new e-book format) in a fledgling e-book market during a down economy, Franklin's e-publishing strategy still has a few things going for it. Most e-publishing observers believe the e-book market will be driven by low-cost, multiuse handheld devices, compatible e-book formats and the convenience of using digital content. Franklin can offer the consumer something in all these areas.

In a move it hopes will speed its growth in the e-publishing arena, Franklin has teamed up with MobiPocket (and has taken a minority stake in the company), a small French software developer offering the MobiPocket reader, an e-book reader that can run on any PDA operating system. Lipsky told PW that the MobiPocket e-book reader has the potential to offer publishers easy access to a large market of millions of PDA users comfortable with handheld devices. The alliance works both ways. Franklin will use its longtime presence in the U.S. e-publishing market to introduce MobiPocket to U.S. publishers and convince them of the benefits of converting their e-titles into a format that is readable on virtually every handheld device currently on the market, including Palm OS, Windows CE/Pocket PC, Epoc32 and Franklin's eBookman. Franklin's eBookMan format is new and limited; the device itself does not run the usual selection of U.S. e-book readers. Franklin is also relying on the alliance with MobiPocket to offer more content to eBookmans. With MobiPocket's European content, Franklin can offer about 4,000 titles.

"The e-community is a young market," said Theirry Brethes, president of MobiPocket. " Now we're in version 2.0 for e-books. "

Franklin, which has been selling digital reference content on handheld devices to lawyers, doctors and other professionals since the 1980s, will soon release a new series of reading devices priced around $5o. The devices will be smaller and cheaper than the eBookman. The new devices will be able to download content and use interchangeable memory cards.

"People will not read on dedicated reading devices, and PCs and laptops are inconvenient," said Brethes, in an interview at PW 's offices. "But there are 20 million PDAs in use; in five years they will be as popular as cell phones." Lipsky added: "We're not out to convert people from paper to digital. We're targeting those 20 million PDA users, to get them to add e-books to something they use everyday."

Losses and Job Cuts

Problems with the eBookMan contributed to a weak second quarter for Franklin. Revenues for the entire company fell to $18.7 million in the quarter from $20.5 million, and the company had a net loss of $5.9 million compared to net income of $208,000 in last year's second quarter. For the first half of the year, total sales were down 7.7%, to $34.7 million, and the company had a net loss of $7.8 million compared to net income of $641,000 in the first six months of fiscal 2001.

To help bring costs down, Franklin reduced its worldwide workforce by about 15% in the quarter, eliminating approximately 40 positions. Franklin executive v-p Greg Winksy said the cuts were "spread around the world" and took place in all departments. Franklin expects to save $2 million annually as a result of the downsizing.