Price Cuts Roil the Market For Digital Readers

What a difference six months can make when you're trying to sell a digital reading device.

Anyone attending the Consumer Electronics Show last January saw a small flood of e-readers—from a slew of Kindle-like e-ink devices to futuristic color dual-screen tablet ones—with prices ranging from $200 to about $800. But since then, Apple has released the iPad, and its iBookstore is now supported by the iPhone/iPod Touch; two or three e-ink devices slated for the spring have yet to appear; and most importantly, prices on the best-known e-ink reading devices are plummeting.

And they are about to go down a bit more. Beginning this week, Copia, DMC Worldwide's much anticipated device/social media/retail venture, will announce still lower prices—starting at $99 for a 5" color LCD model—for a reconfigured line of devices that were already priced aggressively at CES. Copia sees the volatility in reader pricing as a benefit to the market and to its plans to launch a Copia social network/retailing site beginning in July.

The new line will have five devices starting with the 5" device for $99. There will be a 7" color LCD nontouchscreen as well as two 6" b&w e-ink devices, a Wi-Fi and a non-Wi-Fi—whose prices have not yet been set—as well as a 10.1" color LCD touchscreen for $299 with Wi-Fi that offers video and multimedia support. These devices will be available at national retailers at the beginning of the fall holiday shopping season, the company promised. "The Amazon and B&N price wars are heating up the market and I think our pricing will add to the appetite for these devices," said Anthony Antolino, senior v-p of Copia Interactive. In addition, Copia e-book pricing will "follow the models of corresponding publishers," and will offer both the agency model pricing as well as wholesale pricing. "All wholesale pricing will be competitive to the marketplace," Antolino said.

The appearance of the iPad is putting pressure on every other reading device to compete on price. Despite its price ($500 and up) and limited inventory (the iBookstore offers only about 60,000 titles), the iPad is transforming the market for digital e-reading devices from a focus on a single-function b&w Kindle-ized world to a full-color multimedia, multifunction device world. But the drop in prices—as well as the missed shipping dates of devices like Plastic Logic's Que or the Skiff Reader (acquired by NewsCorp earlier this month), much ballyhooed at CES—doesn't necessarily mean demand for e-ink devices is disappearing. Indeed, at the recent Untethered 2010, a digital conference focused on tablet computing and publishing, Forrester Research analyst Sarah Rotman Epps predicted a multiplatform market for reading devices, with 59 million tablets and 25 million dedicated e-readers by 2015 in addition to laptops, desktops, and smartphones. Despite the iPad's ever-growing popularity, she said, "no one will win out overall." To date, however, it has been the brand names that are winning over consumers. Recent statistics from Bowker's PubTrack Consumer survey show that while the Kindle, Nook, and iPad gained market share in the first four months of 2010, the share for other dedicated e-readers, already extremely small, fell in the four-month period.

Pricing has become key for single-function e-readers, and in the weeks since the iPad's release, e-book retailer Kobo has launched its own $150 e-reader with its partner, Borders, which has also added the Aluratek Libre device ($119) to the list of e-ink readers it offers. The price cutting continued last week. No sooner had Barnes & Noble introduced a new Wi-Fi-only Nook for $149 and dropped the price of the 3G Wi-Fi Nook to $199, than Amazon dropped the price of the Kindle 2 from $259 to $189.

Sony Reader, whose three devices are for sale through its own site, national retailers, and Borders.com, dropped the price of its most economical device, the Pocket Edition, from $199 to $169 several months back. A Sony spokesperson referred to the earlier price drop and said the company had no other pricing announcements planned.

In a separate interview, James McQuivey, Forrester Research's e-reader and e-book analyst, said the price cutting was inevitable and that the agency model only accelerated the trend. "By moving to an agency model, five of the six big publishers in the country have essentially guaranteed Amazon, Sony, and Barnes & Noble 30% of the revenue from the books they sell," he noted.

McQuivey believes device producers can sustain these prices and grow the market—at least in the short run. "The iPad's prodigious growth—and its ability to stimulate book downloads, [but] not necessarily sales, to the tune of 2.5 books per device in just a few months—has prompted Amazon and Barnes & Noble to move now rather than wait for iPad momentum to make potential buyers feel like [dedicated] e-readers are a thing of the past," he said.

"They [Amazon and B&N] have the data on how many books they sell per device—usually about two per month. At that rate, they can expect to make at least $6 a month from each buyer," he said. "Over 12 months, that comes out to $72, roughly equivalent to the price drops we've seen. So it's clear that these e-reader makers can drop their prices while still maintaining the same economics over the long run. Better yet, they know that lower prices will attract even more buyers into the market than would otherwise come in, yielding more e-book sales and revenues."

Copia's Antolino pretty much agreed. While the iPad is putting pressure on profit margins, the device price war is creating more opportunities for device makers. "The iPad is great for the category," Antolino said. "It's great for consumption and gets more readers excited. It's good for Copia."

"There will be something for everyone," Antolino continued, "different strokes for different folks." But he also wants the market to believe that "we differentiate with our community model. Our device offers a different experience that will allow you to bring your friends along."

Shift in Device Ownership of E-Book Buyers January-April 2010