Amazon(AMZN) dropped the price of its Kindle — which dominates the market — by about $40 to $260 as competitors introduced comparably priced alternatives. There also are Barnes & Noble's Nook, an expanded line of Sony Reader models and others from companies including Irex, Spring Design, Netronix and iRiver.
Sales are expected to soar for the devices, which display text on a screen about the size of a paperback.
So everyone lives happily ever after with a technology that could change how we read, right? Hardly.
The e-reader saga is turning into a business thriller, as publishers and consumer electronics companies try to stop Amazon from amassing more power in this fast-growing field. It broke the digital market wide open in 2007 when it released the Kindle and offered thousands of e-books, including best sellers, priced at $10.
Publishers "don't want Amazon to be the only game in town," says Jim Milliot, senior editor at Publishers Weekly. "They view e-books and e-book readers as inevitable, but they don't really know how it's going to shake out."
Several major book publishers tried to change the story arc this week by challenging Amazon's $10 pricing on books — which others, including Barnes & Noble and Sony, often have to match.
The $10 pricing has infuriated book publishers, who make their biggest profits from hardcover editions that can sell for more than $25. To fight back, CBS' Simon & Schuster and Lagardere's Hachette Book Group said that beginning in 2010, they will wait until about four months after some hardcovers hit the shelves before releasing them as e-books.
Rupert Murdoch's HarperCollins also said it will delay some titles soon and experiment with higher and lower e-book prices to see what generates the most cash — without undermining sales of hardcover books.
"We've objected to that ($10 per e-book) pricing for quite some time," says Simon & Schuster CEO Carolyn Reidy. "We have begun to see some cannibalization of hardcover sales as a result of that pricing. We have no control over it. We believe we're at a point where there's going to be an explosion of e-book reading. And if we didn't try to do something about it now, it may get to be too late."
Forrester Research, for one, estimates that domestic consumers will buy 6 million e-readers in 2010, up from 3 million this year.
Meanwhile, people in the USA spent $15.9 million on e-books in September, up 171% from September 2008, according to the Association of American Publishers. The Kindle, Nook and a new Sony Reader model download e-books wirelessly via cellphone services, at no extra charge to users.
"For the first time in history, consumers are realizing that reading books digitally can be a pleasurable experience," Forrester analyst Sarah Rotman Epps says. And that means "the sky's the limit" for sales of e-readers and e-books.
Low prices
Amazon is helping to win consumers by setting superlow prices on e-books.
However, "It's losing money on every (e-book) sale, and that can't continue forever," says Ned May, lead analyst at research firm Outsell.
Once consumers get used to paying the low price, publishers fear, retailers will insist on a reduction in wholesale prices.
That could result in lower advances and royalties for authors, Reidy says. She adds that it also could "destabilize the retail environment so that bookstores disappear."
Amazon would not discuss the matter on the phone, but spokesman Andrew Herdener wrote, in reply to e-mailed questions, "Customers believe that e-books should be cheaper, and we agree with them. There are lots of cost efficiencies with e-books."
As for the plan to delay the release of new e-books, he wrote, "Authors get the most publicity at launch and need to strike while the iron is hot. If readers can't get their preferred format at that moment, they may buy a different book or just not buy a book at all."
Reidy's prepared to take that risk.
"We have lived in a world where we have (different release dates for) hardcovers and paperbacks and managed to promote the books a second time," she says. "If we have to do it a third time, we can do that, too."
Publishers have to think long and hard about tangling with Amazon.
In addition to its clout as the No. 1 seller of e-readers and e-books, it's the leading online seller of conventional hard- and soft-cover books. It also owns Audible, the dominant seller of audio books, and is moving quickly into new fields, including book publishing on demand.
"They're not in a position to tick off Amazon in any way, shape or form," Milliot says. In consumer books, a $23 billion market last year, "There are three major accounts that (generate) about 70% of industry revenue, and that's Barnes & Noble, Amazon and Borders — and Borders is having problems, so it's a weak third at the moment."
Amazon is determined to establish itself as the most affordable source of e-books. It has the most leeway to do so: With its clout in book-selling, Amazon can be sure it pays the lowest wholesale prices that publishers offer. Barnes & Noble has the same advantage, but it has to shoulder costs for leases and employees at its 775 stores.
What's more, "As e-books grow as a category, there will be cannibalization," Epps says. "The early adopter buying an e-reader device happens to be the same customer who would have bought a hardcover book."
Yet Barnes & Noble says that it's determined to be a major character in the digital book story.
"Books are sold in thousands and thousands and thousands of outlets in America, and more than 50% of the books sold are outside of bookstores," Barnes & Noble CEO Stephen Riggio told analysts last month. "We believe that digital content will be much, much less fragmented than that, and we've established a strong position in order to gain a sizable market share as this market develops."
With the dominant book retailers vigorously defending their turf in general-audience e-books, hardware manufacturers are designing devices for particular audiences, including newspaper and magazine readers, business people and students.
"At the university level, more and more of their reading material is being provided as (electronic) handouts," says Plastic Logic CEO Richard Archuleta, who's about to introduce an e-reader for business people. "And as you go to elementary schools, there's a huge opportunity for kids to not have to carry 20 pounds of books. That market's untapped right now."
It's a golden moment for manufacturers, because recent changes in technology have made the business practical.
Publishers now have enough digitized books and articles to satisfy a wide range of interests. And new devices can store lots of them as the cost of digital memory chips has plummeted, and their storage capacity has grown.
As recently as three years ago, "even if you did have the content, you'd just have a handful of books" on a device, says Sri Peruvemba, vice president of marketing at E Ink, which makes the screens for the Kindle, Nook, Sony Reader and others.
His company's screens have helped e-readers to take off because they don't require much battery power. That means people can go days without needing to recharge.
A typical 6-inch screen has tens of millions of microcapsules that include particles made from the same chemicals used to make paper and golf balls white and that make ink black. They form text and other images as electronic signals cause either the white or black particles to rise to the surface.
E Ink's first screens appeared on the Sony Librie, an e-reader that was introduced in Japan in 2004 — and bombed.
"Fortunately, Sony, being a pioneer, said, 'We're not giving up. Try again,' " Peruvemba says. "And the second time around (with the Sony Reader in 2006), they were successful. The rest of the market said, 'This is a no-brainer.' "
Multiple-purpose devices
But some analysts say that it's already almost time to write the final chapter on e-readers. They could be eclipsed by smartphones such as the iPhone or Droid, or portable tablet computers, including a model from Apple that's widely expected next year but hasn't been formally announced.
"Just about everybody agrees that at some point you'll be reading on a multiple-purpose device," says Milliot. At this early stage in the development of digital books, the market "could pretty much change overnight."
Newspaper and magazine publishers especially want to be on devices that people take with them everywhere, that show off color photographs and ads — and that aren't controlled by Amazon.
"Amazon treats people as their customers, not our customers," Murdoch told analysts recently.
Yet it's unclear how appealing these alternatives would be for book readers.
"Something built on current LCD technology where you have a back light shooting photons into your eye is not a comfortable reading experience," says Archuleta of Plastic Logic. "For short articles, that technology can work. But for people who read a lot, I don't think it's the right solution. ... We're not viewing it as a competitor."
Amazon has a similar view. "If you love to read, you want a single-purpose device for reading," writes Herdener. "You want a purpose-built device with a screen that is easy on the eyes and has long battery life."
Maybe so. But even the online giant can't see what future chapters portend for its intriguing struggles with electronics manufacturers, rival retailers — and, especially now, with publishers.
"They just need to work with as many formats as they can and try to do as much as they can to secure the best revenue stream," says May. "It's still very early days."
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