Page turners

China Mobile hopes to dominate e-book market

Page turners

Rekindling an idea: Lenovo

“It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” was Steve Jobs early response to the launch of Amazon’s Kindle in 2008.

Well, Jobs probably meant paperbacks. In the last two years Amazon has gone on to sell tens of millions of titles through its Kindle bookstore. The company now boasts 4 million Kindle readers. And seeing the potential of the electronic reader, Jobs has changed his mind. Apple’s new iPad tablet now caters to people who want to switch from paper to pixel.

China, too, is going through an e-book revolution as digital publishing begins to challenge traditional publishing in scale. Recent figures from the Ministry of Industry and Information Technology reveal that 155 million people are reading digital content on hand-held units, overwhelmingly on mobile phones. Sales of e-book readers are also forecast to jump from 800,000 last year to three million in 2010, making up 20% of the global market, says research firm DisplaySearch.

“The internet, 3G connectivity and development in electronic book readers have all come together to change the e-book industry,” says Liu Yingjian, chairman of Hawang – China’s biggest e-reader maker. “The paperless age has arrived.”

Hawang now expects its reader shipments to triple this year on growing demand. The company sold about 200,000 e-book readers in the first quarter of this year, approaching its total sales last year. Units retail in the Rmb1,200-3,300 price range.

Analysts say the sector still faces considerable challenges. For a start, Chinese e-reader owners are reluctant to pay for content. So e-book content revenues remain small – totalling Rmb226 million ($33 million) as of the end of 2008. The main content provider so far is Shanda Literature, a unit of Shanda Interactive (see WiC49). It offers user-generated literature mostly for free.

There’s also the piracy issue. In a report co-published by and industry tracker CBBR, 95% of China’s digital readers admitted to downloading unauthorised works from the internet.

“Publishers are reluctant to work with [makers of e-book readers] due to the current situation of intellectual-property protection in China, and online payment awareness levels among Chinese digital readers are still pretty low,” says Zhang Yanan of Analysys International.

This explains why Amazon, which currently sells books in China through its site, doesn’t offer its Kindle reader in the country. Sony and Barnes  & Noble have both decided against selling their e-book reader in China too.

The concerns about piracy are most pressing for those operating within the publishing sector. Other entrants are keen to capture e-reader business of their own. For instance, China Mobile recently launched an online e-book store that enables subscribers to read digital publications through mobile phones, as well as e-reader devices. The new platform, which already covers about 40% of the country’s best selling books, has attracted over 15 million users in four months of testing. Subscription is only Rmb5 per month, with 40% shared with copyright owners. The target is to attract at least 200 million users.

China Mobile is also hoping that the growing popularity of e-books will help boost subscriptions to its 3G service (or even pull customers towards its proposed newer 4G standard: see last week’s issue).

In fact, the company’s 3G subscriber numbers had their best ever month for growth in March, increasing by 3.41 million to a total subscriber base of 7.7 million.

But China Mobile still trails rival China Telecom in 3G numbers by some distance, and is still short of the 10 million users that it had hoped to sign up by the end of last year.

It is also looking for new revenue streams to offset falling billings. User income per month fell 5% year-on-year in the first quarter. That has prompted talks with Apple on a partnership to sell the iPad to Chinese customers.

So despite his early scepticism it now looks like Jobs might have an e-reader launched in China before Amazon’s Kindle after all…

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.