China Consumer

End of a chapter?

E-book reader sales slump thanks to competition from tablet PCs

End of a chapter?

“Before I retire, I’m going to make my company a member of the Fortune 500,” Liu Yingjian, the founder and chairman of Hanvon Technology (also known as Hanwang in China), promised last year. Hanvon is the country’s leading maker of e-book readers.

At the time, his ambition was understandable, having seen Hanvon’s revenues more than double to Rmb580 million ($90.78 million) the year before. The company even had hopes to sell 2 million e-book readers this year, up from 267,000 units in 2010.

But now it seems like Liu might have been overly optimistic. The company shocked investors by announcing Rmb174 million in losses in the first half of this year, a swing from a net profit of Rmb87.9 million in 2010.

Not surprisingly, in the first eight months of this year, Hanvon’s shares tumbled more than 52% on the Shenzhen stock exchange.

Other e-reader manufacturers have been slashing prices to get rid of inventory. Beijing-based Newsmy, which previously sold its e-book readers for Rmb1,999, is now selling devices for under Rmb1,000. Shanda, the online media giant, has even taken to giving away its Bambook product for free to promote its e-book platform Shanda Literature (like Amazon’s Kindle, it charges users for downloads).

Founder, China’s second-largest PC maker after Lenovo, is also planning to get out of the e-reader market altogether once it sells its remaining stock, says China Publishers Magazine.

What is going wrong for a product that showed so much promise (see WiC35)?

Blame the iPad. Apple’s efforts in making the tablet PC wildly popular mean that e-book readers now face intense competition. Although devices like the iPad arrived on the scene much later than their e-book equivalents, Chinese sales of the former are expected to hit at least 4.5 million units this year, says IT research firm Analysys International.

E-book readers, on the other hand, are expected to reach only 1.1 million units. (Which rather puts the dampeners on Hanvon’s expectations of selling almost double that amount itself this year.)

Further, industry observers predict e-readers will be dropped for tablet PCs that are not only capable of displaying downloaded literature but also video and online content, as well as thousands of specialised applications, or apps.

Additionally, telecoms firms are aggressively pushing tablets – like the LePad made by Lenovo – in an attempt to boost their 3G subscribers.

“With the popularity of tablet PCs, e-book readers have become obsolete,” is the verdict of Hong Bo, a well-regarded IT commentator.

It is all some distance from the days when e-book manufacturers were foretelling of the inevitable demise of the primitive paperback.

Now it is they themselves in the battle for survival, and many are looking at switching to the production of tablet PCs instead. Newsmy now promotes only tablets on its homepage. E-book readers are nowhere to be found. Hanvon has also quietly launched several tablet PCs of its own.

The other challenge facing the e-book reader market is that Chinese consumers are still reluctant to pay for content. About 95% of Chinese who read electronically do so downloading pirated literature.

“Unlike the US, Chinese e-book producers haven’t formed a cohesive business chain that integrates devices, applications and e-book copyrights,” analyst Sun Peilin from Analysys International told the China Daily.

That makes the business a lot less lucrative.

As Sun points out: “The profit margin from selling hardware has become increasingly narrow due to intense competition.”

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