Nook is now a $1 billion a year business (sort of)

eReaders are so dead. Not.

It’s always interesting to see how the #2 eReader company is doing.

While analysts are projecting that Kindle might account for 10% or more of Amazon’s revenues soon, B&N provides us with this hard fact (courtesy ZDNet) -

Our overall NOOK business across devices, accessories, and additional content grew to over $250 million in comparable sales across retail at BN.com in Q4. That delivered close to 300% growth versus last year.

$250 million a quarter sounds like $1 billion a year to me. Of course, if you’d like to keep your head stuck in the sand you can point to seasonal changes and temporary jumps and price elasticity of demand (who cares it if applies or not – it sounds so cool and intelligent).

B&N is also claiming that it increased its market share in eBooks by 1 to 2 points in Q4 – and that it now has 26% to 27% market share. Not improbable given the success of Nook Color. It also said that it opened over 1 million Nook accounts in Q4 – across Nook Apps and Nook devices.

The big questions are -

  1. Is Kindle a $2 billion a year business already? Surely, if Nook is accounting for $250 million a quarter, then the Kindle must be accounting for a lot more.
  2. How long before Kindle becomes a $1 billion a quarter business?
  3. Does Nook have a shot at becoming a $1 billion a quarter business?

The bigger questions are -

  1. Aren’t dedicated reading devices supposed to be dead?
  2. But everyone says no one reads any more. Could Steve Jobs and the Google Guys be wrong?
  3. How the heck is B&N beating both Apple and Google in the eBook Wars?

Finally, the biggest question -

  1. When will people who don’t read stop predicting the future of reading and eReaders?

Haters gonna Hate. It’s a good thing they aren’t well-read enough to make cogent arguments.

Are $0 ebooks inevitable?

There are quite a few signs that the race to zero is on for ebooks and books -

Hardcovers at $10 and Kindle Editions at less than $10 

  1. The $9.99 price of ebooks put pressure on WalMart and they retaliated with $10 hardcovers (10 of this holiday season’s most anticipated books).
  2. Amazon and Target matched prices. Prices are around $9 at the moment – That’s way less than the $24 suggested price.
  3. Kindle Editions for some of these books are now at $6.72 to compete.

 Advertising Supported eBook Patents

  1. Amazon filed a patent for books with ads in them.
  2. Google is almost certainly going to use advertising in some form to lower book prices.

Google Public Domain Books and Google Books Settlement

  1. Google is giving out a million free public domain books to every eReader company.
  2. The Google Books Settlement (if it goes through) will create a pool of millions of orphan books Google can sell at very cheap prices.
  3. Amazon is retaliating and has increased number of public domain books in Kindle Store from 7,000 or so to 14,000 plus.

As more and more free public domain books become available (which earlier had to be bought or read on an unsuitable PC screen) the value perception for books goes down further.

Free Book Offers

  1. Amazon has 13 free book offers in the last 4 days. These are new books.
  2. B&N yesterday added a page for Free eBooks including new ebooks (same ones as Amazon has, not all of them).
  3. Lots of authors are giving out the first book in a series free. This helps their sales – However, it further reduces the value perception of ebooks.

Independent Authors are desperate and can now give away ebooks for free

  1. Distribution is now easy. 
  2. Cost per copy keeps going down.
  3. Independent Authors are flooding the Internet with free and cheap ebooks.

Independent Authors are so focused on building an audience and being heard they don’t care about the long-term repercussions of giving away their books for free or $1.

Why are Book and eBook companies participating in the race to Zero?

Different reasons -

Amazon – Initially to jump-start ebooks, and now to compete

  1. Amazon used $9.99 to get ebooks jump-started. $10 is not a bad price.
  2. Amazon would prefer $10 ebooks. However, they might not have a choice given Google and WalMart and everyone else are reducing prices.

 Wal-Mart and Physical Stores – Using Books as Loss Leaders

  1. Wal-Mart probably want to get people in store to buy other things.
  2. Perhaps they feel they’ll lose book sales to kindle editions and must compete on price.

eReader companies to sell eReaders

  1. A lot of the smaller eReader companies are happy just to sell the hardware.
  2. They are happy to let the value perception of ebooks go to zero since they either don’t care or don’t think they can match Amazon.
  3. In fact, you could argue that $0 ebooks would help eReader companies sell more eReaders.

Book and eBook Companies – To catch up with Amazon

  1. Amazon have scared everyone.
  2. Google and Barnes & Noble are desperate to catch up with Amazon. They might use low prices to catch up. 
  3. If Amazon starts pulling away Google and other companies might decide to use $0 ebooks to destroy Amazon’s revenue stream.
  4. Some newer ebook companies might push low prices to get a foothold.

A key point worth considering is that eBooks are just one revenue stream for a lot of companies entering the space i.e. these are not publishers or authors.

eBooks are just one of numerous revenue streams

There are lots of revenue streams and models that can be tapped including –  

  1. A model where some books (first in a series, bestsellers) are Loss Leaders and the remaining books generate the actual profits.
  2. eBooks themselves.
  3. eReaders. 
  4. Advertising things in ebooks or at other points in the buying and reading process. 
  5. Using book reading behavior to develop targeted advertising and a profile.

What this means is that a lot of companies will consider ebooks as potentially a loss leader and play around to find a model that suits them best.

To be more precise -

  1. eBook Stores will try to push the notion that the store and buying experience is more important than the book.  
  2. Google will push the notion that search and finding ebooks is more important than the content.
  3. eReader makers might push the notion that the eReader is the actual value.
  4. Different Channels will push the notion that ‘channel’ or ‘where you read’ is more important than what you read.

These are all just companies trying to grab as much of a share as they can.

It’s extremely unfortunate for publishers and authors that pushing ebooks to $0 benefits a lot of these companies.

Are $0 ebooks sustainable?

A lot of authors and publishers are complacent about the dangers because they feel publishing couldn’t exist at lower prices.

Unfortunately it can. It might not be quality – However, it will exist.

How Companies would Survive

  1. Amazon would use $0 ebooks as a loss leader to get people to buy everything from Amazon. 
  2. Amazon and Sony and other eReader companies would go with eReaders as the money makers.  
  3. Google would make money via advertising.
  4. Google would club together their books into subscriptions for businesses and libraries and use that money to subsidize every day readers.  
  5. Companies would get sponsorships for books – Anthropologie sponsors Price and Prejudice and so forth.

Why Would People Still Write?

There’s always the love of writing. However, there would also be a financial carrot being dangled for them.

It’d be very similar to a lottery model or the Apple App Store model -

  1. Top authors and publishers would still earn a lot because of the volumes involved. The top 1%.
  2. Authors and Publishers just below that – the top 5% – would still earn decent amounts.
  3. Everyone else would struggle. However, the promise of huge riches would keep them going.  

Interestingly this sort of situation would give the channels and the companies that control those channels all the power and most of the profits.

They would profit from both the very successful authors and the unsuccessful ones. 

Are $0 ebooks inevitable?

 Yes.

The Internet allows for infinite competition. What that means is -

  1. Every company will try to profit off of eBooks. They’ll end up undercutting each other.
  2. Even if one company wins other companies will do their best to destroy that revenue stream.

We’re seeing relentless competition on both eReader prices and eBook prices.

Most scary for publishers is that -

  1. There are some business models (advertising based, eReader profit focused) where it benefits everyone except authors/publishers to have ebooks at $0.
  2. People are trained by the Internet to expect Free.
  3. It strengthens lots of companies to make ebooks free.

The only possibility for Publishers is to create a Hulu for books or get Government intervention. In every other case Publishers are totally overmatched and $0 ebooks are inevitable.

Guess Hachette is wrong on $9.99, death of hardcovers

Remember Hachette’s paranoia about how ebooks would spell the end of hardcovers, and that $9.99 kindle books would destroy publishers’ profits.

Apparently, reality disagrees.

The BookSeller reports that Hachette’s first-half profits rose a ‘remarkable’ 60%. To be precise they went up by 61.1% to 112 million euros.

Much of it is being ascribed to the success of the Stephanie Meyer saga – in the US, France, UK, and Australia. The same Stephanie Meyer saga that was on the Kindle bestsellers list for under $10 and should have ‘destroyed’ hardcover sales.

Perhaps Publishers are looking at things upside down

For decades Publishers have fought ebooks tooth and nail. While there are significant risks, there are also significant benefits -

  1. Kindle owners tend to buy more books. 
  2. Successful books spread faster and wider.  
  3. No study done on this – However, would not be surprised to find you can finish a book faster on a kindle.
  4. There’s a chance that ebooks will increase total sales and total book revenue and not just cannibalize hardcovers.  
  5. Kindle books have no used book market.  

Publishers haven’t taken any time to think about possible upsides of ebooks.

Increase of the book reading population

How are things different from pre-Kindle days?

  1. We now probably have a million plus Kindles and half a million plus Sony Readers.
  2. We have 3 million ebook readers on the iPhone. 1 million or more of which are on Kindle for iPhone.
  3. We have a much larger range of ebooks.
  4. People with low vision can read.
  5. Features like larger fonts and light weight mean people with arthiritis etc. can read again

More people are being introduced to reading. A lot of people who were locked out of reading have the option to read again. A lot of people are rediscovering their love of reading.

Kindles and eReaders provide benefits that books just couldn’t and expand the places, situations and market for reading.

Next time Hachette Group want to rant about how $9.99 kindle books will kill publishers and spell the end of hardcovers, they ought to check on their profits first.

Is the news worth anything?

Note: This started off as a post talking about how news has no intrinsic value left. However, it morphed into something else. It goes against my perception that newspapers are replaceable and makes me wonder how many of us tend to downplay the value of newspapers.

One of the common perceptions is that newspaper companies are doing something wrong i.e. there is still money to be made in news and that if newspapers -

  1. Cut costs and become more lean and efficient.
  2. Start charging for news on the Internet again.
  3. Use the Kindle DX and other new technology to cut distribution costs.

They would be profitable again.

However, the recent news that newspaper ad revenues dropped 29% quarter over quarter indicates that one major revenue stream for newspapers is drying up.

If your ad revenues have dropped 50% in the last 3 years, it’s probably not a good idea to count on them.

Newspapers get this and are moving towards a paid model.

Which leads to an important question regarding actual news content -

Is the news itself worth anything?

Towards that end lets survey the online news landscape and see what we can find.

Top 30 News Sites – Traffic and Trends

This is a list of the top news sites in June 2009 , according to Nielsen Online, and via Editor and Publisher -

  1. Yahoo! News – 45.638 million uniques. Traffic rose 30% from May.
  2. CNN Digital Network – 38,792 million uniques. Traffic rose 14%.
  3. MSNBC Digital Network – 36.262 million uniques. Traffic fell 4%.
  4. AOL News – 24.716 million uniques. Traffic rose 12%.
  5. NYTimes.com – 17.423 million uniques. Down 1%.
  6. Tribune Newspapers – 17.044 million. Rose 13%.
  7. Fox News Digital Network – 16.808 million. Increased 61%.
  8. ABC News Digital Network – 13.408 million. Increased 16%.
  9. Google News – 12.831 million. Increased 22%.
  10. McClatchy Newspaper Network – 12.681 million. Increased 29%.
  11. Gannett Newspapers and Newspaper Division – 12.261 million. Fell 1%.
  12. USAToday.com – 9.597 million. Unchanged.
  13. WashingtonPost.com – 9.584 million. Up 6%.
  14. NBC Local Media – 9.542 million.
  15. CBS News Digital Network – 9.306 million. Rose 9%.
  16. Advance Internet — 9.270 million. Rose 30%.
  17. TheHuffingtonPost.com – 7.461 million. Rose 85%.
  18. Hearst Newspapers Digital – 7.404 million. Unchanged.
  19. WorldNow – 7.164 million. Fell 10%.
  20. BBC – 7.163 million. Rose 21%.
  21. Daily News Online Edition – 6.994 million. Rose 84%.
  22. MediaNews Group Newspapers – 6.943 million. Fell 7%.
  23. Topix – 5.873 million. Fell 1%.
  24. The Slate Group Websites – 5.457 million. Fell 19%.
  25. MailOnline – 5.261 million. Rose 43%.
  26. Examiner.com – 4.771 million. Rose 97%.
  27. Cox Newspapers – 4.603 million. Fell 10%.
  28. Telegraph – 4.347 million. Rose 18%.
  29. Gannett Broadcasting – 4.149 million. Fell 14%.
  30. Associated Press – 4.063 million. Rose 15%.

One big category are TV news channels’ websites that can afford to provide free online content because they get subscription income. For this discussion let’s leave them out.

The next category are the beneficiaries of newspapers’ generosity i.e. sites that do not produce their own news content -

Yahoo News, AOL News, and Google News are all in the top 10.

The list misses sites like MyYahoo, iGoogle, Digg, Reddit, and TechMeme that are popular news aggregators.

These sites are taking traffic and the top spots away from actual newspapers, off of the newspapers’ own content. Perhaps you’d be right to think that any business stupid enough to feed its own biggest competitor deserves to die out.

Despite the rise of TV channel websites and news aggregators, Newspapers themselves are doing great online – at least in terms of traffic.

Top 30 Newspaper Sites – Traffic and Trends.

This is a list for July, hence some differences from the above list. The top 30 newspapers sites (again courtesy Editor and Publisher, and Nielsen Net Ratings) -

  1. NYTimes.com – 14.277 million uniques. Drop in traffic of 27% from June.
  2. WashingtonPost.com – 11.565 million. Rise of 29%.
  3. USAToday.com – 9.761 million. Fall of 6%.
  4. Daily News Online Edition – 9.131 million. Rise in traffic of 112%.
  5. LA Times – 8.938 million. Rise of 2%.
  6. Wall Street Journal Online – 8.341 million. Fall of 4%.
  7. New York Post - 6.535 million. Rise of 32%.
  8. Boston.com – 5.274 million. Rise of 8%.
  9. SFGate.com/San Francisco Chronicle – 5.092 million. Rise of 13%.
  10. Chicago Tribune – 4.442 million. Rise of 14%.
  11. Politico – 3.401 million. Increase of 47%.
  12. NJ.com – 2.926 million. Increase of 41%.
  13. Atlanta Journal-Constitution – 2.747 million. Fall of 31%.
  14. The Houston Chronicle – 2.569 million. Fall of 3%.
  15. Philly.com – 2.5 million uniques. Rise of 47%.
  16. Chicago Sun-Times – 2.48 million. Fall of 6%.
  17. Newsday – 2.428 million. Fall of 28%.
  18. The Sacramento Bee – 2.426 million. Rise of 84%.
  19. Orlando Sentinel – 2.089 million. Increase of 49%.
  20. The Seattle Times – 2.04 million. Increase of 55%.
  21. Azcentral.com – 1.999 million. Increase of 41%.
  22. MercuryNews.com – 1.871 million. Increase of 16%.
  23. DallasNews.com -  1.832 million. Fall of 12%.
  24. MiamiHerald.com – 1.829 million. Increase of 36%.
  25. The Washington Times – 1.803 million. Increase of 56%.
  26. tampabay.com – 1.758 million. Increase of 24%.
  27. KansasCity.com – 1.708 million. Rise of 59%.
  28. Baltimore Sun – 1.697 million. Rise of 7%.
  29. Star Tribune – 1,662 million. Rise of 8%.
  30. Detroit Free Press – 1.648 million. Rise of 9%.

Its worth nothing that -

11 of the top 30 sites have seen rises of 40% or more – In just the last month.

These are uniques which for some cities makes for truly impressive numbers.

Politico saw a 40% increase.  

Traffic might be increasing – However, Newspapers’ online ad revenues are falling precipitously (they fell 15.9% in Q2, 2009). The large number of visitors does give hope, especially when you realize that newspapers create high quality news content.  

If newspapers could magically prevent anyone else from using their content, users would be forced to go to the newspaper sites.

Additionally

If there were a magic switch to turn 15 to 25% of current visitors into paying customers, newspapers would be halfway to profitability.

Does news content have any value? Would customers pay?

That’s a tough question. However, there might be a simple answer – so simple newspapers are inclined to miss it completely.

Rather surprisingly, its the behaviour of Google, the biggest proponent of ‘give it away for free, and make money off of ads’ that provides some clues.

Look at the direction in which Google is going i.e.

  1. Adding paid streaming movies to YouTube.  
  2. Buying Blogger and YouTube and other content creation services.  
  3. Going for the Google Books Settlement and adding orphan works it intends to sell.
  4. Planning on selling ebooks.
  5. Heavily promoting paid Google Apps.

Suddenly, Google thinks content in general, and quality content, in particular, has value. Which brings us to our simple answer –  

Treat News Content like it has Value.

The inescapable truth is that news content is being treated as worthless because newspapers let people treat it as such.

When you treat your own content as if it were worthless, how can you expect anyone to pay for it?

Look at what Newspapers do with their content -

  1. They give away their content for free.
  2. They let their competitors i.e. news aggregators use it for free.
  3. They focus on protecting their distribution  networks and their way of doing business, instead of focusing on the core content.
  4. They don’t work on enriching and improving their content.

The various news aggregator sites do not create ANY content and yet they profit off of content and cause other problems -

  1. Every news aggregator sells ads and lowers what actual news creators can charge for ads on their sites.  
  2. News Aggregators add to the perception that content is not very valuable. Especially as it suits them i.e. our wondrous ranking of news content (often done via ‘free labor’ from users) is the actual value.  
  3. They steal customers – literally.  Its newspaper customers going through newspaper content – on someone else’s site and making someone else money.

Newspapers should create a Hulu equivalent that is the ONLY news aggregator allowed to use news content.

Update: Paid Content has a post on small regional newspapers that have tried paid online subscriptions.

Closing Thoughts

Internet and large networks exploit human greed i.e. for a 2% chance of getting more than we deserve, we embrace the 98% probability of getting nothing.

That greed caused newspapers to buy in to ‘give it away for free’and they lost all that they had built up - being the source for news, the value of their news content, and being profitable.

Rupert Murdoch might get on people’s nerves – however, he has the right idea about charging for content.

Will ebooks kill hardcovers?

Ben Hall at FT writes from Paris about Hachette’s paranoia that ebooks could spell the end of hardcover books. Thanks to Ed Ditto for mentioning the article.

Hachette Chief’s concerns

There are quite a few juicy nuggets in the article. First, there’s the pointing blame at Google and Amazon -

Mr Nourry (Hachette CEO) said unilateral pricing by Google, Amazon and other e-book retailers such as Barnes & Noble could destroy publishers’ profits.

He said publishers were “very hostile” to Amazon’s pricing strategy.

Next, there’s the attack on the $9.99 price point -

On the one hand, you have millions of books for free where there is no longer an author to pay and, on the other hand, there are very recent books, bestsellers at $9.99, which means that all the rest will have to be sold at between zero and $9.99.

Retailers were paying publishers more than $9.99 for each e-book, so were selling them at a loss:

“That cannot last . . . Amazon is not in the business of losing money. So, one day, they are going to come to the publishers and say: by the way, we are cutting the price we pay.

If that happens, after paying the authors, there will be nothing left for the publishers.”

These thoughts might be relevant to Publishers, especially ones that don’t adapt to changing times. However, the claim that it could kill hardcovers is incorrect.

Hardcovers are not going to die out

There are a lot of people who love books as physical objects and for all the benefits -

  1. The sensations of reading and holding and feeling a physical book. 
  2. Adding life to your environs; adding to your library; decorating shelves. 
  3. Letting people know who you are, and signaling things like intelligence and taste. 

And many more.

In a world that has a lot of eReaders, hardcovers will keep their position as higher end reading means, will be collected for personal libraries and will morph into even more cherished possessions.

We currently have lots of generations that have very strong associations with hardcovers. If current publishers don’t clean up their act, some new company will spring up to provide reasonably priced hardcovers.

The long term concern for hardcovers would be when the first ‘used kindle and sony in school’ generations start entering the market.

  1. They would have no positive association with physical books.
  2. On the contrary, they would be attached to their ereaders.

That is when hardcovers could start dying out – although its not a given, and its at least 40-50 years away.

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