Library Science

By Mark Morelli - August 14, 2012 | Tickers: MMM, AMZN, AAPL, BKS, SNE | 0 Comments

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We are in the midst of a fairly significant change in the way books, newspapers, magazines and related information are consumed. From the invention of the printing press by Gutenberg in 1440 until the 1990’s information was primarily available in printed format. Gutenberg was chosen as the most important person of the last millennium by more than one organization. Prior to the printing press information was transmitted verbally or painstakingly written by hand. A book could cost as much as a small house. Only the wealthy could read. Today a book is less than 1/10,000 of the cost of a typical home in the U.S.

Now information can be downloaded digitally onto several types of devices and read on a screen instead of on paper. Digital or e-books now comprise about 6.2% of the overall market in the U.S. You can access a book in a fraction of the time it takes to get in your car and drive to the local library or book store. One of the first commercially available e-readers was the Data Discman, released by Sony Corp. (NYSE: SNE) in 1992. Amazon (NASDAQ: AMZN) released the first version of their e-reader, Kindle®, in November 2007.

Has this transformation changed the fortunes of any of the key players and stakeholders? Will book stores disappear? Has library usage changed?

The table below contains market share information published in 2010 for the top e-reader devices. Amazon dominated with a 41.5% market share with Pandigital a distant second and Barnes and Noble (NYSE: BKS) close behind in 3rd, although it sells only in the U.S.  Apple (NASDAQ: AAPL) introduced the iPad tablet earlier that year and it can be considered as an e-reader device although it is not officially included in the data below.  

Amazon doesn’t break out sales or profit figures on e-readers alone. However, information gleaned from various earnings announcements over the last few years indicate that “millions of e-reader devices have been sold” and it has "contributed significantly to improved revenues and profits." The stock price has soared 161% since November 2007. According to some analysts e-readers will remain a major growth platform for Amazon going forward and will continue to contribute to their overall performance. Amazon, of course, will also continue to benefit from sales of printed material though their signature on-line store. The e-readers just compliment their strength. 

Apple may be attempting to improve their standing in the overall digital download arena with the likely introduction of the iPad Mini, rumored to be available later this year. However, the price tag will probably be higher than that of the Kindle and similar devices which could somewhat dampen enthusiasm. A positive for Apple is that the Mini, as was the case for the regular versions, has many more uses than just being an e-reader. It is expected that most of the worldwide growth in the e-reader/tablet area will be in the 7" to 9" screen size range. Apple should be well positioned to take advantage of that.

Barnes and Noble introduced their signature e-reader, the NOOK®, in November 2009. For their fiscal fourth quarter which ended April 28, revenue in the “Nook” space, a category that includes both sales of devices and digital books, fell 11% to $164 million, from $183 million a year earlier. The reduction was based in part on much tougher competition than expected. Overall losses at Barnes and Noble totaled $57.7 million, slightly lower than the previous year. Clearly, entry into the e-reader space is not a growth area so far.

Perhaps a casualty of the e-reader/tablet introduction is Borders. The company declared bankruptcy and then ceased operation in July 2011 after suffering losses for many years. Hundreds of stores were closed and many people lost their jobs. Prior to liquidation, Borders had released a minimalist e-reader device. Obviously it didn't save the company.

There is much debate about the effect of e-readers/tablets on libraries. There is no definitive evidence that digital downloads have affected library usage, either positively or negatively, to a significant degree. One interesting fact that I came across during research for this article is that there are more libraries (more than 16,000) in the U.S. than McDonald's restaurants. They aren't going to go away anytime soon. However, in the face of potential "competition" from e-readers/tablets, libraries may need to innovate and expand their efforts in the digital download area to keep generating traffic. Companies like Overdrive provide download services to more than 15,000 libraries, schools and colleges worldwide and has about 650,000 digital titles available. 3M (NYSE: MMM) is considering expansion of their digital download business in the library space. 

So while e-readers have altered the way some information is consumed and has had a positive effect on Amazon, the potential for impact on Apple and 3M and probably a negative effect on Barnes and Noble and Borders it probably won't damatically affect the way people have read books over the last 572 years. People will still go to the library to get that latest book. 

Save a library, read a book. 

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