Curling Up With a Good E-Book


Can Sony make the iPod of digital books? That's the plan. At the Consumer Electronics Show on Jan. 4 in Las Vegas, BusinessWeek has learned, the Japanese giant plans to unveil a portable e-reader device for the U.S. The new gadget will let users store and view digital books and will sell for $300 to $500, about the same price range as a full-size iPod.

Sony (SNE), which would provide few details about the e-reader, also has agreements with at least three major publishers to sell digital book downloads on its Sony Connect online store -- much the way Apple (AAPL) sells music and video at its iTunes Music Store.

Back in 2000, a bunch of e-book readers hit the market, only to tank because the technology didn't adequately duplicate the book-reading experience.

MARKET SLIVER. Now, with everyone from Google (GOOG) to Microsoft (MSFT) to HarperCollins (NWS) digitizing books, plus the arrival of slick new display technology, Sony figures the time is right for a handheld e-reader in the U.S.

But while Sony's iPod-like strategy -- seamlessly wedding content to hardware -- has promise, reading books on a digital device still feels nothing like the real thing to most consumers. As such, it will be an uphill battle building a sizable market for e-books, which accounted for an estimated 0.1% of the 2.3 billion books U.S. publishers sold worldwide in 2004.

"No one has created a device compelling enough to have mass appeal," says Nick Bogaty, executive director of the International Digital Publishing Forum, an industry group.

A DIFFERENT APPROACH. Is Sony up to the challenge? Once the gadget king, it has suffered a string of recent misses thanks to iffy execution in digital media. Sony's late arrival to the digital music business and its proprietary approach let Apple dominate a category Sony once owned.

In 2004, Sony launched an e-book reader in Japan that also failed to take off. Called the Librie, it won plaudits for design, but its high price and draconian antipiracy technology -- users could only "rent" books from Sony for 60 days before the tomes deleted themselves -- scared off consumers.

Now, in the U.S., Sony has a second chance to build a market for digital books. While few details about the new reader are available, it's fair to say it will be an impressive piece of gadgetry. According to sources who have seen the device, it is similar in many ways to the Japanese Librie. Both devices use E Ink, a display technology developed by E Ink Corp. in Cambridge, Mass.

POWERFUL ALLIES. E Ink forms text by electronically arranging thousands of tiny black and white capsules, creating an experience remarkably similar to reading a printed page. Unlike the liquid-crystal display screens used in personal digital assistants, there is no backlight to strain readers' eyes, and characters show up sharp and clear, even in full sunlight. And since the gadget requires power only to "turn" pages, users should be able to read more than 15 books between charges.

to create a market for the device, Sony will take a page from Apple by setting up an online store, which will be run as part of its existing music downloading service, Connect. And as Apple did with music, Sony has lined up major players in publishing, including Random House, Simon & Schuster (VIA), and HarperCollins, to sell books through the store.

The service will start out with just the few thousand books each publisher currently sells in e-book form at prices close to mass-market paperbacks. But that number will grow fast. Jane Friedman, CEO of HarperCollins, says she plans to digitize the entire frontlist and backlist -- up to 25,000 titles -- and make them available at the Sony store as soon as HarperCollins negotiates royalty rights with authors. Random House, meanwhile, will also offer its entire front- and backlist for sale online -- another 25,000 titles.

"MAJOR LEAP FORWARD." Publishers, looking for ways to boost the industry's anemic single-digit sales growth, are eager to talk up the reader and online store. "We hope it's going to be the equivalent of when the Walkman or the iPod came out" and audio books saw a spike in sales, says Friedman.

Adds Richard Sarnoff, president of Random House's corporate development group: "[With E Ink] you're looking at an advance [in the market] for pure technology reasons...this is a major leap forward in terms of consumer experience."

Appealing technology and the backing of the publishing community are a good beginning. But Sony faces a number of challenges.

DIFFERENT TECHNOLOGIES For one, other companies also have access to the potentially game-changing E Ink technology. Yes, Sony will come to market ahead of the pack. But in the first half of '06, iRex Technologies, a Philips Electronics (PHG) spin-off, and a Chinese company called Jinke Co. both plan to launch similar devices in the U.S. Then in early '07, another Philips spin-off, Polymer Vision, and a British startup called Plastic Logic plan to introduce readers that are even more booklike than Sony's device.

The Polymer Vision reader will roll up like papyrus, while Plastic Logic's reader will be about as flexible as a magazine.

With rivals in the wings, Sony has a huge incentive to make its reader work with as many formats as possible. That's always a stretch for this famously proprietary company, but Sony seems to be getting religion this time around. Users will be able to load any .pdf file onto the reader, according to a person familiar with the device, as well as files with a special Sony e-book format. That means you'll be able to read everything from magazine articles to analyst reports to out-of-copyright books.

"UNTAPPED MARKET." And rather than requiring users to transfer data onto the device with Sony's proprietary "memory stick," the reader also will be able to connect via a computer's USB port and accept standard SD memory cards already found in many digital devices.

Beyond that, Sony has to hope consumers find the same pleasure curling up by the fire or on the beach with an e-book reader as they do with an old-fashioned paperback. Like online music four years ago, says JupiterResearch analyst Michael Gartenberg, "e-books are an untapped market."

"The iPod-iTunes success was an exercise in finding the consumer sweet spot," says Gartenberg. Sony badly needs a hit, but repeating Apple's success with books won't be easy.


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