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eReader Customer Base Is Shrinking

11/03/2009 11:12:00 AM

For most retailers, the e-Reader market presents short-term and long-term challenges despite bullish sales projections from Wall Street analysts.

As editor Amy Gilroy pointed out in her blog, select eReaders aren’t available to all retailers to offer. The restricted eReaders include the popular Kindle series, available only through Amazon, and the planned Barnes & Noble Nook, available only through the bookseller. Nooks and Kindles incorporate 3G wireless, a popular feature enabling consumers to download books and other reading material wherever and whenever they want.

Distribution, however, isn’t the only challenge for retailers. In the long-term, another challenge is - oddly enough — the eReader’s shrinking total addressable market (TAM). The eReader could be the only CE product whose potential customer base is shrinking.

A research report by Credit Suisse pointed out the irony. The U.S. Census Bureau, the report said, conducts a survey every 10 years to estimate the population of “literary readers,” defined as people who read one or more books per year outside of work or school. The last study in 2002 found less than 47 percent of adults met the definition, and that percentage declined at a 1.6 percent compound annual rate between 1992 and 2002, according to a Credit Suisse analysis.

In 1982, the literary population represented 56.4 percent of the population, and that shrank at a compound annual rate of 0.4 percent to 54.2 percent in 1992, Credit Suisse said. During the next 10 years, the literary population dropped at a compound annual rate of 1.6 percent to 46.7 percent.

You read that right. The decline in the potential eReader customer base has been accelerating.

Yes, you rightly point out, percentages are relative, but according to Credit Suisse, the actual number of literary readers is declining -albeit modestly — despite the growing U.S. population. Here’s how Credit Suisse crunched the numbers:

“Assuming the literary reading rate continued to decline at a 1.6 percent annual rate since 2002, we estimate that in 2008, only 42 percent of adults in the U.S. read more than one book per year…Applying this 42 percent literary rate to the U.S. population aged 15 years or older, we estimate that the addressable market was approximately 103 million in 2008. Going forward, assuming the U.S. population continues to grow at a 1 percent annual rate but that the literary rate continues to decline 1.6 percent annually would imply the addressable market would be about 102 million people in 2009 but would decline slightly to about 99 million people by 2014.”

If the customer base doesn’t expand, however, Credit Suisse nonetheless forecasts strong growth in the fledgling market, projecting 51 percent compound annual growth between 2008 and 2014, when it expects U.S. sales to hit 31.3 million compared to 2008’s 1 million.

Those numbers aren’t bad at all, but certainly they could be higher if the total addressable market were expanding. But it’s not. The cellphone market can expand its market potential by targeting younger and younger customers, but those are precisely the people most apt to read books the least.

Long term, to expand that potential customer base, the industry must make a concerted effort to make text books, trade publications, consumer magazines, newspapers, and web content available on lightweight, battery-efficient eReaders that are less expensive than netbooks or laptops and easier to use. (Newspapers in particular, given that my newspapers arrive on the doorstep after I leave for work. If I had an eReader, I’d be able to read all my morning newspapers on the train to work.)

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