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e-Reader Market To Explode: Credit Suisse

7/20/2009 04:11:02 PM Eastern

New York - E-readers are on track to penetrate about a third of the
U.S. adult book-reading population in five years, up from only 1
percent penetration in 2008, according to a study published today by
Credit Suisse.

The installed base of e-readers could soar from 1 million in
2008 to 32 million in 2014, the report stated. Credit Suisse expects about 4
million e-readers will be in use in the U.S. by the close of this year.

Credit Suisse expects Amazon, specifically, will sell 1.8
million Kindle e-readers in 2009, increasing to 2.9 million in 2010 and up to
8.5 million in 2014, marking a compound annual growth rate of 36.4 percent.

Amazon's revenues from the Kindle should climb from $623.6
million in 2009 to $813.7 next year, reaching $1.8 billion in 2014.

However, while Kindles are profitable, Amazon loses an
estimated $1.50 per e-book it sells, although this should flip to profitability
in 2012 as Amazon's costs come down. At that time, Amazon's profits on e-book
sales will total $31 million on revenue of $802 million.

Apple, Google and others are also moving to win a slice of
the market and could impact Amazon's share.

There is also speculation Apple will offer an iPhone/iPod
Touch tablet device in October with a 7-inch by 10-inch screen, similar in size
to the Kindle
DX
, said Credit Suisse. While Amazon has its own e-reader app for the
iPhone, the app is less profitable to Amazon than its Kindle e-book sales. Said
Credit Suisse, "Of course, while the Apple tablet could facilitate greater
Kindle App usage, we estimate Kindle content downloaded this way to have
relatively low margin characteristics. 
Therefore, for Kindle, we see the Apple tablet launch as a potentially
significant negative swing factor."

Google may also win a pending federal court case that would
allow it to release potentially millions of books in e-book format, as Google
has digitized the entire content of libraries, including the New York Public
Library and the libraries of Oxford and University of Michigan, among others. "If the Google settlement
holds, Google could potentially become a large-scale book aggregator, making
much of the world's library content available to a multitude of e-book devices,
including smartphones," said the report.

In the e-text book market, "HP and Dell, for instance, who
already have a large presence in the classroom, could conceivably pre-empt
Amazon by striking deals to distribute a netbook to every student, thus
protecting the computer based instruction model that currently exists. This
could effectively have negative consequences on Amazon's ability to tap this
market," said the report.

Some other findings and forecasts from the Credit Suisse report:

*Forty-two percent of the U.S. people age 15 and older,
totaling 102.7 million people, are considered literary readers.

*The total U.S.
e-book wholesale industry will grow from $52.3 million in 2008 to $196.6
million in 2009, reaching $1.8 billion in 2014.

*The installed base of Kindle users will increase from 0.6
million in 2008 to almost 20 million in 2014.

*Credit Suisse estimates Sprint charges Amazon a one-time
activation fee of $5 per Kindle plus other fees that amount to approximately
$2.00/month per Kindle user.

*The U.S.
e-text book market is currently $50 million, but it's growing by triple digits.

*Roughly 50 percent of the Amazon e-books sold are new
releases.

 

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