Is Waterstones Mortgaging Its Digital Future With Amazon Deal?
By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid
By partnering with Amazon to sell Kindle devices and e-books in its bricks-and-mortar bookstores, Waterstones, the UK’s largest bookstore chain, could be sacrificing its digital future for a short-term gain, say industry observers.
Waterstones announced today that it would partner with Amazon to sell Kindle devices in its stores as well as provide wi-fi access so readers could buy e-books in-store. The terms of the deal were not disclosed, but it has been reported that Waterstones will get a piece of the revenue from selling the devices as well as from selling e-books within its stores. Waterstones will also offer its readers special in-store e-book deals.
While it is unknown whether money is changing hands between Amazon and Waterstones at any other point in the process, the arrangement as described above could be bad news for Waterstones.
“In the best case scenario, Waterstones will get devices sales, but they won’t get the sales later on,” said Eoin Purcell, editor of Irish Publishing News, who has followed the Waterstones-Amazon deal.
Meaning, once a reader leaves Waterstones with a new Kindle and decides to download books from the privacy of their home – or anywhere else, for that matter – the revenue stream for Waterstones dries up.
According to industry consultant (and DBW partner) Mike Shatzkin, “The difficulty in making deals around a reading device and supporting ecosystem is that the sales of content subsidize the sale of the devices.”
The Kindle Fire, for instance, reportedly costs more to make and distribute than Amazon charges consumers to buy it; it’s the content sales that the company hopes to profit on.
As Waterstones customers transition from bookstore-shoppers to Kindle e-book-buyers, Waterstones will lose future book-sales revenue to Amazon. Barnes & Noble may provide an instructive example.
When Barnes & Noble released its Nook e-reader in late 2009, it made an effort to sell the readers to its existing bricks-and-mortar customer base and converted many of them to e-book readers.
According to industry consultant Thad McIlroy, when this happened, growth in the retailer’s physical bookselling business halted. It could be that many of the heavy readers that once bought print books from Barnes & Noble were now buying e-books on the Nook.
“Barnes & Noble stopped growing overall when it became aggressive selling Nooks,” said McIlroy, who has written for Digital Book World about Barnes & Noble.
If this is true and Waterstones is set to lose many of its bookstore customers to the digital bookstore world, one wonders why the bookseller would enter into such a deal in the first place.
Waterstones general manager James Daunt has said repeatedly that the deal is about giving customers what they want – digital reading experiences – and that Amazon is the best partner for doing so. According to Daunt, a vast majority of customers will still want what Waterstones mostly gives them now – print books – once the dust settles on the e-book revolution.
When asked today on BBC radio what percentage of book-sales revenue will be digital in the end, after giving a disclaimer about such predictions, he said, “The number I would pluck out is about 25%.”
According to the Publishers Association, the UK trade group for book publishers, 8% of all sales were digital in 2011. The raw number, £92 million, reflected a 366% increase from the previous year. According to a recent study by Bowker, the UK is fairly in line with other countries around the world, including the U.S., when it comes to attitudes toward e-books and e-reading.
In the U.S., e-book sales are already approaching 25%, according to multiple reports, and many observers think they will hit 50% in the next few years. By comparison, Daunt’s prediction seems wishful thinking.
Write to Jeremy Greenfield
Digital books concept via Shutterstock