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China’s Online Reading Market Is A Compelling Read

The number of people reading e-books on mobile devices has been steadily rising in China over the past few years. As of last year, China had 333 million online readers (the majority of whom are under 30 years of age) engrossedly reading favored genres such as fantasy, romance and historical biographies on mobile devices such as smartphones or e-book readers such as Amazon’s Kindle (NASDAQ:AMZN).

The digital publishing market (comprised of hardware such as reading devices and software such as e-books) grew 25% last year, generating total revenue of CNY 12 billion (about US$ 1.76 billion) for the year according to a report by the China Audio-Video and Digital Publishing Association.

China’s digital publishing market is expected to reach CNY 14 billion this year, an 18% increase over last year, according to estimates from Beijing-based consultancy firm Analysys.

Bar chart and line graph showing the total revenues and revenue growth rate of China's digital publishing market (comprised of hardware such as e-readers and software such as e-books) during the years 2012, 2014 and 2016. Revenues in China's digital publishing market totaled CNY 3.9 billion in 2012, CNY 8.1 billion in 2014 and CNY 12 billion in 2016 representing growth rates 44.4%, 37.3% and 25% respectively.

The opportunity could be a boon for e-bookstores and e-reader manufacturers. On the hardware side, currently Amazon’s Kindle and Beijing-based iReader Technology (SHA:603533) are the two major players in China’s e-reader market. JD.com is one of the newcomers. On the software side i.e., e-bookstores, popular names include China Literature (backed by Chinese tech giant Tencent) Migu (owned by China Mobile (NYSE:CHL) (HKG:0941), which is China’s largest telecom company) and Amazon’s Kindle Store.

However, despite the steady growth of China’s e-book reading population, e-reader device sales growth in China has been comparatively mild as Chinese online readers turn to their smartphones which come in handy to read e-books during spare time, for instance while commuting.

According to data from Shenzhen-based consultancy firm Qianzhan Industry Research Institute, 3 million e-book reading devices were sold in China in 2011, a figure which has never been surpassed since that year. As of last year, 2.3 million e-readers were sold in China.

However, this relatively mild performance looks much brighter when compared to the rest of the world where sales of e-readers are witnessing negative growth. Introduced to the world in 2006 by Amazon with its Amazon Kindle, global e-reader sales skyrocketed from 1 million units in 2008 to 23.2 million units in 2011 according to data from London-based analytics firm IHS Markit (NASDAQ:INFO). Since reaching its 2011 peak however, e-reader sales have declined precipitously with no sign of recovery. Global e-reader sales are expected to decline to about 7.1 million units in 2016 (latest figures have not yet been released).

The decline is attributed to consumers replacing e-readers (which are essentially single-task devices) with tablets (which are multi-task devices).

Noticing an opportunity, China has seen the launch of a few dual screen smartphones with an E-Ink screen on one side of the device and an LCD screen on the other.

The Russian-made Yotaphone is perhaps the most well-known. Chinese white goods giant Hisense (SHA:600060) is also in the running with its latest dual screen smartphone, the Hisense A2 Pro dual screen smartphone which debuted in China last month.

Despite its unique selling point however, the Yotaphone has not enjoyed the level of success of other smartphone brands such as Samsung (KRX:005930) (KRX:005935), Apple (NASDAQ:AAPL), or Huawei. How well the Hisense phone performs remains to be seen.

Bright prospects

While China offers a ray of hope for e-reader manufactures faced with waning global e-reader sales, the more compelling opportunity in China’s online reading market is likely to be in e-book sales and subscriptions (some e-reader brands such as Amazon Kindle tend to be sold at cost anyway, with profit being earned through sales of online content).

Not only is China’s digital reader population growing in number, they are also increasingly willing to pay for online books.

E-book sales are still a relatively small proportion of China’s entire publishing industry, indicating ample potential for growth; with total sales of CNY 62.4 billion in 2015, printed book sales were nearly six times higher than e-book sales which totaled CNY 10.8 billion in sales the same year.

The potential has heightened competition in the market as existing players up their game and new players make their entrance.

Amazon, the pioneer e-book reading device maker in the world introduced the Kindle to China in 2012. Now, with the Middle Kingdom being the biggest market in the world for Amazon’s Kindle, Amazon has been aggressively working to capitalize on the growing interest in online reading among Chinese. This year, Amazon, in partnership with Migu (one of China’s most popular e-bookstores which is backed by China Mobile, China’s largest telecom operator) launched a customized Kindle exclusively for Chinese readers – the Kindle X Migu. The made-for-China Kindle comes bundled with Amazon bookstore which will offer over 460,000 e-books as well as the Migu bookstore which will offer over 400,000 selected online literature works, and thus will offer a combined selection of over 800,000 e-book choices to Chinese e-readers. It also marks the first time Amazon has launched a Kindle together with another party.

Amazon also launched a new advertising campaign to rekindle the love for reading among Chinese adults, particularly those aged 30 and over. These adults have a relatively stronger passion for reading compared to the younger generation which grew up in an era of abundant entertainment that came with the rise of the internet and smartphones.

Amazon also partnered with e-commerce rival Alibaba for a large Kindle promotion across Alibaba’s online shopping sites this month.

Beijing-based iReader Technology’s latest e-reader called the iReader Light, was released in September last year and China’s second-biggest e-commerce firm JD.com (NASDAQ:JD) launched its JDRead e-reader device last year.

Tencent’s (HKG:0700) (OTCMKTS:TCEHY) (OTCMKTS:TCTZF) China Literature is planning an IPO in Hong Kong aiming to raise as much as US$800 million to fund acquisitions and expansion plans.