IPad May Be ‘Black Ship’ That Shakes Up Japan’s Book Industry

By Pavel Alpeyev and Yoshinori Eki
April 9 (Bloomberg) -- Apple Inc.’s iPad may force Japan’s
$21 billion book market to reshape pricing in the industry by historic proportions, publishing officials and analysts said.
Communications minister Kazuhiro Haraguchi and the Electronic Book Publishers Association of Japan this week compared Apple’s device to the "Black Ships" that led the country to open trade with the U.S. 157 years ago. Unlike most Western markets, Japanese publishers set retail prices and prevent discounting, allowing more than 450 companies to coexist.
The maker of the iPhone may challenge Japan’s publishing establishment in a market where e-book sales -- estimated by Nomura Holdings Inc. to be four times those of the U.S. -- come mostly from comics on mobile phones. Sony Corp. and Panasonic Corp., Japan’s two biggest consumer electronics makers, have scrapped their e-reader business in the country and Amazon.com Inc. has yet to offer its Kindle in Japanese.
"There’s a strong chance that a device like the iPad will allow authors to cut out the publishers as middlemen," said Jun Hasebe, a Tokyo-based analyst at Daiwa Securities Group Inc. "Japanese printing, publishing and distribution industries are strongly interconnected and all three face that threat."
Amazon.com and Barnes & Noble Inc., maker of the Nook reader, are giving publishers control over pricing to stave off competition from Apple, three publishing officials said this month. More than 7 million iPads may be sold globally in the first year, according to researcher iSuppli Corp.

Nervous About IPad

In Japan, some publishers are nervous about how the iPad may affect pricing negotiations with authors and distributors, said Mitsuyoshi Hosojima, a director at the Tokyo-based e-book association, a group formed last month by 31 members including publishers such as Kadokawa Group Holdings Inc. and Shueisha Inc.
"The iPad is coming from the U.S. and brings a new set of rules with it," said Toshihiro Takagi, a researcher at Impress R&D in Tokyo.
Jill Tan, a Hong Kong-based spokeswoman at Apple, didn’t respond to phone calls seeking comment. Misao Konishi, a Tokyo- based spokeswoman at Amazon, declined to comment on the company’s Kindle plans in Japan and Apple’s entry.
Unlike the U.S., Japanese bookstores don’t have the incentive to compete on price because they can return unsold books to publishers, said Takayoshi Koike, a Tokyo-based analyst at Deutsche Bank AG. The system hinders the ability to offer electronic titles cheaper than paper books, Nomura said in a Nov.
17 report.

Unique Market

"The Japanese book market is unique in that retailers must absolutely follow prices set by publishers," Koike said.
"Stores are shielded from book returns, which is why such a great number of small outlets can exist."
For example, a book sold for 1,000 yen ($10.70) in Tokyo would typically result in the publisher receiving 630 yen, the author getting 70 yen, the distributor pocketing 80 yen and the bookstore being left with the remaining 220 yen, according to Japan’s Ministry of Economy, Trade and Industry.
"A lot of things are said about the iPad and Kindle which are what you would call ‘Black Ships,’" Minister Haraguchi said at an April 6 briefing in Tokyo.
Commodore Matthew Perry is credited by historians with helping usher in Japan’s modern era in 1853, when he opened Japan’s ports to trade by taking four black U.S. Navy steam ships to negotiate a treaty. The Japanese, shocked by the number and size of the guns aboard the ships, capitulated after seeing the "giant dragons puffing smoke," according to the Naval History & Heritage Command’s Web site.

Giving Up

Japan has yet to open to e-readers. Buyers of Amazon’s Kindle reader are redirected to the company’s U.S. site since no Japanese-language titles are available. Tokyo-based Sony stopped selling e-readers in its home market in 2007 and Osaka-based Panasonic gave up in 2008.
Japanese consumers, accustomed to using mobile phones to surf the web, were reluctant to buy devices that can only read books, according to Sony spokeswoman Yuki Kobayashi and Akira Kadota at Panasonic.
"We’d be interested in joining the iPad platform but not at the expense of ruining pricing of our products," said Fumiyuki Kakizawa, a Tokyo-based spokesman at Kadokawa, Japan’s biggest listed publisher. He declined to comment on the iPad’s impact on the publishing industry.
Still, the iPad offers publishers a chance to offset slumping revenue with content that combines text, video and audio, said Daiwa’s Hasebe, who covers Internet companies.
Sales of paper books and magazines in Japan fell 4.1 percent to a 21-year low in 2009, shrinking 27 percent since its
1996 peak, according to the Research Institute for Publications.
Advertising spending in Japan slumped 26 percent for magazines and 19 percent for newspapers in 2009, according to Dentsu Inc., the country’s largest advertising company.
"What sets iPad apart from a dedicated e-book reader such as Kindle is that many people will buy it for other features and end up reading books as an afterthought," said Hasebe.