The financial argument for e-readers instead of paper as the main publishing medium for newspapers is strong. But e-readers have their limitations. Stephen Quinn reports.

In June 2009 a Moody’s senior analyst in New York, John Puchalla, criticised the American newspaper industry for its “distorted” cost structures. Similar cost structures operate at newspapers in Asia. In essence, too much of each dollar is spent on printing and distribution, and too little on what sells newspapers: the content.

Puchalla noted that 70 cents in each dollar were spent on paper, printing, distribution and corporate functions. Only 14 per cent of American newspapers’ operating expenses were spent generating editorial content. The other 16 per cent of costs were related to advertising and marketing.

The New York Times is one of the best newspapers in the world. It has won 101 Pulitzer Prizes, more than any other newspaper. Its annual editorial budget of more than $US 200 million is the largest of any newspaper. Yet that figure is a third of the yearly cost of printing and distribution: $US 650 million. In 2009 the company expected to pay $US 65 million for newsprint. Many Asian newspapers have the same distorted cost ratios.

Enter the e-reader. It is a mobile reading device capable of storing thousands of digital documents. In the US readers can buy and download content wirelessly. Elsewhere in the world people connect via USB. The best-known e-readers in 2009 were the Amazon Kindle, the iRex iLiad and the Sony Reader. Others were scheduled to appear in 2010.

Newspapers could provide loyal readers – let’s say people who have subscribed for more than two years – an e-reader in recognition of that loyalty. The e-reader could become a status symbol. Readers could keep the device while they continued to subscribe. This would reduce distribution and printing costs.

For example, about 830,000 people have subscribed to The New York Times for more than two years. To give an e-reader to each of those subscribers, at $US 400 per device, would cost about $332 million. These calculations are simplistic, and reduced print runs and fewer delivery trucks would still cost money. But e-readers offer a possible option for reducing costs, once consumers accept them. The paper spends $US 650 million to print and distribute about 1.04 million copies weekdays and 1.45 million on Sundays.

But all is not perfect in the world of e-readers: Content is only available in black and white, which advertisers do not appreciate. The exceptions are Fujitsu’s FLEPia colour reader, which costs $US 1,000, and Samsung’s Papyrus. The latter is only available in Japan.

Depending on the device you buy, you’ll find yourself tied to one format that does not read other formats. It’s like buying a car that can only use one brand of petrol. And e-reader suppliers take a huge cut from subscription fees. Amazon is said to take 70 per cent of the revenues for delivering a newspaper’s content to the Kindle. Subscribers pay $US 14 a month to receive The New York Times on the Kindle, but the media house only gets $US 4.20 per subscription.

Early in 2009 the Hearst Corporation announced it would release an e-reader for newspapers some time in 2010. It would be American letter in size and weigh less than half a pound. In March 2009 the Silicon Valley-based Plastic Logic said it planned to release an un-named e-reader in January 2010. The Plastic Logic product will have a screen measuring about 27cm diagonally, compared with the 15cm display of the Kindle. The Plastic Logic device will weigh about the same as the Kindle (about 300 grams) because it will be made from plastic rather than glass and silicon.

Plastic Logic’s vice president of business development, Daren Benzi, said the first version would have 16 levels of grey scale but his company intended to produce a color device “in the near future”. Eventually the device would show video. Benzi said the time was right for e-readers. They were smaller, lighter and easier to use, but mindsets had also changed, meaning that “people are a lot more comfortable reading digital content, and are more conscious of the benefits of getting their information this way”.

On 7 May 2009 Amazon announced a large-screen version of the Kindle, the DX. It has a 25-cm display, about the size of an A4 magazine, and 3.3 Gb of storage.

All e-readers have one major selling point: They are perceived as being greener than newsprint. Don Carli, senior research fellow with the Institute for Sustainable Communication, said that despite the fact that print was based on “comparatively benign and renewable materials” print had come to be seen as wasteful and environmentally destructive.

“The carbon cost of print will soon have to appear on the balance sheets of advertisers, publishers and retailers. It will also appear in the price tags of goods and services. As we exit the global recession we will simultaneously be transitioning to a low carbon global economy that will change the meaning and value of waste and inefficiency,” Carli said.

Almost all e-readers use e-ink, which simulates the look of ink on paper. The technology uses a layer of microcapsules filled with sub-micrometre black and white particles that create a low-power, reflective screen. These particles form images on the screen like printed text.

The E.Ink company that invented the concept was a start-up based in Cambridge, Massachusetts, that came out of research at M.I.T. The company supplies the electronic-ink technology used in the vast majority of e-readers on the market today.

In June 2009 a Taiwanese company, Prime View International (PVI), purchased E.Ink for $US 215 million. PVI is the world’s largest maker of e-paper display modules. It acquired the e-paper business of Philips Electronics in 2005.

For editorial managers, the key decision is when and whether to invest in the transition. Publishers would need to subsidise the cost of the digital devices or include those costs in the subscription the same way that phone companies build the cost of the mobile phone into the contract. Publishers also face the task of convincing advertisers their products would still be seen.

* Published in Asian Newspaper Focus, October 2009