By Hiroki Kamata, Editor, E-Book 2.0 Magazine
The Japanese e-book industry is estimated to be valued at “$600 million” with “growth in excess of 20% per year,” according to research firm Impres R&D. While these numbers may seem impressive at first glance, as Robin Birtle (CEO at Sakkam Press in Tokyo) noted recently on TeleRead they “belie the fact that comics make up 75% of the revenue, and apart from comics and magazines, there seems little significant advance in broadening the e-book customer base within Japan.” Mobile phone companies providing distribution and payback service platforms for publishers also make up a significant portion of Japan’s total e-book market value.
The number of Japanese language e-book titles has not grown significantly over the last year. According to an article in the SankeiBiz newspaper, there are still just 30,000 e-book titles available in Japan. Why such a small number — especially when Japan is so often at the vanguard of technological innovation? Simply put, publishers continue to remain reluctant to convert their books into digital formats due to cost, as well as their own ongoing fears about digitization.
Why are publishers so suspicious when it comes to e-books? First, they believe e-books will eventually cannibalize their print book business. Second, they suspect the book market will continue to decline and, ultimately, become less lucrative. Third, they think international e-book businesses, especially Amazon’s Kindle e-bookstore, will destroy the Japanese distribution system dominated by two companies, Tohan and Nippan, whose shareholders include a dozen of Japan’s major publishers.
Japan’s book distribution system is unique, and perhaps the most influential factor in publishers’ reluctance to embrace e-books. In 1953, the Japanese publishing industry established fixed pricing for books and magazines. Under the current system, the major and established publishers enjoy higher status than foreign publishers. Fixed pricing for print media is tolerated despite the country’s anti-trust policies, but not when it comes to digital content. Overall, physical book distribution in Japan is suffering from a number of factors, including a 40% return rate, 28% decline in small bookstores, and an overall market decline of 17% since 1996.
In many Japanese industries, companies fall into one of two categories: the “za” and the “goyo shonin.” The “za” refers to the guilds, which grew out of protective cooperation between merchants typically affiliated with temples and shrines in the medieval age. The “goyo shonin,” meaning royal merchants, developed in the early modern age. They hold warrants to supply specific goods or services to the public or to trade with foreign counterparts. The mentality of the Japanese publishers is derived from the “za” and for them the “industry” is more like a society to which the privileged members have belonged for generations. Therefore publishing is treated with sensitivity inside the industry and kept out of the scope of critical analysis. A year ago, a major business magazine had to cancel its cover story about distribution in the publishing industry.
Publishers feel threatened when outside companies try to bypass or shortcut the existing system to gain direct access consumers. As an alternative to Amazon’s streamlined supply chain, they are advocating “a (Japanese style) horizontal specialization in e-books,” which means a collaborative environment where different stakeholders in the complicated supply chain work together without encroaching on the others’ territory.
Just like the two distributors of print books, two online wholesalers (syndicates) are being organized by Dai Nippon Printing (DNP) and Toppan Printing who currently handling production of books and magazines for the publishers. Many of the online retailers are affiliated with one of these two companies. Major publishers have hinted that they are boycotting Amazon to support domestic syndicates or more favorable foreign suppliers.
However, the horizontal model, introduced to support the existing publishing industry and its traditions, does not work in the Internet age, resulting in higher prices and minimal value to consumers. E-book prices under this model are set around 70-80% of the print book price. While big-name publishers like Kodansha and Shinchosha announced that they will simultaneously publish new titles in both print and electronic formats by 2012, consumers still don’t see much advantage to reading e-books at their current prices.