E-Books: The Next Chapter

At the recent TV Guide awards show in Los Angeles--which Fox broadcast on Mar. 7--the familiar refrain "the envelope, please" was not to be heard. Instead, presenters read winners' names from a leather-covered gadget: the REB1200 e-book reader. The product placement could not have been better. But who would expect anything else from Henry C. Yuen, CEO of Gemstar-TV Guide Inc. (GMST )? An obsessive reader, Yuen has turned his passion into a business, making Gemstar a leader in the barely hatched e-book industry.

Not even a year old, Gemstar's e-book venture isn't just some pet project. Instead, Yuen plans to incorporate digital books into his overall strategy for interactive TV, ultimately making books available for downloading over his guide. In the meantime, he's working on getting the technology fine-tuned and winning converts with more well-known authors.

HOT TITLES. Yuen jumped into e-books last year when he announced a venture with Thomson Multimedia, which licenses Gemstar's technology to manufacture two e-book readers under its RCA brand: the $300, 18-oz. REB1100 and the $700, 33-oz. REB1200. Each allows a consumer to download books over a phone line.

But e-books are nothing without good writers. So to drum up sales, Yuen set out to craft agreements with publishers to release the work of popular fiction writers in e-form ahead of the hardcover releases. While sales of those e-books have been modest since last fall's introduction, publishers say the publicity around e-books helped sell the hardcover versions. "There's not a significant number of readers in this marketplace yet," says Time Warner Trade Publishing Chairman Laurence J. Kirshbaum. "So for now, success in the e-book market will also be reflected in print sales." Warner Books Inc. released James Patterson's Roses Are Red and Brad Meltzer's First Counsel early in e-versions.

By the end of last year, says Yuen, 50,000 e-book devices had been shipped, with users downloading an average of 3.8 books a month. He believes growing demand and a new plastic display screen in development will allow Gemstar to lower the price to below $100 by 2003. Goldman, Sachs & Co. estimates Gemstar's e-book-reader sales this year will be $6.3 million, climbing to $202 million in 2004.

Gemstar isn't alone in the e-book market. Franklin eBookman, a $180 handheld device, uses Microsoft Reader software, which can also be used in computers and handheld devices to download books. Adobe Systems Inc. (ADBE ) offers Acrobat Reader software that can be downloaded from barnesandnoble.com (BNBN ). But of course, as more big players test this market, the success of the e-book industry will in part depend on who can offer the most choices to readers.

For Yuen, e-books are the perfect device for his grand interactive vision. In conjunction with Gemstar's interactive TV programming guide, e-books might allow someone to download a newspaper from an icon on the guide, or zap books directly from the guide into the e-book reader. First, though, readers have to be willing to give up the paper page.

By Tom Lowry in New York, with Amy Borrus in Washington

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