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Jewish World Review June 8, 2000 / 5 Sivan, 5760

James K. Glassman

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Consumer Reports

Riding the eBook Wave --
Recently, a reader asked my opinion of companies to watch in the field of ebooks. We're talking about books stored as digital data in a handy device, as opposed to printed on heavy paper. Last week, I answered the question this way:

"I am a strong believer in ebooks. Within five years, my guess is that half of us will own one. Yes, I love the tactile sensation of turning the pages in a book, but as a guy who travels a lot, I would love to be able to take two or three books along with me in a tablet that's an inch thick.

"Also, ebooks will change publishing. Soon, anyone will be able to publish a book, posting it on a site and allowing readers to download onto their ebooks at a price that could be very low, considering how expensive conventional production and distribution of books can be.

"But picking winners in the ebook industry is tough to do. It is really too early. No powerful players have emerged. Again, just guessing, I think the winner could be an established player like Palm Computing or even a big book or newspaper publisher.

"Stay vigilant: the trend is clear but the stock is not."

This week, I'd like to expand on that answer. While it's not clear which company will create and market the best technical platform to read an ebook, I do think this trend is great for publishers in general. It transforms book publishing from an old economy industrial process into a new economy software business, in which millions of copies can be distributed at a marginal cost approaching zero. Yes, there will be tough piracy issues to handle in a digital market, as the music industry has discovered, but the upside for publishers is enormous.

Certainly, consumer imprints will thrive selling ebooks to travelers like me, but that's just the beginning. Think of all those college kids who embrace technology. Right now they're giving the music industry fits, but once there's a reliable tech fix to prevent piracy, textbook publishers could be among the first to benefit from the ebook trend. These kids don't want to be standing in line with a fifty-pound stack of books at the start of every semester, and they know how to do something about it. Someday soon they could be downloading a whole year's worth of course material in less time than it takes to tap a keg.

So, how should an investor respond to this trend? It's hard to find pure-play publishing stocks because the major publishers are all owned by huge media conglomerates. Simon & Schuster belongs to Viacom (ticker symbol:VIA) and Random House belongs to Bertelsmann, the privately-held German media giant.

I'm intrigued by Harcourt General (ticker symbol: H). Formerly known as Harcourt Brace, this company has spun off various unrelated businesses in recent years and is now completely focused on educational publishing. Trading at roughly 20 times trailing earnings, this could represent an excellent buying opportunity. Investors looking to play the ebook trend might also consider buying the American Depositary Receipts (ADRs) of the British media firm Pearson PLC (ticker symbol: PRSNY). Pearson owns consumer publishing brands like Penguin and Viking, as well as academic publishers like Addison Wesley Longman. The company also owns the Financial Times and various other media properties, so I think it's well positioned to benefit from digital publishing.

JWR contributor James K. Glassman is the host of Tech Central Station. Comment by clicking here.


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