The most important ereader company you’ve never heard of by Eric Hellman

Imagine you’re the head of a big print media company. Sales of your print products have been eroding steadily and you find yourself competing with internet businesses that have very different business models and cost structures. Your own website revenues have been growing steadily, but it will be many years before they match your print subscription revenue. You know in your heart that digital subscriptions will somehow be the answer, but your otherwise loyal reader base is resisting web subscription rates that would allow you to sustain your business.

What do you do?

One answer is something I’ve speculated about, based on cost reduction trends for tablets and ebook readers. Bundle a reader device into your subscriptions! The consumer gets a device for “free”, and you’ve retained a premium subscriber. You could even bundle a shopping application and collect a commission on purchases of content made through your estore.

At first glance, the obstacles to a successful implementation of the bundled e-reader strategy might seem profound. Here’s an incomplete list of what you’d have to do:

1. You’d need an inexpensive device, of course. But it can’t be something cheesy, because it will be carrying your brand.
2. You’d need an operating system for your device. Lucky for you, Google seems to have a good solution with Android. But you still need people who can customize and adapt Android to make it shine.
3. You’d need to figure out the logistics of getting your content onto the device. Maybe you’ve already started this process with Apps for iPad or Android.
4. If you’re serious about an estore, someone has to build that, too. It’s not only an engineering project it’s also a big business development task to gather businesses willing to sell their content and goods through your estore.
5. You’ll need to build a customer support operation.
6. You’ll need some big marketing power and a sales channel.

Most big media companies have only the last item in their portfolio of competencies, so you might expect this isn’t going to happen anytime soon.

But you’d be wrong.

On Thursday, my rounds in Bangalore took me toNinestars Information Technologies Ltd. Ninestars specializes in back-end infrastructure for publishing companies. They started out doing newspaper backfile digitization, and today they work with a Who’s Who of the newspaper and publishing world. It’s Ninestars, an Indian company,  that’s actually doing much of the heavy lifting in the preservation of the entire world’s history. Early on, Gopal Krishnan, the company’s Chairman, made a crucial decision to steer away from the brute-force, labor intensive approach to digitization in favor of developing technology and automation so that jobs could be done faster and with fewer people. That decision has paid off as publishing has become more and more dependent on advanced technology, whether it’s website and e-commerce development, content delivery, or mobile and tablet apps.

Ninestars operates under a “white-label” business model. If you go to their website, you’ll be surprised at its small size and inertness. But don’t judge a book by its cover- Ninestars and Gopal are major players. Playing the white-label role to the hilt, Ninestars wants the spotlight to shine on their customers, as if Ninestars didn’t even exist.

Ninestars’ e-reader strategy is similarly white-label. Tablets and e-readers are being developed by Ninestars’ associated companyDisplayTronics Reader Devices Ltd.. DisplayTronics CEO Dr. Somanath V S gave me a peek inside the DisplayTronics development laboratory. I saw a range of e-reader prototypes- both EPD and color LCD, all with touchscreens. These will be sold under brands that are already familiar to consumers.

DisplayTronics is also building a white-label “estore” that its customers will use to sell their content, whether on their branded e-readers, or through apps on other device platforms.

While I’ve written a fair amount here about business models for ebooks, I haven’t really covered business models for e-readers. Everyone knows about Apple’s hardware-oriented business model and Amazon’s commerce oriented business model, but there’s not been much in the way of business models that put content at the center -yet. With e-reader pricing dropping at a relentless pace, big media companies are potentially in an excellent position to remake the e-reader market in a ways that sustain their businesses. Companies that try to make money by selling devices might find it difficult to compete against free or subsidized devices bundled into media subscriptions.

We’ll find out how well the bundled-e-reader business models work when they launch – in 2011.