As we have pointed out in other sections, one of the ways to elude the process of price cannibalization affecting hardware industries and online sales is by developing ecosystems that integrate different units of the business. In the case of digital publishing, one alternative would be to combine the sale of content with the distribution of an own-brand device.

There are a fair number of projects built on this principle in China, the most famous example being Shanda Interactive Entertainment. Founded in 1999, this company based in Shanghai specializes in videogames and other multimedia applications and achieved international renown when it presented its online literature division, during the 2009 Frankfurt Book Fair. Shanda Literature is a universe made up of hundreds of thousands of writers and over 10 million active readers who leaf through a total of over 500 million pages a day. Visitors can look at a few sections free of charge and must pay just a small amount to read the entire text. Thanks to Shanda, 1,000 or so writers already receive about 10,000 dollars per year, while the most frequently read authors earn figures in excess of 100,000 dollars. Shanda has acquired other online reading and writing portals including Qidian, Hongxiu and ReadNovel, and, according to its own website, controls 90% of China’s Web literature. It has thus managed to build up a backlist of hundreds of thousands of works, now brought together in what Shanda calls the Cloud Bookstore, where in real time readers can see which is the most popular text, read reviews and even interact with the authors themselves.[1] These options are inspired by the functionalities of online social networks like QQ, Renren, Kaixin001 or TX, which are all the rage in China, particularly among younger users.[2]

The Cloud Bookstore can be consulted from a variety of terminals – computers, mobile phones and tablets –, but especially from Bambook, an e-reader the company brought out in August 2010. This device comes with a 6-inch electronic ink screen and a complete interface in Chinese. The cheapest model costs around 150 dollars, that is to say, about the same price the Kindle 3 sells for in the US.[3] Given that the device costs nearly 250 dollars to produce, the company is clearly subsidizing the product in the hope of recovering its losses through the sale of content.[4]

The success of its literature division has led Shanda to experiment with printed editions of its most widely read titles, and for this reason it has bought shares in various traditional publishing houses like Tianjin Chinese-World Books. At the same time, thanks to its grasp of the multimedia field, Shanda has turned some of its texts into videogames and movies – as happened in the case of the film Lian’ai Qian Guize (Rules before love), based on the online novel Yukongjie Tongju De Rizi (The air hostess I live with). In addition, the company owns audio book sites – like Tingbooks –[5] and digital magazine sites – like Zubunet, which has 300 million registered users.[6]

Shanda has seen the need to take legal action against other portals that have hosted or disseminated unauthorized versions of its works. One of Shanda’s targets was Baidu – China’s leading search engine –, particularly because of its service Wenku, which enables documents to be shared online.[7] In addition to these legal proceedings, Shanda’s response consisted of announcing the launch of its own search engine in October 2010.[8] Baidu, in turn, counterattacked a few weeks later by introducing a sales platform for e-books, which unfortunately has not been a hit with publishers and authors; consequently, in February 2011, it has just 100 titles for sale.[9] Besides Baidu, Shanda has taken out lawsuits against Mop,[10] QQ Games[11] – owned by Tencent – and other sites, which shows that the company takes the matter of copyright very seriously indeed. As Shanda’s CEO, Hou Xiaoqiang, explains:

Shanda Literature is actually a copyrighted industrial company, which is focused on two things: one is copyright production and the other is copyright distribution. Copyright production is much like planting an orchard. We should give it the best soil and the highest quality fertilizer, and then we will get a very good harvest. In the meantime, we should guard our fruits and find various channels to sell them. We endeavour to develop copyright via wireless, online, offline and many other channels.[12]

Lastly, Shanda has signed an agreement with the Chinese news agency Xinhua News with the aim of distributing content through its platform,[13] which shows that the company’s remarkable dynamism in the private sphere – including acquisitions of smaller firms and quotation on NASDAQ since 2004 –[14] is complemented by a strategy of public sector cooperation.

It is not easy to anticipate the outcome of the contest between Shanda and other companies, both local and foreign. In any case, the company has built an ecosystem of enormous significance in global electronic publishing, as Hou Xiaoqiang observes:

Certainly the US is ahead of us when it comes to Internet technology. But our idea and our success with the Internet and mobile literature are unique.[15]

Another heavyweight player is Apabi, the digital branch of the technology group Founder, which since 2001 has been offering IT solutions to the publishing world. Its main innovations include: the CEB – Chinese e-book – format; the Apabi Reader – a reading application for computers and iPads –;[16] an online newspaper and magazine viewer; and an own-brand DRM that has won various awards.[17] These developments are currently used by thousands of educational establishments, hundreds of newspapers and – according to data provided by the company – 90% of local publishing houses. Penguin China, for example, announced in April 2009 that it would choose Apabi as a strategic partner to distribute e-books in CEB.[18] In August 2010, the technology company also brought out its U-reader Mini Study, a pendrive that serves as a portable bookcase for electronic books and enables students to borrow a book from the university library and take it home; the system then automatically “returns” the work on the due date.[19] Thanks to various agreements with publishers and authors, Apabi has put together a digital backlist of over 600,000 titles under copyright protection that can be leafed through, commented on and purchased through the portal Fanshu – a joint project between Founder and the search engine Zhongsou – at prices that rarely exceed 3 dollars. These publications are designed to work on any device but particularly on the WeFound,[20] an e-reader developed by Founder and Aspire,[21] which looks very similar to the Kindle 2, although at over 500 dollars its price is very different.[22]

As we mentioned at the beginning of the chapter, the manufacturer Hanvon is aiming to position itself as a distributor of digital publications in order to avoid a devastating price war, and in this sense can be regarded as a third ecosystem that brings together hardware and content. According to declarations made by its CEO, during its first 3 years Havon has focused on the device, but the next 3 years will be oriented towards the publications platform, which already offers 130,000 e-books, 100 newspapers and over 200 digital magazines.[23] It is worth clarifying that Hanvon is one of the few private companies to have government authorization to reproduce and distribute electronic books.[24] The company has also branched out beyond mainland China and has in fact already announced the launch of sales portals in Hong Kong[25] and Taiwan.[26]

In addition to these three large ecosystems, there are numerous aggregators struggling to survive. One such company is ChineseAll, inaugurated in 2000, which was one of the first ventures to sell electronic books in China. Thanks to sustained investment,[27] it has built up a backlist of more than 100,000 books in PDF from around 300 publishers and 1000 authors,[28] which are sold in China and abroad.[29] So far it has not developed its own e-reader but has instead preferred to form alliances with Hanvon and mobile operators to distribute its texts. Tong Zhilei, the creator of ChineseAll, quickly understood that piracy constituted a serious obstacle to his business model and so in 2005 he founded the Chinese Online Anti-Piracy Union (COAPU) and obtained dozens of legal victories against other sites that reproduced some of his company’s e-books without authorization.[30] The struggle, according to Tong Zhilei, must be ongoing:

In fact, each digital publication is a dissemination of digital contents, and all disseminations require authorizations. The essence of digital publishing is digital copyright. As a result, copyright becomes paramount to digital publishing. Every publication is a process of copyright licensing and a copyright transaction. So the biggest challenge is piracy.[31]

We also find other smaller but extremely dynamic actors emerging outside of mainland China. One example is the Taiwanese company Book11, founded in June 2009, whose major shareholder is Chi-Lin Technology. This project is looking to become the main international sales platform for e-books in Chinese. The publications distributed by Book11 are generally novels and comics, designed for any kind of device.

As we have seen, Chinese platforms tend to act on several fronts in order to defend their business models. The various options are: 1) building ecosystems that combine content and hardware; 2) distributing publications in as many formats as possible; 3) taking legal action against other sites in breach of copyright; 4) exporting content; 5) forming alliances with different State sectors, be it public publishing houses or educational establishments.

Of course, working with the public sector is a compulsory alternative in a country like China where the State retains a considerable capacity for action in supervising, regulating, financing and permanently transforming almost every sphere of economic and cultural life. In the book industry, the public sector’s support for conversion to digital is evident and merits a detailed analysis.