When we first introduced South Korea as an emerging rights market in these pages in 1993, international copyright protection in Korea was only five years old and the old habits of photocopying and translating at will were proving hard to break.

Less than a decade later, South Korea has a thriving publishing industry, highly conspicuous at Bologna both this year and last, with a large and active rights-buying "army." The first publisher of the Harry Potter books in Asia, Korea's Moonhak Soochup Publishing Co. Ltd., has racked up 3.5 million in sales since November 1999 and has catapulted to one of the top five houses in the country. Now it seems that every publisher in Korea wants to get into the children's book market.

Even more significant, South Korea's remarkable popular reception of the Internet has made it the second largest source of domain names in the world, after the U.S. Its phonetic alphabet, Hangul, developed in the 15th century, lends itself easily to the Roman keyboard. And its Internet sites include active participation from the book world. These days, there isn't a publisher in the country without an online presence. In retail and wholesale orders and delivery, dozens of companies compete, shaking up a sleepy retail book trade with poor national distribution and a comfortable old net (fixed) price agreement. Several online companies, some of them consortia of existing publishing houses, supply selected Korean titles in a variety of e-book formats for download to computers, PDAs and even to cell phones.

But there are plenty of problems still, as the Korean publishers are the first to admit. The biggest one is the lack of an efficient book distribution system. Partly because of this bottleneck, online sales and electronic delivery are particularly strong alternatives. And from this dynamic, the rest of the publishing world may have something to learn.

Selling Books Online

Korean publishers told PW that more than 200 online suppliers serve conventional retailers as distributors or go direct to the readers. In overseas titles, the Japanese online service Kinokuniya.com ranks number one in Korea over Amazon.com. (Many Koreans can still read Japanese, having been educated under Japanese rule before the end of World War II.)

Many of the Korean online bookstores started from small retail outlets that failed during the Asian recession of 1997 99. They compete with discount pricing, and and while PW was in the country, one even started a price war that had many publishers complaining.

Like the U.S., Korea has recently suffered its own dot-com decline, but though no one online store has yet emerged on top, sales of books online have become a substantial (10% roughly) part of the market. Cover prices are still honored in most retail outlets, so online bookstores have used discounting, usually as high as 20%, to attract customers. Most publishers and conventional retailers are up in arms about this. The argument is familiar: They fear discounting will turn the industry into bestsellers-only, leaving less commercial titles, such as quality nonfiction, to lose shelf space.

Yes24 Co., Ltd. has occupied the number-one spot since it launched in December 1998. It now claims 750,000 registered customers and averages 23,000 books sold a day. The company has been outselling Kyobobooks, Korea's biggest conventional bookstore, since last fall. Its main advantage undoubtedly is its discount prices. "There is too much concern over the discount among publishers here," says Byung-Kuk Kang, director of the sales division of Yes24. "They worry it might destroy a market that is already in recession. But none of this has actually happened, nor have online bookstores proven disastrous in other countries. I think they're just afraid of change."

Yes24 also sells music CDs, videos, DVDs and computer software. Kang says that is enough. "Those items go very well with books. It's been less than a year that we've been selling these other items and we've already won the top spot in each of those fields, which shows the power of the book to generate customers."

Yes24 operates a huge book-based cultural webzine and readers' community within its site. "We believe these nonprofit activities can help sales in the long term. Building a customer base is very important in an online business," says Kang

Another contender for top spot is Morning365.com. Since its launch last December, it has reached the number-four spot. The secret behind this fast growth is its unique delivery system. It has small pick-up posts (resembling kiosks) in 40 subway stations around Seoul. Customers can pick up what they ordered at these posts with no shipping charge. Alternatively, a couple of motorcycle carriers circulate around each post. For a fee, they will deliver the items to a home or office within just three hours of the orders. Each post and delivery man boasts the company logo they're head-to-toe, eye-catching advertisements, though very costly to maintain.

"It's cheaper than giving others a commission to do delivery," explains Deok-Woo Kim, CEO of Happy Morning Inc. (Morning365.com). "And we are doing deliveries for other online stores as well." In addition to CDs and DVDs, Morning365 is branching out into other retail areas, including art collectibles, fashion items and computer goods.

Kim notes, "We are more focused on utilizing our distribution system, which could make the difference. Though books will always be our main force, I don't think books could alone make profit for the time being, especially with this price competition."

Morning365 has a unique position in this regard. "I've always believed price-cutting will settle at a reasonable place, where all the parties involved can agree," Kim says. "If the discount rate exceeds 15%, it won't even benefit the customers. I'm more than willing to accept the fixed-price policy. We've been doing pretty well selling books at cover price so far. I don't think the price is the most important element for us. It is efficient distribution."

And Morning365 is busy getting ready to stretch its distribution system to the far corners of the country, and looking, too, at e-books. "We launched an e-book research lab recently," Kim adds. "Of course there are other companies already in full operation, but I don't think it's too late. When we started this business, everybody said it was too late to sell books online, that we wouldn't make it. But look what we've done so far!"

The online bookseller that offers the fiercest price competition is Wowbook.com. To gain publicity and market share, for one week in May Wow discounted books to 50% off the cover price. PW met with Shin Yong-Ho, the new CEO, shortly thereafter and he explained his strategy. Shin thinks he can make money selling books online with just a 20% increase over the wholesale price, "and we can guarantee three-day delivery," he adds. The 50% discount was just temporary, he explains.

"We are only the number-two online retailer," he told PW. "And while there is a lot of room to grow in this business, only one or two such services can survive. Wowbook is seeking every possible way to be the number-one survivor." Shin thinks Wowbook needs to merge with big players, including not only Korean companies, but some foreign ones as well. He also plans a strategic alliance with Internet Auction Co., his old firm, to share user bases and trading platforms.

Wowbook.com started with just computer-related titles and added general books last year. It also offers English-language books, using Ingram as supplier. Further growth is possible in books alone, Shin thinks. "We might not expand to other products, but we might enrich our offerings with rare book auctions and used-book sales. Our staff all love books. We started with 10 people in May of 1998 and we now have 150."

The week's 50% promotional discount pushed up sales of general titles in particular. It also pulled in more female buyers, now up to 40% of the business. (In Korea, orders include the buyer's national registry number, like our Social Security number, but coded by gender.) But the increase in business heavily taxed the company's resources. Everyone, including Shin's wife and foreign books coordinator Seung-won Han, compiled orders and packed up boxes for shipping, and many worked 12-hour shifts following that week in May.

Shin thinks it will show results soon, but he has not yet endeared himself to the book industry as a result.

Distribution and the Cry for Fixed Pricing

As in the U.S., not everyone in Korea is impressed with the success of selling books online at discount. Tony Jo, head of the publishing operations of the media giant Sigongsa, is an advocate of fixed prices for books, and his company has an online retail operation honoring cover prices. "Some of these online stores, while trying to get market share, are killing the conventional retailers in the process," he complained to PW. "We want all books sold at the fixed retail price. If prices are not fixed, we fear that retailers will focus on the bestsellers and the variety of books on offer will decline.

"Also, our market is very unique. We only have one format in Korea, the paperback, and we only have one distributing system, into bookstores. Schools and libraries buy from the bookstores, not from publishers. Most books retail for around U.S.$6 $7 a copy. They are already very cheap, so fixing the price is not a burden on the consumer."

Chongwon Lim at Areah Publishers also expresses discomfort with the current profit structure of publishing, which doesn't do any good for publisher or bookseller. He feels the discount pricing of online bookstores is "not a healthy way of doing business. I think they've really overlooked many other opportunities the Internet market can provide."

In June, its parent company, Dongwha Books, opened an online bookstore called cocobooks.com, specializing in children's and women's books. "We don't intend to take any part in that price competition," says Lim. "We will put all our energy in giving readers the best information in every aspect we can think of."

Still, the book pricing structure is indeed likely to change, according to Michael Choi, director of publication planning for the M&B division of media giant JoongAng. Choi is something of a celebrity as a publishing strategist, with a weekly column on i-biznet.com, a major online IT industry news service in Korea.

Choi feels the biggest problem in book distribution is the consignment basis for bookselling.

"Without big franchise operations like Barnes & Noble here, people are still using promissory notes for three- to six-month periods. That creates cash-flow problems. Plus, the largest distributor only represents 10% of the market share. Compare that to Japan, where two companies control 70% of the retail market. In 1998, four Korean distributors went bankrupt. It is no mystery. They were supplied with books at 60% of the list price from the publishing houses and passed them on to the retailers at 70% of the list price. The publishers then tried to set up a new distribution company, but it also failed.

"Then in 1999, the Korean Internet book shops began. They all came from outside the book field and they are just stealing market share from the retailers. We predict that by the end of 2001, there will be about 3,000 bookstores in the whole country. In 1992, there were 8,000. Last year alone, 1,000 stores disappeared."

Choi concedes, however, that Korea is selling more books now. Why?

"The major book store groups Kyobo, Yongpoong, Seoul and Libro are competing actively and discount operations like Kmart, Emart, WalMart and Coast to Coast are selling books at below list price. And there are more options in distribution to come."

The Role of E-books

The Korean Government quickly recognized the opportunities in delivering books, including school textbooks, electronically, and some publishers are working energetically on various ways of achieving it.

The eponymous Eric Yang Agency, associated with the Tuttle Mori Agency in Japan, is run by Korea's young and energetic equivalent of the late Tom Mori. In March of last year, Yang coordinated a consortium of noncompeting publishers to offer e-book development and online distribution of a selection of their titles.

It's known by its Web address, and David Hong is chief editor. He explains that his company is not a tech company, but simply converts bestsellers to the download format.

Seven major non-competitive houses are involved: Mineumsa (a trade house with many bestsellers), JoongAng M&B (described elsewhere in this report), Samho (music, arts and graphics publishers), Kachi (culture, social sciences, history and theater), Korea Froebel (a children's educational house including online services), Chunglim (a higher education house developing distance learning and affiliated with Microsoft Korea) and Media Station (a developer of MP3 contents on the Internet).

"They all have strong lists, and the e-book versions of the selected titles all use Adobe Acrobat and the Korean Ebook Reader," Hong told PW. "We have succeeded in getting newspaper reviews and we are also working with English-language training (ELT) programs." The prices are about half the cost of a paper version, or $3 an electronic copy. While these are just getting off the ground, or in this case, through the air, the delivery options are proliferating to cell phones and PDAs.

"We are in the early stages of discussions that will allow us to download to mobile phones and PDAs," says Hong. "Giants like Samseong are working in this area now. We figure another three years for these markets to develop, but they will really make the difference in the market."

"Right now the Korean site is only in Korean," he told PW. "But we are planning on English and Japanese versions of some of these titles, so information is available to sell rights abroad.

Everbook.com is also setting up a company in Japan to service the e-book format there. "We are ahead of Japan in this area," Hong explains. Once they have a successful format and marketing plan, there isn't anywhere they can't take these developments, throughout Asia and beyond.

How Publishers Use the Internet

Only three years old, Thinking Tree is one of the top five publishers in Korea today. Its new rights manager Hegene Kim, who also helped with interviews for this article, says the success of the company comes though good media relations and with excellent translations.

Thinking Tree attracted Kim with its effective embellishments of more serious and academic translations, sometimes including pictures and designs. Its first bestseller, The Third Way by Anthony Giddons, was only its third title. It also published George Stephanapoulos (All Too Human), Lester Thurow (Building Wealth), David Bodanis (E=MC2), Dava Sobel (first Galileo's Daughter and, coming soon, Longitude).

The highbrow nature of the company is the reason for its name. All the original Thinking Tree titles (64 domestic, 52 foreign so far) are available in e-book format. The company is part of a consortium of some 200 publishers offering their titles on Booktopia.com, another site and service similar to Everbook but using a different format.

"While being presented with 200 other publishers can be a headache, the e-book format is very useful," Kim explains. "Booktopia.com is also an Internet bookstore and a Web zine. We can supply 10 pages of a title free so buyers can see if they really like it. Then they can download the whole thing for a fee, and also can buy the regular book from the store as well. No other company offers such a range of services."

There are three or four other e-book companies, one specializing in popular novels, one in comics. Another two deal with just about every genre including children's books, both fiction and nonfiction.

One happy coincidence in Korean publishing is the number of houses that are part of media conglomerates, which gives a push in a variety of directions.

Tony Jo is head of the publication department at Sigongsa, a major media empire in Korea, with a range of interests from art to music to comics to the Internet; interests that are now happily converging. Sigongsa, which means "Time and Space" in Korean, is primarily a trade house. Its biggest sellers are fantasy and thriller genre titles, as well as bestselling authors from abroad like John Grisham and Patricia Cornwell.

Founder Jae Kook Chun started the company a decade ago in his early 30s with an audio magazine. He speaks of the analog and digital eras he has now bridged as a publisher, and has high hopes of merging the two, creating "networks among each and every cultural genre."

The Gallimard "Discoveries" series, which began in 1995, are among the company's proudest achievements and lend themselves well to online publishing. "We have the whole series, 110 titles, with more coming all the time," says Jo. "They are steady bestsellers, the biggest in our translation list. We will start doing Korean originals for the series as well."

Sigongsa uses the Internet aggressively, recently launching a game portal site, a cartoon portal site, a city information site and an online bookstore.

"Our book distribution system is so poor in this country!" Jo complains. He is excited about the opportunities in e-books and m-books. M-books are delivered through mobile phones to the small screen and are already popular among comics devotees in Japan. "We will start with comics, then go on to books," Jo says. "It is a new Korean technology, which delivers eight to 10 lines at a time. It's called Virtual Machine, and it is the operating system for mobile phones in Korea. Wireless technology has made big improvements in Korea and it is now very popular with young students, teenagers and people in their 20s. Subjects tend so far to be SF, romance, fantasy and film scenarios."

The largest general media company in Korea, the JoongAng Ilbo group, publishes books and magazines as JoongAng M&B. President and CEO Yu Seung Sam told PW that the book trade was a 13-billion won ($10 million) business for the company last year, though this was a decline from the two previous years, which Yu blames on the exploding Internet and cell phone messaging activity in his country.

The company ranked number one in single-volume book sales (the retail trade market as opposed to door-to-door) in 1998 and 1999. Its top five bestsellers were all Korean originals.

Yu credits the magazine and newspaper editors of his company with their skills in catching the changing trends in the market. The company has the bestselling women's magazine and an important monthly on contemporary affairs, and the JoongAng Daily News has a 2.5 million circulation. The name JoongAng itself connotes something like the cachet of the New York Times, though a current scandal involving federal tax fraud among the top newspaper houses has been filling the front pages recently.

Why Do Koreans Love the Web?

"It is part of our national character," says Lois Kim, rights manager and international sales director at Woongjin. "We want everything quicker, faster, more efficiently. Online bookselling here is the fastest-growing phenomenon after the U.S. Many young people in Korea love the Internet because it is easy to find information for school and for work," she adds. "But maybe it is not such a good thing. The Korean game business is growing even faster than books. Children are alone at home with PCs and there are PC Game Rooms all over the country. We are even exporting them to China."

Another company affiliate, Woongjin Media, is doing some educational games, but Kim notes that most game creators are independent of the publishing industry. Meanwhile, she reports, "We are building content to provide materials online for these children. In the near future, the book business online will be very big, especially compared to other countries. It is easier for us to accept electronic books here than anywhere else. It is a very small share of the market so far, but it is expected to grow to 10% of the business. In just three years, books sold online represent 6% of the market in Korea."

Woongjin uses several online bookstores to sell its books and to sell e-book versions of its titles, and is looking to produce more educational comics as well.

However, not every successful house has such a range of complimentary media. Yolimwon, which means "the wood of joyous books," is a 21-year-old publisher mostly concentrating on domestic big-name authors in literary and spiritual genres. Many of its titles went on to become films and to garner critical acclaim at international film festivals. Like most houses, it also does children's books, with the imprint Bluebird Child.

Its biggest foreign authors are Robin Cook and Haruki Murakami. Cook has an exclusive Korean translation contract with Yolimwon and it has published 19 of his titles, selling two million copies so far.

"I don't see a day when fewer foreign titles will be published in Korea," says Young-hee Lee, editor-in-chief. "But we are getting wiser in choosing the right books. We've had this wild period of trial and error, buying the rights for any bestseller or award winner without much thinking, and not with the best results. But I'm sure we are done with that. And it has a lot to do with real-time Internet access to information anywhere in the world."

However, Yolimwon is conservative inits online efforts so far. "As a company, I don't think we are doing as much as we ought to with the Internet," Lee says. "We're actively devoting our resources in Wisebook.com, one of the leading e-book companies, and that's enough for us for the time being. We're one of the most careful publishers."

The Future of the Business

Book strategist Michael Choi predicts that cover prices will rise in Korea, though discounts will still be available, as they are on the Internet, and he thinks a separate hardcover market will develop.

"These are world trends," he argues. "For example, the Bertelsmann Book Club is not working badly and is growing slowly. It is because there still isn't any local competition that it has captured a niche market. I'd say this is a sign the industry is moving in the right direction. The year 2000 was a starting point for the publishing business in Korea, because the distribution channels finally started to diversify."

So far, small publishers have had to specialize. There are probably fewer than 500 publishers in Korea producing more than five books a year, even though 11,000 are registered. Publishing is an easy business to enter, and you can make money with one successful title.

"We need more big houses, like Kodansha in Japan, in our market solid general trade houses, with magazines as well as books. My company, M&B, comes close, as do three or four others, but this is all very recent," he says.

Among changing trends in the market, Michael Choi sees the foreign fiction market, per se, disappearing, to be divided instead between highbrow titles and bestsellers, in both translations and originals. "We need highbrow literature, but we will get more commercial fiction. For example, The Third Wave sold 80,000 copies for Thinking Tree, but romance sells over one million."

Korean readers still love Korean originals. It is the same with songs and films in this country. The biggest hits are all Korean, similar to the trend seen in Japan in the 1980s. But since the late '90s, that is changing in Japan, in books, film and music. And it will change here, too.

"The problem is the editors," says Choi. "Readers need choices to create new trends. If you let the editors choose, you won't get that range of choices."