December 16, 2009, 12:00 AM

Indigo Books & Music has spun off and rebranded its e-book service

Indigo Books & Music’s Shortcovers e-book business has been spun off and rebranded as Kobo. As one of the new company’s investors, Borders steps into both e-books and mobile commerce.

Shortcovers, the e-book service of Canada’s Indigo Books & Music, has spun off as a separate company and been rebranded as Kobo Inc. The new company raised $16 million in funding from an international group of investors spanning mobile technology and retail companies including Borders Group Inc., which says Kobo will power a new e-book store to debut on Borders.com in the second quarter next year.

“We have assembled a strong syndicate of investors and partners across key categories-retail and mobile distribution,” says Michael Serbinis, chief executive officer of Kobo, who was executive vice president and chief information officer at Shortcovers. “We have a unique opportunity to power the e-reading revolution by reaching consumers everywhere they shop today, on any device they choose.”

The funding will be used to extend Kobo’s technology platform by launching additional smartphone support, desktop and tablet apps, and its own dedicated e-reader devices. Currently the company offers digital content from some 2 million books, including 1.8 million free titles newly available under an agreement with Internet Archive, which is a library of titles in the public domain including classics and academic works.

Besides Borders and Indigo Books & Music, No. 148 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), which is the majority shareholder in Kobo, other investors participating in the funding round include Instant Fame, a subsidiary of Cheung Kong Holdings Ltd., and REDgroup Retail Pty Ltd. The new partnership gives Kobo distribution in the United States, United Kingdom, European Union, Australia, New Zealand, Hong Kong and other territories.

In addition to putting Borders in the e-book business, Kobo will put it into mobile commerce as well. “Our vision for a digital strategy that’s right for Borders is taking shape through our investment in Kobo,” says Borders Group chief executive officer Ron Marshall, who says that Kobo also will support the distribution of Borders-branded mobile apps to debut along with the e-books on Borders.com. “Borders shares Kobo’s vision to provide an e-book on any device and we look forward to working closely with Kobo on content and distribution.” Indigo Books & Music is No. 212 in the Internet Retailer Top 500 Guide (a PDF version of each company’s financial and operating profile can be ordered by clicking on its name).

Forrester Research analyst James McQuivey says Borders will have to play catch-up in the digital book realm. “They have to act now, otherwise that train will not only have left the station but will be 100 miles away and traveling at 100 miles per hour,” he says.

McQuivey adds that the digital content and mobile aspects of Borders’ involvement with Kobo are both critical. “In the future they will be a single business in which the consumer buys content and then expects to have that content delivered on whatever platform. That would include buying hardcover books with digital rights attached,” he says.

McQuivey says Borders’ move into e-books and onto a mobile platform isn’t likely causing any concern at competitor Amazon.com Inc., which launched its own digital book business in 2007. McQuivey says Amazon instead is watching competitor Barnes & Noble Inc., which he terms a “credible threat” with store distribution Amazon lacks, as well as the actions of publishers. Publishers including Simon & Schuster recently have announced they will delay release of a book’s digital content until four months after the book’s initial hard-copy version is published.

Forrester estimated that 1 million e-book readers will be sold in November and December of this year, an amount roughly equal to their total sales volume in 2008. “These devices are selling like crazy because people know the top New York Times best-sellers are going to be on them,” McQuivey says. “If suddenly that dries up and you don’t get the next Sue Grafton novel until it’s been out for four months, that makes the device a lot less attractive.”

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