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The Business of 20�7: It’s all about the consumers. White Paper

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Rüdiger Wischenbart www.-fair.com/businessclub

www.book-fair.com

www.book-fair.com/international Table of contents

1. The world of books...... 03 2. The world’s largest book markets today...... 05 3. The massive role of blockbuster ...... 06 4. Digital contradictions...... 08 4.1 E-books in continental Europe...... 09 4.2 Self- ...... 11 5. Lessons to learn ...... 13 About the author...... 15

2 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Book Fair Business Club The Business of Books 2017: It’s all about the consumers.

1. The world of books, divided

Those involved in books and publishing be an overly simplistic fantasy, it neverthe- By 2016, revenue from “all other markets” have never enjoyed a level playing field. But less teaches us a few good lessons on how had overtaken the respective incomes the current transformation, not only of the globalization has become an altogether more from and the UK. Only in book industry, but of all distributed content complicated concept. did the aggressive growth curve in Ama- and media, as well as social On the one hand, has always been zon’s almost match the overall global networking via digital channels, is much more of a North American company expansion of the world’s largest online driving the emergence of ever greater than many critical observers would have retailer. differences, thereby widening the gaps acknowledged. In 2011, nine in ten dollars between different markets, audiences and earned by Amazon internationally (in total, Amazon is clearly not the only global cultures. not only from books or media content) came player influencing how consumers around For a short moment, when Seattle-based from just three markets: Germany, the the world access content, enabling them to Amazon looked set to redefine and Japan. Five years later, do so digitally more and more often, using around the world, it seemed that the global in 2016, the share of these top three interna- their mobile phones and exchanging infor- reach of that new player would radically and tional markets had dropped to 76 percent. mation about what’s new and appealing, or uniformly reshape the way in which readers Huge investments by Amazon, especially what might be less desirable. pick up books. While this has been shown to in and , have started to pay off.

AmazonAmazon revenue revenue in international in international markets markets 16 14 12 10 8 DE 6 4 JP 2 UK 0 2010 2011 2012 2013 2014 2015 2016 All other Int DE 5,3 7,2 8,7 10,5 11,9 11,8 14,2 JP 5 6,6 7,8 7,6 7,9 8,3 10,8 UK 3,9 5,4 6,5 7,3 8,3 9 9,6 All other Int 1,3 2,2 3,3 4,5 5,4 7,4 11,2

Chart 1: Total revenue from Amazon’s international markets. Data source: Amazon Inc., annual reports. Analysis by RWCC.

3 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Business Club 1. The world of books, divided

GAFA is the new acronym now used to Mobile digitale involvement denote Google, Apple, Facebook and Ama- zon. This comes after Silicon Valley ana- 120% Selected countries (Source: WeAreSocial, 2017) 90% lyst Ben Evans already coined his catch- phrase, “Mobile is eating the world”. He 80% was emphasizing the importance of the 100% new channels and ecosystems in terms of 70% defining what people notice and what escapes them. Exceptions to this rule 80% 60% include a well-educated minority who can afford the time and the money to look for 50% exclusive offers off the digital beaten 60% 40% track.

40% 30% In this context, consumer book publishing finds itself competing for readers’ atten- 20% tion and purchasing decisions against a 20% wide range of alternative content and 10% format choices offered by media compa- nies that are a lot bigger than even the 0% 0% largest dedicated publishing groups. UAE (99%) China UK (92%) Germany India (35%) (53%) (60%) (82%) (89%) (66%) (59%) (88%)

For a long time, the global publishing Top social platforms by mobile (% of pop.) Mobile commerce (% of pop. Past month) Share of mobile web traffic industry outdid many other content indus- Chart 2: Mobile penetration in selected countries. Source: WeAreSocial and tries in terms of their global turnover, GlobalWebIndex 2017 Analysis by RWCC 2017. including music, games and even movies (revenue from box-office sales). Today, however, scale is defined differently. Led by GAFA and similar ventures, the pre- Leading media & entertainment companies dominant new style of digital ecosystems (media & total rev., 2016, bn€) control both the access to content and the social interactions between users. In this drastically more competitive environment, 140 slow-moving content like consumer books 120 risk being squeezed and marginalized. 100

80

60

40

20

0

�Facebook Pearson Alphabet (Google) Netflix Amazon Walt Disney Company

Media revenue (bn€) Total revenue (bn €) Penguin HarperCollins(NewsCorp) Chart 3: Selected leading content and media companies worldwide: media revenues and total revenues. Various sources, compiled by RWCC.

4 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 2. The world’s largest book markets today

2. The world’s largest book markets today

With millions of book titles on sale world- At the same time, these leading markets ments under the promising label of ‘emerg- wide the book industry has a well merited exhibit fundamental differences in their ing economies’. Besides China, in markets reputation for offering a highly diverse underlying dynamic and development. such as Brazil and Mexico the publishing range of products, in terms not only of lan- China is the only major publishing market industries reflected the rise of a new mid- guage and origin, but also of categories, to have reported continuous growth in dle class which aspired to educate their topics, authorial voices and cultural voca- recent years. The two largest English- children more broadly, and to purchase tions. There is hardly any subject that is not speaking countries, the USA and the entertainment products, including books debated by a multitude of authors in a mul- United Kingdom, experienced pressure at for both children and adults. When, for var- titude of books. Books have attained univer- a crucial time following to the economic ious reasons, these nations’ economies sal appeal because their content and format crises, when the rapidly expanding digital experienced great challenges in recent are not limited to text alone, but can include sector ate into print sales. More recently, years, in most cases the hoped for expan- pictures, musical notes, scientific formulas however, a new balance has emerged, with a sion of the book sector became derailed. Of and, in recent e-books, even digital audio slight upswing in print coinciding with a flat- these countries, is the most dra- and video, and elements of virtual reality. tening, or even decline, in digital revenue. matic example: after a short, steep surge, The global book market, meanwhile, is also In terms of their compound annual growth both the economy as a whole and the book diverse in that books can be found any- rate all the major non-English-speaking sector in particular are now caught in a where, with small public even in European markets and Japan have seen downward spiral, with some hope of stabi- the remotest regions of the planet. Never- revenues decline over the past five years lization only emerging since 2015. theless, in terms of market size, a small (measured in local currencies for the number of countries dominate the book period 2011 to 2015; 2016 figures are not business. The six largest book markets yet available for all countries). worldwide account for two thirds of all rev- A similarly complex situation is seen in the enue generated from books, and their share countries that, until recently, raised high is still expanding. expectations and attracted large invest-

Top 6 markets in % of World Evolution of top 6 publishing markets Evolution of top 6 publishing markets (2015) (in( in% % pperer year )year) 0,4

0,35

0,3 China

United States 0,25 %

n United Kingdom i

e 0,2 n l i

c Germany e United States0,15 (est.)

/ d France h t

w 0,1 o China r Japan l g a 0,05 u

n Germany

n A 33% 30% 0 Japan -0,05

United Kingdom-0,1

-0,15 United States (est.) France (est.) 2011 2012 2013 2014 2015 Rest of the world (est.) 2011 2012 2013 2014 2015 3% China 0 0,113125194 0,202660657 0,260227672 0,342801929 China United States 0 0,01319348 -0,021903732 0,023965427 0,015780132 4% United Kingdom 0 0,054136253 0,031054891 0,008904862 0,009810932 Germany GermanyChina 0 -0,0084366210% -0,00675594911% -0,02919722420% -0,04228454426% 34% 5% 17% France 0 -0,011768902 -0,042082868 -0,055108547 -0,049452438 Japan United States0 -0,022566480% -0,0427836271% -0,081886926-2% -0,1049516132% 2% 8% Japan United Kingdom 0% 5% 3% 1% 1% UnitedUnited States States (est.) (est.) UnitedUnited Kingdom Kingdom Gemany 0% -1% -1% -3% -4% ChinaChina France (est.) France (est.) France 0% -1% -4% -6% -5% GermanyGermany RestRest of the of world (est.) Japan 0% -2% -4% -8% -10% the world (est.) JapanJapan Chart 5: Compound annual growth rate of the overall values of the six largest publishing markets worldwide, 2011 to Chart United 4: Kingdom The top six publishing markets account for two thirds of all publishing revenue. Various sources, data com- 2015, as a percentage and measured in local currencies. piled by RWCC. Various data sources, analysis by RWCC. France (est.)

Rest of the world (est.)

5 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 3. The massive role of blockbuster bestsellers

3. The massive role of blockbuster bestsellers

When, in early 2017, trade publications million pounds from his books. In other though. An anonymous woman from reviewed the most popular books of 2016, large book markets, the lists do Naples in southern even made it onto the outstanding winners presented few not look all that different. Alongside J.K. Time ’s list of the “100 most surprises. Once again, as everybody Rowling, Hawking’s “The Girl on the Train” influential people on the planet” in 2016, expected, J. K. Rowling had found her and other easily recognizable international writing under the pseudonym of Elena Fer- magic touch. Young (and not so young) brand authors, like Jojo Moyes and the rante. As the UK’s Guardian adult readers couldn’t resist her latest tale Wimpey Kid’s Jeff Kinney, also managed to has shown, the popularity of Ferrante’s about “ and the Cursed Child”, establish a sustained presence in the Naples trilogy, “L’amica geniale” which had sold some 4.5 million copies by charts, across languages and cultures. (“My Brilliant Friend”), had been instru- the end of the year, in the US alone. However, the global stars are always mental in pushing up the iconic city’s tour- Even the fact that the book was not a accompanied by big names from their ist industry. but a theatre play – usually much less respective local market. In Germany, the One of the many stand out details of commercially attractive – did not have a former specialist Sebastian “Ferrante fever” is that the books were noticeable influence on its appeal to the Fitzek stands out clearly in the dense brought to global fame by two compara- fans. crowd of successful thriller writers, as do tively small independent publishing The entrepreneurial British star author several specifically regional voices, like houses, Edizioni e/o, which published the was only topped in a few contexts, such as Rita Falk with her humorous crime stories Italian original in 2011, and their partner Amazon’s Top 10 Kindle bestseller list for from deep and cosy Bavaria. venture Europa Editions in New York, 2016, where Paula Hawkins’ “The Girl on In France, national pride is at stake and which released an English one the Train” took first place, followed by Rob- the media on full alert when a new comic year later, triggering the international suc- ert Bryndza’s “Girl in the Ice” from the dig- is released featuring the ancient Gallic cess story. Surprisingly, the German trans- ital-only Bookouture. Here, Rowling came superheroes Asterix and Obelix, each new lation only arrived in the autumn of 2016, in at number three. saga disguising a popular contemporary published by the independent house, Amazon’s bestseller rankings differ alto- theme against a backdrop of Julius Caesar Suhrkamp. The delay was all the more gether, inasmuch as self-published – and classical Rome – despite the fact that remarkable since earlier books by Ferrante mostly digital – titles now occupy a grow- one of the original creators passed away had been available in German as early as ing number of the top slots in most of the long ago and the other retired in 2011. 2003, though achieving little resonance. popular categories. This shows that tradi- But the more conventional genre of “unput- Ferrante is only the most recent example tional publishers are no longer just com- downable” thrillers also has its stars in that suggests Germany has lost something peting among themselves for readers’ almost every national market, with Guil- of its earlier role as a trampoline for aspir- attention and spending. laume Musso in France, for instance, and ing literary authors in translation. The book charts have become a confusing bat- Andrea Camilleri in Italy. Overall, translated maintains its tlefield altogether, for several reasons and not The art of popular crime writing is slightly strong position in many markets. Of Ger- only in the English-language markets. different in the Nordic markets. This is many’s top 25 fiction bestsellers of 2016, In the UK in 2016, five authors earned 10 where, arguably, today’s variant of blood- 11 were written in other languages than million pounds – the first time that curdling pleasure was crafted in German. In France, three of the six best- occurred since Nielsen BookScan began the first place. Most notably in Sweden, the selling literary books of last year were providing such records in 1998. The list is globalized English-language thrillers are ; only Guillaume Musso with led by J. K. Rowling, “the biggest-selling usually put in the shade by domestic mas- two titles and Marc Levy with one book author of all time” (The Bookseller, 13 Jan ters, including Camilla Läckberg and the could match the influx of Rowling, Paula 2017). Her 2016 revenue of 29 million couple who write under the pseudonym Hawkins and Ferrante. pounds resulted not only from the “Cursed Lars Kepler, or the Norwegian Jo Nesbø. North America and the UK, which until the Child”, but was also thanks to a resurgence Alongside their books, hardly any outsid- arrival of Swedish Stieg Larsson, both had in the first Harry Potter series, with sales a ers manage to squeeze into the ranks of a strong reputation for resisting things not remarkable 52 percent higher than in the bestselling fiction. It is worth more than written in English, have seen a steady previous year adding another 9.6 million just a footnote to observe that, in recent increase in imported literary success sto- pounds. Coming in second, albeit with only years, the bloodthirsty Nordic literature ries. Nevertheless, the top echelon remains half of Rowling’s revenue, was Julia Don- has also acquired its antithesis: a dedi- the preserve of the Anglo-Saxon “power- aldson, creator of the Gruffalo children’s cated Scandinavian feel-good genre, made house authors” (in the words of Nielsen series with illustrator Axel Scheffler. Food famous initially by Jonas Jonasson and his BookScan), who had a firm hold on the top wizard Jamie Oliver, ranked 8th, paled “Hundred Year Old Man”. 15 positions in 2016, led by “Harry Potter with a comparatively modest income of 6.2 Not every craze requires a polar horizon, and the Cursed Child”.

6 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 3. The massive role of blockbuster bestsellers

In recent years, a number of translations of tasy novel by an unknown English author a very small number of titles and authors high-brow literary fiction have found a with a modest first print run of 500 copies. enthral a huge share of the global reader- broad readership in the USA, having been The publisher, Bloomsbury, had been ship, monopolizing their attention and brought in mostly by independent presses. founded just a decade earlier, by Nigel spending. As a consequence, these block- Other Press helped American readers to Newton in 1986, based “on the principle of busters are coming more and more regu- rediscover the troubled southern shores of publishing books of the highest quality – larly to define the balance sheets of even the Mediterranean, with Kamel Daoud’s of bringing quality to the mass market.” Its the largest, globally active publishing “The Mersault Investigation”; with “Story first smash hit, “Harry Potter and the Phi- groups. of My Teeth”, Coffee House issued an Eng- losophers’ Stone”, and the next six vol- lish of the Mexican Valeria Luisel- umes about the apprentice sorcerer and Chart 6 shows the presence of publishers’ li’s philosophical explorations from Tacitus his friends, have thus far sold over 400 fiction titles (excluding self-published to Baudrillard; Melville House revisited the million copies. books) in the top-10 lists of eight major largely forgotten German, Hans Fallada, Taking their lead, a number of other, previ- book markets: USA, UK, Germany, France, publishing his book “Every Man Dies ously unlikely forms of literature have Spain, Italy, the and Sweden, Alone”; Thanh Nguyen of Vietnam won a since conquered global audiences. These over the decade from 2006 to 2016. Of the Pulitzer Prize for “The Sympathizer”, pub- works have often come in series of three or top 100 titles in the survey, each year’s top lished by Grove Atlantic; and Europa Edi- more volumes, and they have not all been five accounted, on average, for one fifth of tion’s appetite for translation didn’t include targeted only at young readers. Stephenie the respective annual points total. just Ferrante, but began before that with Meyer’s “Twilight”, Stieg Larsson’s “Mil- (Source: Diversity Report 2016) French writer, Muriel Barbery’s “The Ele- lennium”, Suzanne Collins’ “Hunger gance of the Hedgehog”. Games” and E. L. James’ “Fifty Shades” Similar success stories were also seen in were all written as trilogies. other countries, most notably in Italy, with While it is difficult to measure the extent Ferrante’s Edizioni e/o as one striking to which the combined market share of example, and in France. The Swiss author such blockbusters has increased over the Joel Dicker initially published his debut past decade, as solid the data for such a “The Harry Quebert Affair” with the small calculation is not available, the publishing Paris-based Editions de Fallois, before it industry overall has seen a brutal pattern became a bestseller in English in the USA, become firmly established: year after year, and in many other languages. Even Guil- laume Musso, who has outsold all other French writers for several years in a row, TopTop 20 20 bestselling bestselling fiction 20062006 to to 2015 2015 has a story that fits this pattern, at least at (from (fromcharts charts in inUS, US, UK,UK, DE, DE, FR, FR, SP, IT,SP, NL, IT, SE) NL, SE) the start. Musso’s second novel and first 6000 bestseller, “Et après”, was published by

Edition XO in 2005. In 2006, the indepen- 5000 2006

r dent house was acquired by Editis, which o 2007 h t today is the French arm of Spain’s leading u 4000 2008 a Top 5= 22% r publishing group Planeta, and which con- e of Top 100

p 2009 s t tinued that enterprise’s series of lucky n (ave. ,impact point') i 2010

o 3000 p finds with high quality literary transla- t 2011 c a tions. According to its parent company Edi- p 2012 m 2000 i tis, it was able to get 273 of its around 300 l a 2013 t o titles into the bestseller charts. T 2014 1000 Today’s role-model responsible for produc- 2015 ing so many bestsellers that it has reshaped not only the book world, but the entire 0 entertainment industry on a global scale, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 made its big break exactly 20 years ago – Chart 6: Fiction bestsellers and their impact on eight major western book markets: USA, UK, after its first steps had been rather unre- Germany, France, Spain, Italy, the Netherlands and Sweden, from 2006 to 2015. markable. In 1997, it launched a debut fan- (Source: Diversity Report 2016)

7 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 4. Digital contradictions

4. Digital contradictions: e-book trends in the English-speaking market and in continental Europe, and the surge in self-publishing

Amazon introduced the Kindle reading US ebookUS sa ebookles 2010 sales - 201 62010 - 2016 device exactly 10 years ago, after convinc- 4000 250 ing the then “big six” largest US publishers 3500 to make a significant quantity of their new 200

$ 3000 n releases available in digital format.

b 150 s By 2010, it seemed that a digital revolution 2500 % n l e i a S h had been unleashed, triggering countless 2000 100 t w o Sales bn$ Sales media pieces on the possible “death” of the 1500 r 50 G printed book. Many observers within the % in Growth 1000 industry, mesmerized by three-digit growth 0 rates in e-book sales in the USA, and soon 500 0 -50 also in the UK, expected the new format to 2010 2011 2012 2013 2014 2015 2016 gradually win over readersTotal aroundebook sales the (m$) 1100 2450 3410 3420 3370 2010 2011 2012 2013 2014 2015 2016 world. Total trade sales (m$) 1511 1582 1312 1313 As so often happens, realityEbook turned revenue out growth to overTotal previous ebook year sales (m$) 110 2450 3410 3420 3370 - - 199 123 44 0,7 4,7 -9,5 -16 (in %) be more complicated than the forecasters Total trade ebook sales (m$) - - - 1511 1582 1312 1313 had anticipated. From 2015 to 2016, accord- Ebook revenue growth over previous year (in %) 199 123 44 0,7 4,7 -9,5 -16 ing to sales monitoring firm Nielsen, e-book unit sales in the USA fell by 16 percent Chart 7: US Ebook market development, 2010 to 2016, data from AAP and BISG, analysis overall, while print unit sales increased by Global e-book report 2017. 3.3 percent. unit sales even overtook those of e-books for the first time Penguin Random Simon& Schuster in years, as Publishers’ Weekly observed House Livre Collins with some puzzlement (20 January 2017). 2016 2016 2016 2016 Similar reversals were recorded in the United Kingdom. Group revenues from € 3.361 € 2.264 $ 1.578 $ 767 “Print is back!” was the cry of many indus- publishing (in million) try observers, who could also point to a Revenues from - - 19% 23% recovery in the ranks of independent book e-books (in %) stores, which had been commonly por- Print up, e-books 100,000 e-titles US e-books -6%; Comments down in USA, UK, (e-books & audio - trayed as an endangered species only a few UK e-books -9% flat in DE, SP. books) years earlier. 2015 2015 2015 2015 Group revenues from Indeed, print is not being replaced by digi- € 3.717 € 2.206 $ 1.667 $ 780 publishing (in million) tal for the time being. Instead, in most Eng- Revenues from 20% 9% 22% 25% lish-language markets a balance has e-books (in %) emerged – albeit a fragile balance perhaps Comments - 22% USA; 26% UK - - – as digital has established a broad niche accounting of anywhere between 15 and 20 Table 1: Total turnover and e-book revenues at the four largest English-language consumer percent of revenues from consumer books, publishing groups. Source: company reports; analysis for the Global eBook report 2017.

8 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 4. Digital contradictions with clear preferences apparent for certain time. E-books have proven to be much for 2016 was six percent, and in the genres. more versatile, and the differences Netherlands it was 6.6 percent in the For the “big five” English-language con- between the various e-book markets of con- fourth quarter of 2016. In the case of sumer publishing groups, their e-book rev- tinental Europe amply illustrate the new France, two different numbers are used enues have developed into a significant situation. simultaneously: 3.2 percent of revenue cushion for their overall turnover and prof- comes from e-books in a strict sense, while itability. 6.5 percent is from digital products, inclu- ding CD-ROMs and commercial data servi- Above all general fiction bestsellers, but 4.1 E-books in ces like legal databases. (Data from Boer- also crime fiction, romance, fantasy and senverein, FGEE, CB and SNE/Baromètre, science fiction are the kinds of books that continental Europe: respectively) consumers prefer to download to read on a There are two problems with these num- screen or listen to as audio files. For the Many actors, many bers. Firstly, the figures are hard to com- e-book trend has been complemented by a pare as there are no standard definitions surge in demand for downloaded audio segments, many of what should be measured. Secondly, books. This has opened up an entirely new and even more importantly, e-books cater way of accessing book-related content elec- different audiences to very specific market niches, with tronically. As little as eight or 10 years ago, audiences dedicated to specific content HarperCollins, one of the big five US con- areas, distribution channels and price sumer publishers, would only occasionally Most reports on e-books compare markets expectations. Readers typically pick up an have converted a new novel to an audio for- by measuring the share of total trade book e-book for a quick read or to read on vaca- mat. Now, it has become routine to offer revenues accounted for by digital editions. tion, as e-books allow them to take a good various digital editions of all new titles, This approach highlights the much lower range of books without filling up their including e-books in at least two formats – penetration of digital consumer books in baggage. Broadly speaking, more fiction is Mobi for Amazon’s Kindle and ePub for the continental European markets, compa- read in digital form than non-fiction. Pub- other devices – as well as digital audio for red to the United States or the UK. lishers have high expectations of an download. In Germany, for instance, e-books accoun- expansion of digital comic books, since The global audio book market produces ted for 5.6 percent of all revenues in the Manga are now mostly consumed on total revenues estimated at $3.5 billion. first quarter of 2017, as compared to 5.4 smartphones in their native Japan. In 2016, just over half that turnover was percent the year before, although the By year 10 of the consumer e-book, none of earned in the USA alone, where the seg- absolute revenue from e-books declined by this has yet materialized (if one can apply ment is growing by about one fifth every three percent. In Spain, the same figure that word to the realm of virtual reading). year. Well over half of American audio book aficionados “just listen” to down- loaded , without any other Ebook sales in Germany in 2016 by activity to distract them, and 57 percent use their smartphones to do it. (US data & by value, at price points (Bookwire) from the American Audio Publishers Asso- ciation, APA; global figures from Good eReader) However, readers do not necessarily buy all the e-books that are consumed legally. In 2016, digital books were rented almost 200 million times, an increase of 21 per- cent on 2015, according to Overdrive, the leading international e-book service pro- vider for libraries and schools. E-books come in a variety of guises, and traditional publishers are by far not the only actors in this game anymore. For a long time, the consumer – or trade – book market used to be seen as one, largely inte- grated industry, mainly based on a single business model. In this, an author would give a manuscript to a publisher, who in turn would use retailers to get the book to Chart 8: E-book sales in Germany in 2016, by volume (units) and value (revenue), at different price ranges. Data from Bookwire, analysis for Global eBook report 2017. the readers, who bought it one copy at a

9 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 4. Digital contradictions

Nevertheless, anecdotal evidence suggests Germany is a highly priced market. offered at a heavy discount to draw atten- that publishers of various sizes – corpo- Since introducing e-books into the main- tion to the latest book being sold at a hig- rate, independent and digital-only – have stream around five years ago, publishers her price. found a significant audience, and are now have been working hard to maintain their Despite fixed book prices in many markets generating substantial incomes from digi- prices, discounting e-books by no more of continental Europe, there is a growing tal products, although with few statistics than 20 to 25 percent compared to print sensitivity to price and an emerging wil- available. editions. lingness to find legal ways to exempt Comparing volume (or unit) sales with e-books from the higher pricing require- To overcome this data bottleneck, for the income generated shows that that both ments. These new practices have often Global eBook report 2017 a number of strategies can be commercially viable: bet- been spearheaded by Amazon, as it intro- digital distributors began sharing detailed ting on a high volume at low price points duces special “deals” of the week or aggregate figures from their business acti- or on lower volumes with higher returns. month, in ways that are compliant with vities in half a dozen markets of continen- The challenge is to maintain the high price regulations under restricted conditions in tal Europe. (For the complete report, see segment over time. a market. www.global-ebook.com.) A few clear pat- In similar charts for Italy or Spain, both of Interestingly, comparing sales and pricing terns have emerged. which have suffered severely from econo- trends over time does not necessarily indi- First and foremost, the e-book market seg- mic turmoil over the past decade, we find cate any consistent push for lower prices, ment is not singular in nature, but con- much of the digital product range priced as the example of the Netherlands shows. sists of at least two separate segments, at under 10 euros. separated by the average price. One In all the markets, the low price segment CB (Centraal Boekhuis), the predominant is defined by low prices of under five is largely filled by self-published products, distributor of e-books in Dutch, which euros, the other thrives on charging bet- as well as e-books used by publishers for represents consumers in Holland and ween 10 and 13 euros for a digitally down- special promotional campaigns. Often, an , reports solid year-on-year loaded read. earlier volume in a serialized work is growth for e-books overall (16 percent in units, and 13 percent in revenue), with Netherlands: Change in units sold and revenue particular emphasis on the three to five euro, and 10 to 15 euro segments. renerated, in different price range (2015 > 2016, in %, CB) However, price is far from the only para- meter that sets e-books apart from market trends for printed books, or underscores the developments making a difference bet- ween one country and another. Everywhere, there is a tendency for e-books not to generate much hype around the gift-buying season at the end of the year. Instead, summer reading already triggers the first strong sales in July and August. Sales channels differ a lot between mar- kets. Amazon is the leader more or less everywhere. It almost exclusively owns the British e-book market, but has met with solid competition in Germany, in the shape of the Tolino alliance. Most recently Japanese-Canadian Rakuten-Kobo has also become a partner in this alliance, bringing its additional international sales know- how. In Spain and in , 13,00 3,00 5,00 8,00 10,00 15,00 > 0,01 - Apple’s iBook store has also gained an - 4,99 - 7,99 - 9,99 - 12,99 - 19,99 20,00 - 3,99 14,99 Total (€) (€) (€) (€) (€) (€) (€) (€) important role in digital book distribution. Not all e-book markets follow the traditio- 1% 30% 0% 8% 70% 101% -2% 5% 16% Units 2015 > 2016, in % nal book retailing model, with consumers Revenue 2015 > 2016, in % -3% 9% -5% 2% 76% 86% -7% -2% 13% purchasing e-books one at a time as they would with printed books. Scandinavia confused observers for some time. On the Chart 9: E-book sales in the Netherlands in 2016 and 2015, by volume (units) and value one hand, it is a region with high digital (revenue) at different price ranges. Data from CB, analysis for Global eBook report 2017. penetration in many areas, and was indeed

10 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club Amazon Germany, Top25 fiction (# titles by publisher)

4. Digital contradictions a pioneer of digital communication and media, first with mobile phone giant Nokia Amazon Germany, Top25 fiction and later as the cradle from which Skype (#Ama zotitlesn Germany, T opby25 ficti opublisher)n and the global leader in music streaming, (# titles by publisher) Spotify, emerged. For a long time, e-books did not play a big role in the Scandinavian Amazon Media EU SARL book markets, with the exception that lib- raries offered digital books for rent, which seemed to rather curtail digital sales over- AmazonAmazon Media EU SARL Publishing all. But then e-book subscription – All other Amazon Publishing or flat-rate offers –began to take over, first AmazonAmazon Crossing Crossing in Denmark with Mofibo and now even Amazon Germany, Top25 Kindle more broadly out of Sweden. (# titles by publisher) Audible

Storytel, founded in 2005, is an entirely Non-Amazon titles Audible new bet on how digital books might attract interest among consumers. It combines e-books and digital audio to download, Non-Amazon titles with the acquisition of major regional pub- lishers that have extensive title catalogues ready to digitize. This includes Sweden’s second largest publisher, Norstedts, which Amazon Germany, Top25 Kindle came on board in 2016. Now, in mid-2017, (# Amtitlesazon German y,by Top25 Kipublisher)ndle its service is available in over two dozen (# titles by publisher) markets. (For its international presence, see www.storytel.com) Amazon Media EU SARL

4.2 Self-publishing – All other Amazon Publishing Amazon Media EU SARL the ‘other’ book AmazonAmazon Publishing Crossing Amazon Crossing market AudibleAudible

Non-Amazon titles

Non-Amazon titles In a much debated survey in early 2016, a report from AuthorEarnings (or AE, www.authorearnings.com) stated that self-published books had overtaken the Chart 10 Amazon Germany’s 25 bestselling titles in fiction (p+e), and its top-25 Kindle combined market share of the big five US titles, from early December 2016 to early January 2017. Source: Global eBook report 2017. consumer publishers, in terms of both units and revenue. work, authors could take advantage of pro- time fighting legal battles to regain con- Even as the seemingly unstoppable surge fessional tools not only for creating, but trol over the – comparatively high – pri- in books by authors choosing to bypass also for marketing and monitoring their cing standards for their e-books, which the traditional value chain of the book sales like an industrial sized publishing resulted in the much debated “agency business has been reversed, at least for corporation. These facilities encouraged agreement”, Amazon was largely free to now, the core message from its develop- them to experiment with their price, reach create a fully fledged ecosystem under its ment was hard to overlook: the US book and writing styles, and most importantly KDP umbrella, which was almost entirely market had seen the emergence of a new to organize large, author-centric communi- separate from the struggles that held the and dynamic market segment, in which ties of readers and book buyers. Social publishers’ attention. authors connected more directly with media and the consumers’ constant inter- At the beginning, many international readers than in the past. actions through their online networks ope- observers tended to consider self-publi- That new segment of ‘independent’ ned up fantastic new opportunities for pro- shing as a primarily American peculiarity. authors, as AuthorEarnings’ initiators pre- moting new books. Authors who excelled Arguably, this misinterpretation derived fers to call them, has made a difference in at these processes soon began to beat the largely from the lack of robust data for many ways. marketing teams from traditional publis- measuring self-publishing segments else- In a market dominated by Amazon and its hers with ease. While the management of where. But in spring 2016, Nielsen Kindle Direct Publishing (KDP) frame- the corporate publishers spent a lot of BookScan released the first report show-

11 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 4. Digital contradictions

ing self-published titles accounting for 22 2016 Christmas season in Germany show- percent of the British book market, up ing both the top 25 titles in Amazon’s ove- from 16 percent two years earlier. (The rall fiction catalogue (print plus digital), Bookseller, 23 March 2016) and the top 25 Kindle titles tells a clear For the continental European market, far story. less clarity exists as to the size and rele- The impact of self-published e-books and vance of self-publishing. However, there is Amazon’s efforts to reshape the book busi- evidence to suggest the new independent ness is profound in that it has further segment is about to establish a new mar- accentuated the split between two largely ket for the written word, one that is new in separate market spheres. that it connects authors and consumers From the consumers’ perspective, the low- directly, with the help of online ecosys- priced book segment is largely consistent tems that are profoundly different from with other digital content formats, such as the old publisher-retailer model. music or TV series, which are also offered In Germany, Matthias Manning, the acti- either at a comparatively low price or vist behind the Self-Publisher Bibel through subscription, through channels (www.selfpublisherbibel.de), produced an such as Spotify and Amazon (which also elaborate report examining the state of the offers its Prime subscription service), or two channels that dominate the market: in rare cases in the book universe, like the Amazon and the Tolino alliance. The latter Scandinavian Storytel. only opened to self-publishers in 2015, yet The higher price segment, which many Manning saw that self-published e-books traditional publishers prefer to sustain, already account for around 20 percent of risks appearing as an exclusive exception its unit sales. At Amazon's German Kindle that caters to a small niche of particularly shop, meanwhile, the figure is around literary readers of a certain age, educatio- twice as high, having regularly hit the 40 nal background and cultural vocation. percent mark since 2015, although no The transformative leverage of e-books in further growth is indicated. all their forms is not just about a shift in In terms of revenue, self-publishing market share from print to digital. accounted for well below 10 percent of The change derives from the switch of Tolino’s business in mid 2016, while at books and the embedding of reading into Amazon, independent writers are thought the digital mobile interactions coordinated to account for more than one fifth of all by consumers, primarily on their smart- e-book revenue. (Self-Publisher Bibel, 3 phones, in digital ecosystems owned and June 2016) defined by the likes of Google, Apple, Not just in the USA, Amazon has now suc- Facebook and Amazon. Publishers or, ceeded in forging a top segment for its more broadly, the traditional content com- book sales whose ever-expanding share of panies, are limited to the role of service sales derives from the company’s own pro- providers to this new consumer universe. duction of KDP self-published authors. These sales are primarily but not exclusi- vely digital, and also include Amazon’s own new publishing imprints, branded as Amazon publishing and Amazon Crossing (the latter for translated fiction), as well as Audible for audio book production. An aggregated one-month snapshot of the

12 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club 5. Lessons to learn

5. Lessons to learn by comparing consumer book publishing and educational publishing

The imminent challenges that consumer – each of which has a significant interna- but not exclusively in the USA. Prices for or trade – book publishers are confronting tional portfolio, earned combined revenues learning materials had previously soared, today are less specific to their sector than of 13.6 billion euros in 2015 (up 20 percent triggering the emergence of alternative it may seem. Often characterized as con- on 2013). This compares to 14.3 billion models, such as lending and recycling text- servative and resisting change, the old- euros earned by the eight biggest educa- books, or the on-campus distribution of cop- fashioned book trade has shown remark- tion groups (up 12 percent on 2013). ied materials, rather than each year’s intake able solidity over the past decade, in the of students buying new books. face of all the transformative forces cur- Looking at the different companies in A third factor should be added, although we rently affecting the industry. greater detail, however, reveals striking dif- are only beginning to see its financial impact Such an assessment can be seen as a com- ferences. In international consumer publish- on the educational book market: digitisation. pliment, underlining the trade’s sound ing, a number of major mergers and acquisi- For a long time, the debate surrounding digi- foundations. Yet it can also highlight poten- tions have occurred in recent years. These tisation in the sphere of education was tial risks ahead, should the profession include the acquisition by Bertelsmann’s largely restricted to hardware – bringing stretch itself ever more precariously Random House, of Penguin from Pearson, laptops or tablet computers into the class- between the desires to build on its proven and of several Spanish houses; and Harper- room, purchased with taxpayers’ money. foundations, and to follow a new path to Collins took over the Canadian publisher Investments in infrastructure lagged behind, achievements in the future. Harlequin to make its own portfolio more while fancy new content trickled in painfully Comparing consumer book publishing and international. Yet at the same time, no cases slowly due to the poor internet connections educational publishing might offer a valid of bankruptcy were recorded, nor any major in schools. This was frustrating for teachers and fairly simple way to examine some of changes in the ownership structures. and students alike. the key drivers of the current changes, and The opposite is true in educational publish- Much less attention had been paid to the to assess the risks involved. ing, where all but the two Chinese players emergence of new entrants or the transfor- These two publishing sectors are similar in have either filed for protection under US mation of older players, who have organized size. While no authoritative numbers are 11 legislation (e.g. Cengage and platforms to provide learning content both available for their overall size on a global Houghton Mifflin Harcourt), or taken private from traditional publishing ventures and as scale, it is possible to estimate this by com- investment to support major restructuring user-generated inputs, or OER (open educa- paring the turnover of the largest enter- (McGraw-Hill). Only Pearson was seen as tional resources). Platforms like that of the prises in each sector. stable, until trouble in its holdings in the US 100-year-old TES (Times Educational Sup- The largest publishing company worldwide college markets led to heavy lay-offs and plement, www.tes.com), which connects is London-based Pearson, with an annual restructuring. It was also forced to sell off eight million teachers, or the US content dis- revenue of around five billion euros. The some major assets, including its trade divi- tributor Ingram’s VitalSource (www.vital- largest trade publisher, Penguin Random sion, Penguin, as well as its media division source.com), which brings together commer- House, a division of the German Bertels- which included the Financial Times and a cial content from publishers as well as free mann group, is the fifth largest, with a share of The Economist. educational materials, are just two examples turnover of around 3.3 billion euros. Of the At first glance, the troubled status in educa- of transnational models which help teachers world’s 10 biggest publishers, four special- tional publishing may seem paradoxical. It and learners to legally tap into myriad new ize in trade publishing (Penguin Random was preceded by the rise of the emerging resources – sometimes, but not always, House, Hachette, Phoenix and Grupo Pla- economies (including the BRIC countries, derived from publishers. Similar interactive neta), three in education (Pearson, China Brazil, Russia, India and China) each of products, communities and networks have South and McGraw-Hill) and three others which added a huge new population to the emerged to some extent all around the focus on professional and scientific pub- global market, craving for books and espe- planet. lishing (ThomsonReuters, RELX and Wolt- cially educational materials. But it seems To governments facing financial constraints, ers Kluwer). There are some significant that the combined expense of going global, such as the recently hyped emerging econo- overlaps, however, as Hachette includes a and doing so in the form of a digital transi- mies from India to Brazil, any model involv- major educational division, as does the tion, generated higher costs than any income ing networks and well-structured user-gen- Chinese company Phoenix, while China that could be added. erated content appear attractive, if they offer South is also involved in trade publishing. The second source of upheaval was a decline a sustainable alternative to verified learning The nine largest trade publishing groups, in public spending on , especially materials purchased for the classrooms and

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ease the pressure on ministerial budgets. Global Ranking of the Publishing Industry 2016 The students themselves, and their par- ents might also be keen to experiment Selected educational publishers with these platforms for after-school (Revenue from publishing, 2013 - 2015, m€) learning. 7000

These online learning platforms are the 6000 educational equivalent of the seemingly genre-specific model of self-publishing in 5000 the popular consumer books segment. They too have a rather loose attachment to 4000 traditional distinctions of what counts as valid content, and what is valuable for 3000 teaching and learning in the 21st century. For a good two centuries, the business of 2000 books was largely an exclusive domain.

It was shaped by publishers and retailers, 1000 and also by the State, which defined regu- latory frameworks and acquired books for 0 learning and, to a lesser degree, for public Cengage Houghton China South McGraw-Hill China Pearson Leaming Mifflin Santillana (ZhongNan) Education Education libraries. That exclusivity is now over. UK Holdings Harcourt SP CN US CN 1 US US 30 Publishing is still an industry replete with 6 9 20 12 15 opportunities – due to its vocation to make storytelling exciting and attractive, and 2013 5655 1621 1434 1510 993 831 738 due to its potential to bring vetted learning 2014 5809 2119 1795 1402 1126 910 652 materials to learners and teachers. The 2015 6072 2576 1151 1496 1297 1056 643 provision today is that publishers must Chart 11: The seven largest educational publishing groups worldwide, revenue 2013 to find a balance between sustaining their 2015. Source: Global Ranking of the Publishing Industry, 2016. strong foundations while responding to the new behaviour of their multiple audi- ences – and in a context they can no lon- IT usage (outside of school) ger control for themselves. In 2017, this Quelle: PISA (Data for 2012) has become the central challenge in the business of books.

Chart 12: Survey of selected uses of online resources for learning outside of school, in Germany, the Netherlands, Italy, and Sweden. OECD PISA research 2012. This topic was not updated in the more recent PISA survey of 2015. Analysis by RWCC.

14 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club About the author

About the author and the quoted materials in the Business of Books 2017

Rüdiger Wischenbart is the founder of Content and Con- sulting (RWCC), based in Vienna, , which spe- cializes in analysing international publishing markets and curating professional conference programmes for the international book industry. He is the director of the Publishers’ Forum in Berlin, and Director for International Affairs at BookExpo in the USA. (More at www.wischenbart.com)

Reports from RWCC quoted in this survey include the Global eBook report 2017 (www.global-ebook.com), and the Diversity Report 2016, co-authored with Miha Kovac. (www.wischenbart.com/diversity )

Imprint

The white paper “The Business of Books 2017” is Copy editor: Alastair Penny presented by the Frankfurt Book Fair Business Cover Design: Vier für Texas Club. Adaptation: www.weirauch-mediadesign.de

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15 / 15 The Business of Books 2017: It’s all about the consumers - presented by the Frankfurt Book Fair Business Club