Joseph Evans [email protected] Trade in the pandemic Abi Watson [email protected] Fair retail ending Amanda Ahadizadeh [email protected]

+44 (0)20 7851 0900 • The consumer books market has flourished during the 28 May 2021 pandemic: following early worries, publishers are

reporting strong growth and profits

• However, bookshops, the most important point of

contact between the industry and readers, are facing

their toughest challenge yet as ecommerce booms and continued home-working saps high street footfall

• Publishers and authors are embracing new, online ways of promoting titles. These will require new ways of

working, and are not substitutes for dedicated shops,

which must be protected as much as possible

Related reports:

Value in volumes: Books, midlists and retail [2018-025]

If your company is an Enders Analysis subscriber and you would like to receive our research directly to your inbox, let us know at www.endersanalysis.com/subscribers

It is by now a familiar story: books, like many things that people can enjoy at home and at little expense, had an embarrassingly good pandemic. The Publishers Association reported that the consumer market saw 7% growth, to hit £2.1 billion. Fiction sales are sometimes seen as a good indicator of actual engagement with , as they are more likely to be bought and read by the purchaser, and they grew 16% to £688 million. So far, the strong performance has continued through the first few months of 2021.

Figure 1: Adult fiction sales from UK publishers (£m)

688 700 616 606 594 588 582 600

500

400

300

200

100

0 2015 2016 2017 2018 2019 2020

[Source: Publishers Association]

At the same time, bookshops have been forcibly closed and sales rushed online, bringing forward a moment of reckoning for the key retail layer that sits at the heart of how trade has operated for years. Authors, agents and publishers are nervous about what will happen if the pandemic demand glut recedes, and there is not enough of a return to the high street to support retail as it exists today. Already, WHSmith (c.38% of UK retail book-selling outlets), has announced the closure of 25 stores this fiscal year, with a further 420 leases due for renewal in the next three years. Likewise, CEO James Daunt warned in February this year that c.80 of its 290 shops could close when leases expire unless business rates were reduced, which would potentially reduce its footprint by up to 27%.1

In order to understand what happened and what it means for the future of the industry, we interviewed a range of people from across the value chain that joins author and reader. These were mostly on background to allow interviewees to speak freely. Though no two perspectives on the trade will ever be identical (a point we heard more than once), there was a surprising amount of agreement on the key areas of what happened in the last year, what the big risks are, and even the future of the industry. Below, we sketch the consensus view of what happened since the start of the first UK lockdown. Then we assess the challenged traditional reader touchpoints, bookshops foremost among them. We then explore new ways of reaching readers, and the implications for publisher operations. Our recommendations are summarised on page 16.

1 The Times, Landlords call time on rent rebels, February 2021

Trade books in the pandemic: Fair retail ending [2021-060] 2 | 17

The facts: what happened during the pandemic?

Points of agreement • Sales crashed at the start of the first lockdown. Publishers went into crisis mode, cancelling launches and furloughing staff • Subsequently, however, sales more than recovered, with annual growth rates much higher than would be expected in a good but ‘normal’ year • Sales shifted heavily to online, particularly after Amazon ceased prioritising essentials (Amazon’s ‘essential’ category included children’s books, but not other books) • What people bought changed rapidly, with certain genres and types of books doing particularly well: children’s (especially educational); backlist and classics; titles about pandemics or infectious diseases; manga and graphic novels more recently • All formats grew, but there was no lasting shift away from print beyond the start of the first lockdown, when bookshops were closed and Amazon deprioritised books. were back to substantial growth for the first time in years

Points of difference

There was disagreement over: • Whether Amazon swept up all the sales moving online in proportion to its existing online market share, or whether an outsized proportion of those new online sales went to other retailers. In other words, whether the market of online physical book retailers became more competitive or not • Relatedly, whether existing physical bookshops had transitioned effectively to selling online • Whether debut authors or title launches performed worse than usual, or about the same

As a result of this generally positive story, several publishers have seen bumper years, particularly at the bottom line: Hachette owner Lagardère’s UK revenue rose 9.9% in 2020;2 Penguin Random House worldwide grew 4.6%, with EBITDA up 23.3%; HarperCollins grew global revenue by 7.9%, and while segment EBITDA was flat for the year, in the second half it was up 56%. Bloomsbury reported 10% sales growth in the six months to the end of August 2020, with profits up 60%.

Books are objects, so the physical supply chain is key

What this highlights is the book’s unique status as a home entertainment category that is also a physical object. The sector was therefore buffeted by two of the most important trends of the past year: the boom in home entertainment as a safe, legal and enjoyable way of spending leisure time and disposable income; and the explosion in ecommerce as non-essential retail was closed and the public avoided mixing. Other forms of home entertainment have moved away from physical delivery: video, music, games, and, less completely, journalism. These are no longer physical objects, bought in physical shops. Books saw a demand boom in part because of their status as a physical object: with home-working and home-schooling (not to mention doom-scrolling), books represented an escape from screens, notifications and a troubling pandemic reality. Indeed, our interviewees suggested that there was no significant shift from print to ebooks, though continued their strong growth.3 But this status as a physical media also meant that books’ usual route to readers was disrupted. Straightforward logistical concerns about fulfilment

2 Hachette UK grew a spectacular 19.8% in the first quarter of 2021, driven by sales of the Bridgerton series which enjoyed a popular Netflix adaptation. 3 Figures from the Publishers Association suggest the consumer market went from 17% digital by value in 2019, to 20% in 2020.

Trade books in the pandemic: Fair retail ending [2021-060] 3 | 17 were therefore widely reported; this was a particular problem for titles printed in China (where colour has a marked price advantage to Europe or North America) given its severe early shutdown. Still, compared to other markets, the UK supply chain held up impressively well, particularly given the collapse of wholesaler Bertram’s in June 2020.

Bookshops play a vital role, and are under threat

This status as a physical item, bought at retail, underscores how central bookshops are. The role of dedicated booksellers, both chain and independent, was frequently highlighted by every person we spoke to for this report. They are seen as the most important point of contact between the industry and its customers. The key function of sales and marketing teams at publishers is to sell books to bookshops, to get them to stock and promote their titles. Whether bookshops embrace a title is what makes the biggest difference to sales, and is crucially important for the midlist: books that won’t inevitably sell a boatload (as the next book from Bill Bryson will), but could have broad appeal if they’re pushed in front of a receptive reading public.

As we have written previously (see: Value in volumes: Books, midlists and retail [2018-025]) the decline of the midlist is a perennial fear, and a trend that has been exacerbated by the pandemic. While overall sales volumes held up in 2020, this view was distorted by on Amazon and supermarket chains (which tend to favour books that are already selling well), while midlist authors suffered. Figure 2 shows the importance of the frontlist titles outside the top 100 for revenue in 2019. These are important categories that struggled during the pandemic, though backlist and big sellers more than made up for it.

Figure 2: Book sales by rank and year (2019)

60% 51% 50%

40%

29% 30% 25% 22% 20% 17% 18% 14% 10% 8% 10% 5% 1% 1% 0% 1-100 101-1,000 1,001-5,000 1-100 101-1,000 1,001-5,000

Published 2019 Published prior years Titles Value [Source: Enders Analysis, Nielsen BookScan]

This trend was exacerbated by the glut of delayed and planned titles published later in the year—an additional 600 books were published on ‘Super Thursday’—with greater competition squeezing midlist sales.4 We note that this does vary by publisher: Usborne’s midlist and backlist sales grew during the pandemic, in particular demand for phonics, activity and sticker books.5

More worrying still is the upstream picture: there is a commissioning timebomb. Anecdotally, agents have noted a big squeeze on midlist titles, while advances for debuts were either very high or very low, with

4 The Observer, Literary world overwhelmed by 600 books to be published on one day, August 2020. 5 The Bookseller, Children's publishers reflect on growing readerships in lockdown, September 2020.

Trade books in the pandemic: Fair retail ending [2021-060] 4 | 17 little in between.6 Likewise, the financial pressures placed upon midlist authors, whose income has fallen by 42% in real terms since 2005,7 has been brought to a head by the pandemic: 65% of writers lost income during the first half of 2020, with the situation worsening as it progressed. Many authors, particularly children’s authors, rely on visits to schools, community centres and literary festivals to top up their income. With events cancelled in 2020, and 1 in 3 reporting that events are still being cancelled in 2021, this will without doubt push midlist authors on the margin to consider other careers.

The potential hollowing out of the midlist will not only impact the diversity and plurality of the publishing ecosystem. Depending on individual publisher catalogues (namely, how robust their backlists are, and the amount paid out in advances to bestsellers to maintain topline revenues), it may erode profitability in the long term.

Bookshops are also vital for pushing new titles and debut authors. Everyone we spoke to reported a shift in demand from the frontlist to the backlist. We analysed BookScan’s top selling books for the first 48 weeks of each of 2020 and 2019; though the shift to the backlist was not apparent when looking at the top 100 titles, it is clear in the top 5,000. This is consistent with the idea that, while the very biggest books and authors can successfully launch without it, smaller new titles really rely on in-store browsing.8

Figure 3: Age of 100 best-selling titles

600 552 506 500

400 301 300 271

200

100 29 32 0 Mean days since publication Median days since publication Number of titles more than a year old 2019 2020 Note: Age of titles at 31 December each year. [Source: Enders Analysis, Nielsen BookScan]

Figure 4: Age of 5,000 best-selling titles

3,500 3,147 2,992 3,000

2,500

2,000 1,350 1,500 1,205 1,000 509 623 500

0 Mean days since publication Median days since publication Number of titles more than a year old 2019 2020 Note: Age of titles at 31 December each year. [Source: Enders Analysis, Nielsen BookScan]

6 The Bookseller, Auctions and pre-empts hotting up after lockdown, agents say, July 2020. 7 All Party Writers Group 2021, Supporting Writers Through the COVID-19 Crisis, May 2021. 8 The effect could also be partly explained if fewer new titles were launched in 2020.

Trade books in the pandemic: Fair retail ending [2021-060] 5 | 17

To represent in-store merchandising, we recorded over 500 adult titles in face-up, curated displays at a mid-sized London branch of Waterstones, shortly after reopening in mid-April. Large publishers dominated, particularly the coveted window displays, but smaller publishers were also well-represented.9 In particular, members of the Independent Alliance of publishers, an organisation run by Faber that provides publishers with joint sales and distribution to shops, seem to punch above their weight, together accounting for more titles than any publisher on the table displays, and second to Penguin Random House in the 45 adult titles in the window.10 Both these measures are less concentrated than the top 100 adult titles sold in the first 16 weeks of 2021, of which 81 were from a ‘Big 4’ publisher (Hachette, HarperCollins, Pan Macmillan and Penguin Random House).

Figure 5: Waterstones displays versus bestsellers by publisher

100% 2% 13% 90% 14% 24% 3% 80% 2% 23% 70% 2% 60% 9% 50% 40% 81% 71% 30% 55% 20% 10% 0% Waterstones - Table Waterstones - Window Total market - Top-selling titles Big 4 Bloomsbury Total Independent Alliance Other [Source: Enders Analysis (for Waterstones data), Nielsen BookScan (for total market data)]

In our previous research on books (see Value in volumes: Books, midlists and retail [2018-025]) we have highlighted the future of book retail as the main risk for the status quo. The COVID-induced ecommerce boom brings a new sense of urgency to this question. If bookshops have previously been in long-term decline, they are now facing crisis.

WHSmith has announced the closure of 25 stores this fiscal year, with a further 420 leases due for renewal in the next three years. Following a half year pre-tax loss of £19m, it is placing greater emphasis on travel outlets, using the proceeds of a £325m bond issue11 to expand overseas: of the 100 new stores it is opening, 60 will be located in the US, where passenger numbers have held up far better in the UK. 12 Intensifying its focus on travel outlets will squeeze range sizes. Likewise, Waterstones CEO James Daunt warned in February this year that c.80 of its 290 shops could close when leases expired unless business

9 Reports have recently emerged that Waterstones is reducing the prominence of PRH titles in its in-store displays, due to restrictions on credit the publisher is extending to the retailer. See The Bookseller, Waterstones reduces prominence of PRH books in credit limit dispute, 7 May 2021. 10 Independent Alliance members: Faber & Faber; Atlantic Books; Canongate; Icon Books; Profile Books; Granta Books; David Fickling Books; Pushkin Press; Scribe Publications; Lonely Planet; Murdoch Books; Daunt Books; Europa Editions; Oneworld Publications. 11 £50m will go towards opening new travel outlets. The remainder of the proceeds will be used to partially pay down the existing £400m term loans from both the Marshall Retail Group and InMotion acquisitions. 12 US passenger numbers are 35% lower than 2019 levels, compared to 95% in the UK. See The Times, WH Smith puts its money on travel taking off, April 2021.

Trade books in the pandemic: Fair retail ending [2021-060] 6 | 17 rates were reduced, which would potentially reduce its footprint by up to 27%.13 In the worst case, if all these closures materialised, the number of book retail outlets in the UK would be reduced by a quarter.

Figure 6: UK bookshops by chain

WHSmith Waterstones Large chains 795 777 Small chains Single shops

8857 292

Note: Large chains have over 10 locations; small chains have 2-10. [Source: Enders Analysis, Booksellers Association]

Assessing how the independent book sellers have fared during COVID-19 is trickier. While the number of independent bookshops registered with the Booksellers Association increased to 967 in 2020, the majority of this increase is attributable to existing shops joining the Booksellers Association for the first time to receive support during the pandemic. On a net basis, six new independent bookshops opened.14

Anecdotally, the last Christmas was an exceptional period for independents, many of whom outperformed their high streets.15 However, some independents have struggled to manage the transition to online because they lack either the skills or resources to do so, though initiatives like bookshop.org can make things easier for them (see page 11). Those who are yet to manage the transition will have been doubly penalised, both from successive lockdown, and exclusion from the surge in ecommerce.

On a positive note, the 2020 Nielsen Books & Consumers survey found that the most common reason respondents gave for visiting an independent bookshop last year was to show support, rising from the seventh most common reason in 2019.16 Ensuring that these relationships are as sticky as possible moving forward will be key to their continued survival.

Looking ahead, there are enormous uncertainties around the future of book retail. How the overall economy fares, to what extent workers return to city centres, and how completely tourism returns to the UK: these are all factors where any predictions have to come with very large error bars, and they continue to be central themes in our research. Brexit is a further complication, the effect of which has largely been masked by the pandemic—it is difficult to assess how barriers to imports, exports and travel will affect the books market when trade and travel have already been turned upside down.

13 The Times, Landlords call time on rent rebels, February 2021 14 The Guardian, Indie bookshops defy Covid to record highest numbers for seven years, January 2021. 15 Huck, How lockdown reignited our love of indie bookshops, September 2020. 16 Nielsen, Nielsen Books & Consumers

Trade books in the pandemic: Fair retail ending [2021-060] 7 | 17

Other traditional touchpoints are also under pressure

Bookshops are the most important point of contact between publishers and readers, but other traditional touchpoints are also under pressure. Reviews in the press is another example. Print readership is in structural decline, and newspapers are putting fewer resources into book reviews. As a single datapoint, we analysed two Sunday New York Times editions: 15 April 2001, and 18 April 2021. The 2001 had 16 full-length book reviews, averaging 1,024 words each; 20 years later this had fallen to 13 reviews of 971 words each, a 30% decrease in wordcount devoted to full book reviews. Other papers have suffered worse financially, and have cut resources in this area by more. Still, nearly all news and general interest magazines still include book reviews, demonstrating the resilient importance of the format for readers. One issue is media editors increasingly view book reviews as nice-to-have content for loyal readers, but hardly the material that will drive traffic or acquire new audiences. As media becomes more obsessed with audience acquisition rather than audience retention, book reviews risk being a content category that further loses out.

Figure 7: New York Times Sunday wordcount

18,000 16,393 16,000

14,000 12,623 12,000

10,000

8,000

6,000

4,000

2,000

0 15 April 2001 18 April 2021

[Source: Enders Analysis, New York Times]

In addition, the pandemic cut down live events, in-person book launches, conventions and book fairs. All traditional organic touchpoints with readers—the ways that publishers, agents and authors launch new titles and influence what books people buy—suffered during the pandemic, in most cases following years of gradual erosion.

Despite this, the book market flourished at precisely the same time, for the reasons outlined above. The worry now is that the outlier pandemic demand will recede, but the traditional touchpoints never fully recover. Publishers’ book-selling toolbox will be degraded.

Online touchpoints provide new ways to sell books

However, what the sector’s performance demonstrates is that high traffic to bookshops is not necessary to sell loads of books, given the right conditions. These conditions were exceptional, and hopefully will never recur, but the implication is undeniable: there are other ways to sell books.

Trade books in the pandemic: Fair retail ending [2021-060] 8 | 17

Online retail cannot play the same demand-generating role

Amazon is seen as a threat

First, we look at the retail picture online, which was the exclusive sales channel during periods of non- essential retail closure. Amazon, of course, is by far the largest online retailer of books. But the consensus view is that Amazon does not fill the same role as bookshops when it comes to helping browsers discover new titles, or convincing people to buy something they didn’t come to the site to buy. It was highlighted as being extremely good for selling what is already known, or selling well. Even Amazon advertising is not seen by publishers as a way of generating new demand, but a way of moving an already selling title up to the top of a keyword search. The same is true of the promotional “From the Publisher” section that publishers can upload: it is best at pumping up a title with existing traction, not breaking an unknown author. In short, Amazon is best thought of as sitting at the end of a customer journey, rather than providing the full process from discovery to purchase, the way a physical bookshop can. Amazon is ‘just’ a retailer, and extremely good at it.

Figure 8: Amazon Plus page for Where the Crawdads Sing

[Source: Amazon]

Publishers have other reasons to worry about Amazon’s dominance. First, it is a generalist retailer, so not committed to the thriving of the industry: if book sales fall by £100 million, but headphone sales rise by £100 million, Amazon doesn’t particularly mind (depending on its supplier terms in the two categories). Dedicated booksellers, by contrast, are committed to selling books, not just stuff. Second, publishers worry that if Amazon becomes the only de facto route to market, it will push hard on terms, to capture more of the profits in the system. Finally, Amazon is also a competitor, running several imprints as well as and print-on-demand self-publishing services. If we look at a snapshot of the top 100 paid titles on the UK Kindle store, we can see that the big 4 houses have a similar share to the Waterstones table display

Trade books in the pandemic: Fair retail ending [2021-060] 9 | 17 from Figure 5. However, Amazon-published and self-published titles occupy a further 21 slots, meaning other independent publishers are less well-represented.

Figure 9: Top 100 paid UK Kindle books by publisher

Big 4

Total independent 11 alliance 8 Amazon 4

55 Self-published 17

5 Specialist ebook publishers

Others

Note: list as of 14 April 2021. [Source: Enders Analysis, Amazon]

Amazon’s strength in the Kindle top charts is possible because it makes extensive use of its free at the point of use reading programmes, Prime Reading and Kindle Unlimited. There are several million Kindle Unlimited subscribers who can read these titles at no additional cost, giving them an advantage in the Kindle charts. Other publishers also have access to these programmes; most do not participate due to concerns about degrading the perceived value of their offerings. Despite this valid concern, the top charts are generally populated by titles on heavy discount: only 26 in our snapshot were over £1 and not on a free programme. The average price of £2.50 compares to an average of over £8 paid for print titles from mid-March to mid-May 2021, according to Nielsen. Some innovative non-Amazon publishers have found success optimising for the Kindle market, and embracing Kindle Unlimited, leading to names in the Kindle Store that are not recognisable in other bestseller lists, such as Joffe Books.

Figure 10: Top 100 paid UK Kindle books by price category

45 40 40 34 35

30 26 25 20 15 10 5 0 Free with subscription £0.99 Over £1

Note: Bestseller list as of 14 April 2021 [Source: Enders Analysis, Amazon]

Trade books in the pandemic: Fair retail ending [2021-060] 10 | 17

As well as competing within publishing, Amazon is a competitor in the wider attention market: it can benefit from people watching video on demand, or Twitch streams. The worry is less that Amazon would actively work against reading or the book industry, but that through its diverse interests, it can’t be relied on to promote the industry the way a dedicated book retailer can.

Dedicated online retailers are part of the answer

Part of the answer, then, is a more competitive landscape for online book retailing, with a focus on dedicated book retailers. One obvious answer is Waterstones itself, but there was the sense of a missed opportunity in some of our interviews. During the initial lockdown, it perhaps didn’t move as quickly as it could to develop a fulfilment solution that could compete with Amazon, that would have allowed it to keep focus on passionately selecting and recommending new authors and books, as well as promoting backlist titles. In light of the shift online, but also to safeguard the high street operations, Waterstones will have to rely more on its online operations in the future. This may become even harder after shops reopen, as it means shop floors and staff can’t be dedicated to online fulfilment. A better blended offline/online Waterstones would help keep the brand top of mind for (naturally promiscuous) book buyers (see Retailing in the material world [2018-034]).

Indie bookshops also have an online presence. One development in retail mentioned by several interviewees was bookshop.org launching in the UK, a retailer that passes 30% of the sale price of books sold to a nominated independent bookshop.17 This has the dual benefit for the industry of providing competition to Amazon at retail, and supporting dedicated bookshops. It currently claims to have generated £1.3 million for local bookshops since its launch in November; depending on how many books were bought on the 30% share model, this implies sales of at least £4.25 million in its first six months of UK operations.18 There are concerns about the model, that it might substitute for actual direct sales to bookshops rather than sales on Amazon, and that it erodes publishers’ vital relationship with independent bookshops, as distributor Gardner handles inventory and shipping. The consumer experience is also a challenge, as book buyers expect Amazon-like speed and efficiency, something other retailers have trouble matching. However, a dedicated online book retailer gaining traction is precisely what the industry should hope to see; that it might support physical retail as well is a bonus.

What all these online retail options have in common is that discovery of a title and the initial intention to buy aren't actually created on the retailer site. This is true of a lot of ecommerce: the demand is generated elsewhere, before the customer is moved to a relatively thin retail layer for checkout, often of a single product. Typical user journeys might involve learning about an unusual ingredient from a YouTube cooking channel, then moving to souschef.co.uk to buy it. Or a friend recommending headphones on WhatsApp, and sending an Amazon link. It should be clear that discovery can happen online, but it mostly doesn’t happen on retailer sites. These free flows from discovery to arbitrary retailers have become even easier since online payment tools have become more widespread and straightforward, logistics have become more standardised, and consumer trust in buying things online, even from sites they have never heard of, has increased. As a result, and despite Amazon's enormous successes, the past year has ushered in a more diverse and competitive ecommerce market.

17 We estimate roughly half of independent bookshops are already registered on the site. 18 If no bookshop is nominated, 10% of the sale price goes into a pool that is then distributed among participating shops.

Trade books in the pandemic: Fair retail ending [2021-060] 11 | 17

It is more difficult to diversify online book retail, because every (in print) book you could want is available on Amazon, where you have free, fast, reliable shipping. This is not the case for a pair of shoes, which you might see an ad for on Instagram but can only buy at the manufacturer's website. Still, publishers should feel free to direct customers to whatever retail front end makes the most sense for them, as long as it meets a minimum standard of fulfilment.

Launch case study: Klara and the Sun

Launching new titles without bookshops and in-person events has been a challenge. One approach that attracted attention was the launch of Klara and the Sun, by Kazuo Ishiguro, in March 2021.

The first event was run through Waterstones, and gave 100 attendees time with the author on Zoom for a one-on-one book dedication. This exclusive access provided a powerful reason to attend, which is an ongoing problem with online events: without the social elements of mingling and talking to people, or the free white wine, getting people to attend is difficult.

For a subsequent event, Faber worked with independent bookshops and bookshop.org to release tickets to people who bought copies from independent shops, motivating readers to connect with their local bookshops online. Independent shops were provided with special editions with a different colour cover (in contrast to the Waterstones special edition with sprayed edges). Focusing on independents may also help with publisher margins, as the £20 book has an average selling price of £19.87 in the Independent booksellers' charts, £5.30 more expensive than its TCM-wide price.

Of course, it helps to be working with a well-received novel from a Nobel Laureate, but the release of Klara and the Sun provides an example of how to organise compelling virtual events that maintain the role of bookshops in book launches.

We spoke on the record to Matt Holland, founder of The Broken Binding, a new independent online retailer focusing on science fiction and fantasy. The approach of The Broken Binding is to differentiate the retail experience, to avoid straightforward competition on price or logistics, which favour Amazon. The retailer takes an active presence on social media, particularly Twitter, engaging with readers and authors, running polls and giveaways. More importantly, it works closely with authors and publishers to offer an enhanced product, such as signed copies, custom , or even physical maps of a book's fantasy world. The packaging is thoughtful and Instagrammable, more in the style of direct-to-consumer subscription startups than the plain brown boxes of larger retailers. Holland also recognises the role of retailers in supporting the midlist or lesser-known authors, and claims to curate and promote the sort of titles that can fly under the radar in an ecommerce-dominated world. However, most of the marketing of titles by The Broken Binding happens off the retailer site itself, in email newsletters, Discord servers or Twitter feeds. Even when it comes to a small, dedicated book retailer, book discovery online does not generally take place within the retail environment.

Trade books in the pandemic: Fair retail ending [2021-060] 12 | 17

Figure 11: Packaged order from The Broken Binding

[Source: @thebrokennbinding on Instagram]

Non-retail touchpoints are more important than ever

This separation of retail and discovery is a good thing, as it means publishers can reach readers where they are, and are not reliant on those few hours per year when they are in bookshops. There are now more ways than ever to reach readers. But it does mean publishers need to develop new skills and forge new partnerships, and that the sales and marketing practice will have to evolve drastically.

Influencers

One topic that many of the people interviewed brought up was the idea of book ‘influencers’: tastemakers on YouTube, Twitter, Instagram or blogs. These can "Social media is quickly generate a lot of interest in a title, often organically or at low cost. As with all influencer marketing, it is at its most effective when there is a close the way forward connection between the product and the creator, and the latter believes in for marketing what they are promoting. Engaging influencers involves some of the same skills that publishers have always used to sell into bookshops: passionately pitching books" - Matt titles, and looking for what will fit with a given audience. Publishers and Holland, The industry data providers have pointed to TikTok as providing the sort of sales uplift that social platform s have never before delivered, mostly seen in the sui Broken Binding generis Young Adult (YA) genre.

This is a fast-developing area, and publishers have very different experience and capabilities in it. Penguin Random House, for example, has been working with paid influencer campaigns for years, particularly in children's and YA. Its dedicated influencer information page distinguishes between promotional mail-outs of books to build buzz, and paid sponsored content where the publisher retains editorial influence, and potentially approval, over the social post.19

19 Penguin Random House, PRH Influencers

Trade books in the pandemic: Fair retail ending [2021-060] 13 | 17

Figure 12: Graphic from Penguin Random House US influencer policy page

[Source: Penguin Random House]

Some of the most important organic book 'influencers' are popular authors, who are often very active on Twitter, see themselves as in solidarity with new or upcoming writers, and understand the difference social buzz can make to sales. Holland pointed out that many authors promoting other writers on Twitter will link to an Amazon or Book Depository (owned by Amazon) page by default; there is an opportunity for publishers and agents to bring authors along with a diversified online retail strategy.

There is also a well-established world of book bloggers, reviewers and influencers who can be reached through advanced review copy (ARC) platforms like NetGalley, which also offers email marketing services and curates its own 'book of the month' picks. NetGalley sends 12 promotional email newsletters per year to 28,000 UK subscribers, and a further 12 in specific genres to those interested. The emails sent in 2020 had the best representation of smaller indies of any of the marketing channels we analysed, at 23% of adult books (Figure 13). Finally, book clubs and curated subscription boxes were mentioned as growth areas. We expect to see many more small, special interest clubs from influencers within a narrow field, compared to the old model of mega-clubs reaching millions of readers (though a nod from Oprah, Emma Watson or Reese Witherspoon will continue to have the bigger impact).

Figure 13: NetGalley 2020 email newsletter titles by publisher

Big 4 Bloomsbury 23% Simon & Schuster Independent Alliance Others 9% 56% 4% 8%

Notes: 229 unique adult titles total. [Source: Enders Analysis, NetGalley]

Trade books in the pandemic: Fair retail ending [2021-060] 14 | 17

Online touchpoints create headaches, but could enable a more level playing field for indie publishers

These are the sort of promotional activities that small publishers have been relying on for some time, as bookshop chains have cut buying teams, and devote more resources to dealing with the very largest suppliers. The last year saw larger publishers pour into new touchpoints, crowding the market and making things harder for less-well-resourced publishers who relied on a larger share of voice in the online world. However, in the long term it may even be easier for smaller publishers to compete for exposure in a largely organic, creative-driven world of online touchpoints, than they could where the main determinant of success was an overworked buyer taking your calls: a buyer who understandably prioritised the largest accounts. We could see a more competitive and dynamic market emerge, and even whole new approaches to publishing based on serving groups of readers too small or dispersed for a physical infrastructure to cater to, or ‘fast’ topical publishing that is impossible if the route to market is a slow journey through printers, distributors and dedicated retailers. The precedent to look to would be small companies in apparel, FMCG and health and beauty, which make use of cheap, direct ways of reaching customers online, and have cut into the markets of very large, well-established brands.

There is therefore a positive sense in which the end of the bookshop as the dominant reader touchpoint is liberating. However, these benefits would in no way make up for the catastrophic impact of the loss of dedicated physical retail altogether, which must be avoided if at all possible. Everything we have said in previous research about the importance of physical book retail remains true. Before 2020, dedicated book retailers were the largest channel for book sales. They are vital for launching titles and promoting the midlist. Word of mouth is thought to be the most common way readers discover books; many of those word-of-mouth chains, however, begin in well-curated bookshops. Being able to get titles into shops is also a key point of differentiation for traditional publishing compared to self-publishing. Publishers have to embrace the new, but they should by no means let go of the old unless they absolutely have to, even if helping book retailers stay afloat means a short-term impact on the bottom line.

In addition, the new touchpoints themselves create challenges, though we believe the opportunity is larger than the risks. Online discovery has its own logic, different from the analogue world. Unlimited by shelf space, the long tail of available books becomes enormous. At the same time, the dynamics of networked sharing and algorithms that recognise and reinforce trends create the potential for virality: any one of those titles in the long tail can be catapulted up to superstar status in very short order. This creates challenges for printing, logistics and distribution: the new touchpoints require that publishers can fulfil a single copy order of any backlist title, and also ramp up to capture viral demand for thousands of copies before it fades.

There are tools that can help publishers manage this uncertainty. A well-integrated print-on-demand system will allow any backlist title to show as in-stock at retailers, with rapid fulfilment of any orders. Shortening supply chains through printing in-market will speed up reaction times, make operations more resilient and ecologically sustainable, and protect against disruptions like pandemics, Brexits, or clogged canals.

Trade books in the pandemic: Fair retail ending [2021-060] 15 | 17

Publisher recommendations

In general, publishers need to invest now to manage an accelerated transition to online retail and online marketing. Fortunately, most publishers are enjoying windfall profits from the home entertainment boom. This is an opportunity that should not be missed: publishers can experiment with things like influencer relationships and helping dedicated online retailers differentiate themselves at low cost. Reworking supply chains, experimenting with print run size and providing material support to physical bookshops—these initiatives will be expensive, but large publishers currently have the money. In brief: • Support physical bookshops that are under threat, if necessary by increasing the share of receipts they keep. The end of physical bookshops was the number one threat identified by almost everyone we spoke to, which suggests publishers should be doing everything in their power to protect them • Work with dedicated retailers, online and offline, to differentiate their experience from that of Amazon or the supermarkets, whether this is through special editions, bookplates, early access, multiformat bundles, events, or just custom bookmarks • Build organic social presence, and develop a paid influencer strategy that extends beyond sending free books to whoever is trending • 'Out-of-stock' is fatal online. The supply chain needs to be oriented to maintaining stock of key titles in retailer and distributor warehouses, but also to ensure deep backlist is always shown as available, which will likely mean a print-on-demand integration • The supply chain should be as rapid, responsive and resilient as possible. This means printing in- market where possible, and experimenting with print run size • These changes may raise average unit cost; publishers should be comfortable with higher prices where the buyer is price-insensitive, as with single orders of deep backlist, or for special retailer tie- in editions

All of these are being tried, and some publishers are already advanced in most of them. However, the underlying truth, applicable to everyone, is that the status quo is under threat. Publishers must therefore be nimble and flexible, open to new opportunities and aware of new risks. These are just the risks and opportunities that are currently visible; important ones won't yet be apparent.

The success of the Independent Alliance demonstrates the power of collaboration in the industry. Of course, collaboration can slip into collusion, and the ability of readers to buy what books they want in the way they want should not be restricted. But there are proposals to allow industries, such as the newspaper industry, to bargain collectively with platforms to ensure commercial terms are fair. Books are such a foundational creative industry, at the heart of the cultural life of the nation, that the relationship between book publishers and the largest generalist retailers (currently, Amazon) may warrant a regulatory backstop to protect fair trading. Whatever the regulatory environment, the book industry is not zero-sum: it can gain time and spend from other entertainment categories, and all publishers can succeed. Sharing best practice among publishers (and agents, authors and retailers), and setting up collaborative experiments, will be good for the sector as a whole.

Just as importantly, the pandemic windfall needs to be widely shared. The publishing industry relies on a large portion of workers living on relatively low professional incomes in cities with some of the world’s highest living costs. This leaves staff precarious, or dependent on existing wealth, both of which are bad for the long-term dynamism of the industry. The same is often true of writing, a trade that is not accessible to those without the means to bring a manuscript to a late stage of completion before seeing any returns, if at all. These are long-standing, difficult-to-solve problems, but publisher operations will change substantially over the next few years as the full significance of online retail and online touchpoints work through. The question of who gets paid, how much and on what model, needs to be re-examined.

Trade books in the pandemic: Fair retail ending [2021-060] 16 | 17

About Enders Analysis

Enders Analysis is a research and advisory firm based in London. We specialise in media, entertainment, mobile and fixed telecoms, with a special focus on new technologies and media, covering all sides of the market, from consumers and leading companies to regulation. For more information go to www.endersanalysis.com or contact us at [email protected].

About Venture Insights Venture Insights provides a subscription research service covering the media, digital and telecommunications industries in Australia, NZ and Europe, with a special focus on new disruptive technologies. For more information go to www.ventureinsights.com.au or contact us at [email protected].

Important notice: By accepting this research note, the recipient agrees to be bound by the following terms of use. This research note has been prepared by Venture Insights Pty Ltd and Enders Analysis Limited and published solely for guidance and general informational purposes to authorised users under the terms of a licence agreement between Venture Insights Pty Ltd and its subscriber. You need to be expressly authorised to use it, and it may only be used for your internal business purposes and no part of this note may be reproduced or distributed in any manner including, but not limited to, via the internet, without the prior permission of Venture Insights Pty Ltd. If you have not received this note directly from Enders Analysis Limited or from Venture Insights Pty Ltd, your receipt is unauthorised. If so, or you have any doubt as to your authority to use it, please return this note to Venture Insights immediately.

This research note may contain the personal opinions of research analysts based on research undertaken. This note has no regard to any specific recipient, including but not limited to any specific investment objectives, and should not be relied on by any recipient for investment or any other purposes. Venture Insights Pty Ltd and Enders Analysis Limited give no undertaking to provide the recipient with access to any additional information or to update or keep current any information or opinions contained herein. The information and any opinions contained herein are based on sources believed to be reliable but the information relied on has not been independently verified. Neither Venture Insights Pty Ltd nor Enders Analysis Limited nor their respective officers, employees and agents make any warranties or representations, express or implied, as to the accuracy or completeness of information and opinions contained herein and exclude all liability to the fullest extent permitted by law for any direct or indirect loss or damage or any other costs or expenses of any kind which may arise directly or indirectly out of the use of this note, including but not limited to anything caused by any viruses or any failures in computer transmission.

The recipient hereby indemnifies Venture Insights Pty Ltd, Enders Analysis Limited and their respective officers, employees and agents and their related entities against any direct or indirect loss or damage or any other costs or expenses of any kind which they may incur directly or indirectly as a result of the recipient’s use of this note.

© 2021 Venture Insights Pty Ltd and Enders Analysis Limited. All rights reserved.

Trade books in the pandemic: Fair retail ending [2021-060] 17 | 17