Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing

If you believe there is no disruption within the book publishing business, following are excerpts from press releases that came out as the industry was gearing up for Book Expo of America 2011:

April 14, 2011 May 9, 2011 RR Donnelley’s role as the printer, binder and In a sign of the growing maturation of its In the rapidly changing publishing industry, distributor of HarperCollins’ conventionally publishing program, Amazon has sold trade lines between different parts of the business produced titles. paperback rights to 10 titles in its Encore and are blurring like never before and that could Crossing imprints to Houghton Mifflin Harcourt. not be more clearly seen than in last week’s May 19, 2011 separate announcements from Amazon and After increasing at a 169% rate in the first two May 4, 2011 from Bookish, the soon-to-be launched online months of 2011, e-book sales rose at a relatively With digital content generating 18% of total book platform that has the financial backing modest 145.7% clip in March, to $69 million, revenue in the first quarter of 2011, Simon of Simon & Schuster, Penguin, and Hachette according to the 16 publishers who report & Schuster reported that profits more than Book Group. Amazon’s fall launch of Montlake figures to AAP’s monthly sales estimates. doubled and sales rose 2% to $155 million. Romance pushes the company deeper into the publishing business than it has ever been, while May 4, 2011 the launch of Bookish gives publishers their first destination site where titles from all publishers Similar to Hachette Book Group and “iPads and other tablets will be will be available for sale. Simon & Schuster, e-books led the gains in the possession of about 20% at Harlequin in the quarter. E-book sales in May 12, 2011 of college students by the fall of North America rose C$7.1 million, offsetting a 2012,” says Xplana director of C$1.7 million decline in print retail sales and HarperCollins Publishers and RR Donnelley a C$800,000 decline in print sales through its … announced their intent to enter into a research, Rob Reynolds. “That's direct-to-consumer business due mainly to a breakthrough global supply chain agreement. a huge impact. It’s the fastest drop in sales via online retailers. Digital sales The agreement is the first of its kind for a major growing technology that we've accounted for 13.6% of total revenue in the general trade publisher. Under the terms of the quarter, or about C$15.6 million. proposed agreement, beginning in November seen in education.” 2011, RR Donnelley will handle the fulfillment Reynolds predicts e-book sales May 5, 2011 of all HarperCollins new releases from its Harrisonburg, VA facility. Additionally, beginning HarperCollins had lower book sales in the third growth in the higher education in July 2012, RR Donnelley will handle fulfillment quarter ending March 31, according to parent market will double over the next of all frontlist and backlist titles for Zondervan, company News Corp.’s 10-Q filing with the SEC. four years to $1.5 billion by 2015, a division of HarperCollins Publishers. RR In a statement issued by HC, the company Donnelley will also provide global print-on- and account for 25% market share. said e-book sales in the quarter accounted for demand (POD) services to HarperCollins, 19% of sales in the U.S. and 11% worldwide. enabling most titles to be printed anywhere HarperCollins holds publishing rights. The agreement also renews and expands

2 Taking Advantage of Market Disruption in Book Publishing As these and other announcements indicate, published in the U.S. By comparison, self- available online tools. In addition, products there are two separate and distinct changes publishing and re-publishing of out-of- like the Espresso Book Machine enable the that are taking place within publishing today copyright materials created more than creation and production of these titles within that will have a significant impact on how 2,776,260 new titles in 2010. In fact, the retail environment, eliminating all of the content is created and comes to market in the according to Bowker, the exclusive source of costs associated with inventory, shipping future. The two changes revolve around the ISBNs in the U.S., the nontraditional book and oversupply. traditional model of book publishing and the publishing space grew 169% in 2010 from Add to this the challenge of alternative rapidly emerging model for self-publishing. the approximately 756,000 titles released in delivery systems such as e-readers and the Both of these changes affect the manner and 2009 to the 2.8 million referred to above. This impact growing sales of e-books are having speed in which content comes to market and growth is actually understated as it reflects on the overall mix of books sold, and you the change in the distribution model that is only those titles where the author purchased clearly have an industry in the throes of critical to their success. an ISBN number. There are also thousands of massive disruption. titles released every year on self publishing Traditional book publishers are faced with the platforms like the Espresso Book Machine®, This document discusses the state of the challenge of both creating products that will where no ISBN is ever requested or issued. book publishing industry, and the impact best meet the needs of their customers and that the structural change it is undergoing authors while at the same time reinventing The power of this model is clear. Anyone will have on publishers, book retailers and their model for profitably going to market. can become a published author with the book printers. The current publishing value chain carries a significant cost burden that is associated with the print, ship, store and fulfill order paradigm Growth of Self-Publishing and Nontraditional Titles 2,776.3 that has dominated the industry for close to 80 years. This model is burdened with a waste factor of 30 to 50% depending on the publishing market segment. The emerging self-publishing model is even Nontraditional more significant. It opens the door for literally millions of content creators to produce books Traditional at an economical price. Consider this: there 714.4 are only about 316,000 traditional titles 274.4 284.5 271.8 289.7 288.4 316 123.4 21.9 2006 2007 2008 2009 2010

Taking Advantage of Market Disruption in Book Publishing 3 Book Publishing: A Market in Transition

The combination of the impact of the Internet, the transition from analog to digital and the recent economic downturn has accelerated the rate of change impacting the book publishing and printing markets. Add to that the growing control consumers have over content—both its creation and its consumption—and their changing behaviors, most book publishers and printers have come to the conclusion that the business models that worked so well for them in the past are no longer effective.

Although change breeds challenges, it also breeds opportunities. Savvy publishers and printers are looking to new technologies to create a more effective business model and a more efficient supply chain for a more profitable future.

4 Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing 5 Structural Changes Abound

According to research firm INTERQUEST1, the book publishing industry has historically weathered recessions well, and the most recent case is no exception. The U.S. Census Bureau estimates that retail bookstore sales dropped slightly less than 1% in 2009 compared to the prior year, while overall retail sales declined 7.5%. As the economic turbulence began to settle, retail sales surged in the last six months of 20102 resulting in an uptick of 6.7% for the full year, compared to 2009. Retail book sales, however, continued their decline, down 1.5% from 2009, from $16.732 billion to $16.497 billion, according to the United States Census Bureau.

1 Digital Book Printing: Market Analysis & Forecast (2010–15), INTERQUEST 2010 2 Retail Sales Surged 6.7% in 2010, The Associated Press, 6 Taking Advantage of Market Disruption in Book Publishing January 14, 2010 The chart below shows retail bookstore It should be noted however, that by negative impact from the Borders bankruptcy, sales have declined four out of the last five combining the sales of e-book units with combined with other events. years. In its recent forecast, INTERQUEST printed units, the total number of books being For many years, Barnes & Noble and attributes this to the dual impact of sold has increased year over year. This leads Borders battled it out as the top two tightening of consumer wallets and a general to the conclusion that e-books may be having U.S.-based brick-and-mortar retailers. A clear decline in readership of printed books. As this a positive impact on either attracting new differentiator between the two, however, was transition continues, in order to survive, retail readers or expanding the reach and spend the fact that Borders had no digital strategy, bookstores, which have been a community of traditional readers. But they are also while Barnes & Noble has both its Nook gathering place for years, will need to having a devastating impact on traditional e-reader and an active digital book sales reinvent themselves with products and book retailers. channel, and it is also playing a growing role services that enable them to continue to These changes have left retail channels in specialty markets. Barnes & Noble College be a gathering place. in disarray. Book superstores such as Booksellers, a subsidiary of Barnes & Noble, While consumer wallets have loosened Barnes & Noble have placed pressure on was acquired by the company in 2009 and up somewhat as the economic recovery independent bookstores, and now are operates bookstores at more than 600 U.S. continues, the downward trend of reading facing financial pressures themselves. Over colleges and universities, offering both paper printed books is a concern and is likely to the past two years, Barnes and Noble has and digital course materials and another continue as consumers seek other means of placed the majority of its investments in channel for its Nook e-reader. In addition, gaining information and entertainment in its e-book strategy and e-commerce site. Barnes & Noble has a robust online storefront lieu of printed books. This is reflected in the Nontraditional book sellers such as for those preferring to shop from home, continuing decline of retail book sales. Walmart, Target, and even some apparel bolstered by the acquisition of Fictionwise, a stores, are placing pressure on both leader in the e-book marketplace, in March of independent bookstores and their superstore 2009. This gave the retailer the world’s largest Retail Sales at Bookstores competitors as they add books to the wares e-bookstore, a leadership it held until Google 2.0% they sell. While this is good for the book Retail bookstores publishing industry overall, it is driving account for about significant channel change, price pressure one-third of book publishing revenues. and the need to revamp what was once a profitable supply chain despite the waste that 2007 was always inherent in the system. 2006 2008 2009 On the down side, Borders Group, Inc., which

-1.0% -1.0% includes Borders and Waldenbooks, filed for Chapter 11 protection in February of 2011 and now is shutting down completely. This -2.0% Source: INTERQUEST action is already taking its toll on the book printing industry, with printer and publisher Courier Corp. being one of the first publicly traded companies to report a meaningful

Taking Advantage of Market Disruption in Book Publishing 7 launched eBookstore with more than 3 million world of nontraditional publishing which All of these changes ultimately have an e-books in its library. Launched in December accounted for more than 2.8 million new effect on the book printing market. Some of 2010, the service allows users to purchase or re-published titles in 2010, nearly nine industry experts estimate that centralized e-books from Google or from a range of times the number of traditional titles with printing of books will shrink as much as independent booksellers. While it doesn’t another triple digit growth year projected 33% over the next five years. Agreements explicitly support the ubiquitous Amazon for this expanding segment. This approach such as the one between book printer RR Kindle format, Kindle can read many “open” streamlines the supply chain for printed Donnelley and Harper Collins Publishers e-book formats available through Google. books and places independents on a near- that build in a distributed print model are level playing field with larger superstore most likely to be successful in the future. Independent bookstores are also making sellers of books—and even online sellers such On demand book printers such as Ingram’s changes, widening their appeal by installing as Amazon. This also places the retailer in the Lightning Source, that can cost-effectively products like the Espresso Book Machine®, position of being a publishing service provider print books in a quantity of one, will also see which allows the store to print a paperback which, combined with the Espresso Book growing demand. But traditional long-run book in minutes right in the store from a Machine, gives them a unique consumer- book printers will find themselves serving a digital library of over four million in-copyright facing capability. Assuming they move shrinking pie, and their revenues are likely to and public domain titles. The Espresso Book quickly enough to reinvent themselves, both reflect that shrinkage. Machine also allows the book retailer to independent and superstore booksellers will become a service provider to the explosive During this time of turmoil, authors are not survive because they focus on the personal sitting still either. Self-publishing is growing experience, which is better accomplished in a more sophisticated, even to the point of bricks-and-mortar environment than it changing the nature of a book. One example is online.

Creative Content

Author 1 Author 2 Author 3 Author 4

Social Picture Social Building Blocks Evolution Reader Contest of Book Blogs Video Audio Maps Games Publishing Auto-Sync Digital Platform

Commerce Analytics Marketing Community

8 Taking Advantage of Market Disruption in Book Publishing is the Love/Hate book published in Brazil. copies and has a film option with a Hollywood The book consists of pages of QR codes that, producer. In addition, Amazon released the when snapped by a smartphone, display book as a formal Kindle edition as well as in things that contributors love or hate, such paperback under its Encore imprint. In an as, “I love going to the beach,” or “I hate interview with WhatTheyThink, McQuestion it when it rains when I am at the beach.” said, “Everyone thinks I have a magic bullet This unique approach allows the book to be that’s not readily apparent. That isn’t the evergreen as the links behind the QR codes case. I am 100% a nobody, a woman in can be changed at any point, delivering a Wisconsin who works in my basement, continuously evergreen book. This “buy once, with no real connection to publishing or to use many” approach opens an entirely new Amazon. I just became very driven and made vista for printed books that is only limited by it my business to learn everything there is to the imagination of authors and publishers. know about self-publishing on Kindle. I tried to figure out if I were a consumer looking Another example is the Domino Project, for my type of book, how I would go about founded by Seth Godin and powered by finding it?” McQuestion had six books listed Amazon, designed to change the way books in the Amazon Kindle bookstore as of this are built, sold and spread. This bestselling writing. author is walking away from traditional book publishing and using the tools of new media Another emerging trend made possible by to bring his, and his colleagues’, ideas to the the digital world is participative editorial. This world in a new way. Its first title, Poke the Box, allows authors to give readers a view of what has a hardcover street price of less than $10 they are doing on websites such as Tumblr and offers new formats, including a as well as their own author pages, and get $75 collectible edition (limited edition, signed feedback as the book proceeds. This is by the author), a Kindle version, and a way for most common in scholarly and academic these authors to bring a new book to market publishing but could easily extend to other within six weeks—rather than a year—after publishing silos, including trade publishing. it is finished. Authors need not be well-established to take advantage of the new business model. A 2010 Wall Street Journal article, Vanity Press Goes Digital, featured author Karen McQuestion, who had spent nearly a decade trying to persuade a variety of New York publishers to print one of her books. Failing to get their attention, she decided to self-publish for the Amazon Kindle platform. Her book, A Scattered Life, has sold 36,000 electronic

Taking Advantage of Market Disruption in Book Publishing 9 Small is Better—The Impact of New Print Technology on Books In late 2010 and early 2011, a plethora The Espresso Book Machine is different. It distribution and retail infrastructure has been of new digital print technologies enables a new publishing, printing, distribution destroyed by a tornado. All you need to get back entered the market, some of which and retail model that will provide real revenue in business—or start a new business—is a small growth opportunities for those who choose to retail space, an Internet connection, and a hook may appear in a book printing plant take advantage of its possibilities. The Espresso like a coffee shop or self-publishing center to near you soon. Most of the news Book Machine is a customer-facing retail bring customers into a virtual bookstore that is has been about high-speed, high- solution whose primary value proposition is built larger in content choice than any physical retail capacity inkjet web presses that around its instant access to a large number of book supplier that may have existed prior to the hold the promise of lower costs and titles, its ability to immediately meet the needs disaster. of a consumer looking for a title that is not in broader applicability for centralized Now expand that thinking to any geography the retailer’s physical inventory, and its unique where there is a need for content but little or book printers. The other news has position in the rapidly growing nontraditional no book distribution or retail capacity and you been about the growing impact of and self-publishing arena. While the volume can begin to see the bright prospects for the ® printed per title may never be more than a the Espresso Book Machine and its Espresso Book Machine business. It will all be dozen, these titles can be produced while the print at retail model that offers book growth revenue and will enable any number buyer waits. It also avails authors of a growing retailers new revenue opportunities of new and exciting book retail models in digital distribution system represented by the geographies around the world. and the chance to be a service provider On Demand Books Espress Net catalog of instead of just a reseller of the books titles. In addition, its small 10 x 15 foot space High-speed inkjet will play a vital role in the that are now available from multiple requirement makes it an easy way for any book re-equipping and rightsizing strategies of bricks-and-mortar and online retailers. retailer to offer its customers access to more centralized book printers, but the Espresso content then any book superstore could ever Book Machine will enable revenue growth and Over time, which of these technologies will offer in its physical inventory. the ubiquitous access to printed content on a be the game changer in books and create global basis. In the end, this is a new model that The future for a solution like the Espresso Book opportunity and growth? represents true growth opportunity and Machine is very bright. As more traditional book The new inkjet technologies are still sorting not substitution. publishers add valuable backlist titles to the themselves out as to capability, costs, On Demand Books catalog, the Espresso Book reliability and quality; for the most part, these Machine grows in value. Imagine that you live in are offset substitution platforms. In order to Joplin, Missouri, and your entire book fill capacity and pay for themselves, they will require the migration of volume from current offset platforms. The total number of books being sold is declining, which means that the current offset platform is already under a considerable amount of pressure to deliver a profit. Even before these new billion-page-plus capacity inkjet giants come on line, there is already an excess capacity issue in a declining market. This is usually not a good platform for a growth model. The printers who survive the rightsizing of the book production and publishing market will do so through downsizing their production platforms, and there will be a consolidation of the entire book printing platform. Not all book printers will survive this sea of change. The Espresso Book Machine

10 Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing 11 The Digital Alternative

Brick-and-mortar retail book outlets only represent part of the picture. As evidenced by the huge success of e-readers from Amazon, Barnes & Noble and others (including the vast array of tablet computers entering the marketplace which, although not dedicated e-readers, offer that capability), consumers are increasingly turning to online sources for the books they do purchase, and are purchasing e-book versions in growing numbers.

Research published by Enders Analysis in April of 2011 includes market data and U.S. AAP Sample of Book Sales ($m) industry anecdotal information that points to an explosion in e-book sales in 2011, as much as 10–15% of sales and growing. Early 2011 400 financial reports from publishers quoted in the introduction to this white paper support that projection. While e-books were initially strongest in niches (romance, business books, 300 frequent travellers), the research indicates they have now moved into the mass market and few genres will remain untouched. At the same time, as the chart below reflects, there 200 is an equally dramatic decline in paperback sales, leading some publishers to speculate that e-books could completely displace mass-market paperbacks. 100 Research conducted by Outsell, Inc. in 2010 reflects that by 2015, more than a quarter of book publishers expect between 25% and 50% of revenues to come from 0 e-book publishing. Jul-09 Jul-10 Jun-09 Jun-10 Oct-09 Oct-10 Apr-09 Apr-10 Jan-09 Jan-10 Feb-09 Feb-10 Sep-09 Sep-10 Dec-09 Aug-09 Aug-10 Nov-09 Nov-10 Mar-09 Mar-10 May-09 May-10

e-books Adult hardcover Adult paperback

Source: The e-books explosion by Benedict Evans, published by Enders Analysis, April 2011

12 Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing 13 Digital Natives Demand Different Information/Entertainment Sources

Still, the decline in readership of printed books is a factor publishers, book sellers and book printers alike must deal with as the growing population of digital natives finds other means of entertainment in lieu of print. This change in consumer behavior is more troubling for the retail book industry, resulting in a general decline of readership, primarily impacting the sale of trade books. The one bright spot here might be the surging demand for e-book titles which continued to be purchased at triple digit growth rates through the first five months of 2011. While final statistics are not yet available, it does appear that some trade book publishers actually sold more total units in 2010 than 2009 when both units for e-books sales and paper based books are added together.

E-books have grown from 0.6% of the total trade market share in 2008 to 6.4% in 2010. While that represents a small amount in the total market for formats, it translates to a 1,274.1% increase in publisher net sales revenue since 2008 with total net revenue for 2010 at $878 million. Net unit sales growth for e-books was equally impressive, increasing 1,039.6% for the same three-year period. In 2010, e-book net units were 112 million. Source: BookSTATS: Summary Overview

14 Taking Advantage of Market Disruption in Book Publishing The challenge for the publisher becomes State budget constraints at the elementary CourseSmart, an initiative founded and adjusting his investment and author and high school levels are speeding the supported by five higher-education textbook compensation models to reflect this change transition to electronic textbook versions. publishers (Pearson, John Wiley, Cengage in mix and increase profitability for the short One example is the California Digital Learning, McGraw-Hill Education and term and the long term. Adding to these Textbook Initiative, which provides schools Bedford, Freeman & Worth Publishing group) challenges is the 30% to 50% waste in with a state-approved list of digital textbooks. is another angle on publishing at the the book supply chain, with publishers Another is the recent passage of Florida college and university level. With about 14 traditionally absorbing the bulk of the costs, Senate bill 2120, an education funding publishers participating today, CourseSmart’s including paying for returns that are not sold measure that, if signed into law by Gov. objectives include: in bookstores in the traditional consignment Rick Scott, will begin the transition of the • To provide an environment where model. Unsold books are typically returned state’s public schools to digital textbooks by faculty can access digital texts for in four months, and 60% to 95% of those 2015-2016. California and Florida represent evaluation purposes books are destroyed by the publisher, two of the three largest markets for K-12 creating concerns about both cost and the textbook publishers. If these states move • To create a marketplace where students environmental impact of this excessive waste. to a stronger mix of digital content versus can buy e-textbooks traditional printed textbook, it will have an Other book publishing sectors are faring • To support business partners extremely negative impact on the three or better than trade books from a readership four centralized book printers who have a lock This effort brings together thousands of perspective due to their more specialized on the color printed textbook market today. textbooks across hundreds of courses in an nature, but the changes they are experiencing Higher Education publishing continued to e-book format on a common platform. It are equally as challenging. grow in double digits through the recession stands to revolutionize the way publishing is but also faced a strong move to electronic done in higher education and is an initiative alternatives. Scientific, Technical, Medical well worth watching. CourseSmart also and Scholarly (STMS) subscriptions are represents a future channel for multiple new increasingly moving online, although apps-based education book products, which this sector has also continued to grow. will replace current higher education textbook Regardless of sector, electronic versions products. generally sell for less than their paper counterparts, but the cost to produce and distribute them is also significantly lower, potentially resulting in lower topline revenue but higher profitability overall.

Taking Advantage of Market Disruption in Book Publishing 15 The Book Printing Landscape

These changes have also affected book printers in a big way, as demonstrated by the impact of the Borders bankruptcy on Courier as cited previously. They are hit with the challenge of declining volumes and run lengths while facing demand for shorter production cycles, increasing price pressures and rising cost of materials. Publishers are increasingly turning to print-on-demand and distribute-and-print models, as well as fulfilling the growing demand for e-books, and many book printers are not structured to be able to deliver these services cost-effectively and profitably. Offset printing, which has dominated book printing and is likely to do so at least for the near term, cannot cost effectively produce shorter runs nor deliver the shorter production cycles a fast-paced market demands, and is generally used for run lengths of 2,000 and above, although some lower run lengths are still produced using conventional offset technologies.

According to the INTERQUEST study, inkjet printing technologies deliver sufficient For book printers, the changing landscape publishers report that the average turnaround quality. Run lengths and turnaround time also presents challenges, but there are for conventionally printed books is two to are generally the primary consideration for significant opportunities for those who are four weeks, compared to 11 days for printers when choosing the technology to be willing to invest in changes in their business digitally produced books. Publishers are not used. INTERQUEST reports that the majority practices, adoption of new technology and particularly concerned about the technology of book printers with digital equipment are delivery of new and innovative services, used, but they are concerned about cost and producing runs of 500 or fewer on those beyond ink or toner on paper. delivery time, often leaving the choice of devices, with larger quantities generally technology to the printing establishment. For defaulting to offset, although runs as high most books, current electro-photographic and as 1,000 can still be profitable on these devices. That number will continue to climb as higher-speed, higher-quality inkjet presses are introduced into the market.

16 Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing 17 Opportunities in Book Printing

The move to shorter run lengths and faster cycle times provides opportunities for digital printers to participate in the book printing market, either working directly with publishers or by partnering with offset book printers looking for partners to produce shorter runs. This is driving growth in digital book volumes.

Conventional and Digital Book Volume Growth Rate of Digital Impressions 2010-2015

118 271118 271 419 419 37% 37% All sectors of the book market are exhibiting double-digit growth rates in digital impressions. 22% 22% 2,837 2,837 20% 20% 2,736 2,736 2,434 2,434 14% 14%

2010 20132010 20152013 2015 TSP EducationTSP TradeEducationUniversityTrade University Press Press Conventional ConventionalDigital Digital Source: INTERQUEST

2010 2013 20102015 2013 2015 Other Other 18 Taking Advantage of Market Disruption in Book Publishing University Press University Press Trade Trade Education Education TSP TSP Publishers are pursuing several different • Short-run books, including self-published • Print at point of sale is becoming more models as they look to improve the book books, pre-sale review copies, galleys or feasible with products such as the Espresso supply chain: proofs and backlisted items (books that Book Machine®, a compact book printer would normally be out of print), may be “kiosk” often integrated with a Xerox® • Conventional offset printing is still the digitally produced in runs of 50 to 1,000 4112® for printing book blocks, allowing dominant method of book production, and placed in limited inventory awaiting book purchasers to select a book from a although most printers report flat to orders, shipped directly to the publisher large digital library and produce it on-site declining volumes in this area. Mass trade or author for distribution or distributed within a few minutes. The current growth of books, hit sellers—Harry Potter being a directly into the supply chain for larger titles on the Espresso Book Machine comes good example—and other books that orders that may combine several digitally from self-publishing titles and the Google have predictable sales volumes that justify produced titles. Library, but traditional titles are a growing offset printing are likely to remain in the part of the mix as On Demand Books adds offset arena for some time. • Print-on-demand or print-to-order books more publishers to its catalog of titles. are just that—as an order comes in, the exact number of books are printed and shipped directly to the bookstore, publisher or self-publisher—or in some cases, directly to the end buyer. This is most common for self-published and backlisted books, although the ability to economically produce books in these small runs allows bringing many new books into print that never would have seen the light of day in the past.

Taking Advantage of Market Disruption in Book Publishing 19 118 271 419 37%

22% 2,837 20% 2,736 2,434 14%

2010 2013 2015 TSP Education Trade University Press Conventional Digital

For many large retailers who are beginning Some publishers and retailers are placing Digital Print Volume to add book sales to the mix, Espresso Book short-run production on site for various Machines® present an interesting opportunity reasons, including production of galleys that may help them avoid stocking large and pre-sale review copies, textbooks and inventories of books that may ultimately have course packs for college and university to be returned, and to place them in a better book stores, and even print-on-demand for competitive position against online sellers immediate fulfillment. One example is Bridge of books, matching their nearly unlimited Publications, the non-fiction publishing arm inventory and convenience. For book printers of the Church of Scientology. By converting willing to look outside the box, providing a its shipping and fulfillment center into a range of services for publishers or booksellers digital manufacturing facility, Bridge was able 2010 2013 2015 that include all four types of production can to achieve return on investment within its provide an interesting business model. This first year of operation, while cutting costs by Other might include sale and on-site management 30% and boosting production by a factor of University Press of Espresso devices, on-site or nearby 11, to more than 2.8 million units. Bridge now Trade production of short-run books, and even prints 95% of its books digitally, providing Education distributed production and fulfillment of greater quality control and faster, more digitally printed books. flexible turnarounds. Moreover, the plant TSP Source: INTERQUEST enables Bridge to publish more of founder Of course, book printers who can format L. Ron Hubbard’s previously unpublished books into a wide variety of forms from a titles—often in short runs that aren’t cost- digital library—imposed and ready to print effective on offset and ranging to longer runs on large presses, configured for short runs on of as many as 20,000 volumes at a time—to digital presses, and conversion to a variety fulfill its mission of distributing the church of e-book formats—will have the most founder’s works. opportunity to benefit from growth in book printing as the market continues to shift to As digital color printing becomes faster a more digital model and publishers look to and continues to achieve improved price/ remove inefficiencies from the supply chain. performance ratios, the next big trend for digital printing of books will be in the production of full-color books, already popular in children’s books, STMS books and some educational books. While 90% of digital book impressions in North America

20 Taking Advantage of Market Disruption in Book Publishing Traditional Publishing Workflow— Retail Books A New Dimension of Self-Publishing

Author creates manuscript Author secures agent or works With contract in place, publisher directly with publisher edits book and prepares for release

This process often means a book is brought to market a year or more following its completion by the author; author often completely loses editorial control. Waste in the system is absorbed by publishers based on overall book volumes. With changes in consumer behavior and demand, this model is no longer sustainable.

Average of 35–40% of all books in Books made available through a Book published according to pub- channel are returned to publisher for variety of channels including retail lisher standards, generally hardcopy destruction, bargain table or other booksellers; publisher marketing first, then e-book and paperback disposition support varies

Emerging Publishing Workflow— Retail Books A New Dimension of Self-Publishing

Author provides Book is printed within six Author creates Author contracts print-ready files to weeks and thereafter upon manuscript with book designer to book printer; book demand; virtually no waste design book and cover printer may also in the system; electronic offer design services versions also made available

For authors who choose to use a publisher, initial book runs are determined by projected demand and printed either offset or digitally. Book is placed in a digital library for print to order or print to limited inventory. Digital versions available. Significant reduction in supply chain waste, especially if book stores have capability to print on site.

Books may be shipped on demand Author markets book through by author or book printer when various channels, including order placed social media

Taking Advantage of Market Disruption in Book Publishing 21 are monochrome today (growing at 24% and double shipping fees. The printer has per year from 2010 to 2015), INTERQUEST now added an inventory management and suggests that color impressions will grow by fulfillment service whereby the author simply 44% annually, reaching 20% of total digital conveys orders for shipment and provides impressions by the end of that period. Most authorization to refill inventory as levels of this volume will come from the education get low. markets, which currently represent the bulk of In other cases, such as Blurb, Lulu.com four-color volume for traditional centralized and Lightning Source, self-publishers can book offset printers in North America. place their books into digital inventory Children’s books offer a unique opportunity, and manage their own orders, with the since much of this color volume is produced intermediary responsible for printing and offshore today. With more economical distributing books. Lulu.com and Blurb work high speed inkjet and faster turnaround with a small number of book printers to print times combined with the growing cost of books based on various criteria; Lightning transportation, this work could begin to QR Codes (Quick Response Codes) Source has its own printing facilities and migrate back to domestic manufacturing. are two-dimensional bar codes that were offers conversion to e-book formats as well initially used in the Toyota manufacturing Book printers can also pursue a number of as links into distribution channels through its process and that have been available for opportunities with the growing community parent company Ingram. some time as open source code. With the of self-publishers, offering them new increased adoption of smartphones, they are Many authors are also creating resource opportunities and services that will better increasing in popularity in the United States. web pages to accompany their books, enable them to get their works to market. With your smartphone QR code app, simply allowing readers to gain access to more This includes offering author services such as point at this QR code and it will take you to current information and to establish a dialog manuscript editing, cover and book design, an informative book printing site optimized with the author and with other readers. short-run printing to limited inventory, for mobile devices. These resources act to make books more print-on-demand or print to order and flexible and interactive in accordance with the fulfillment services. One former quick requirements of the digital age. Designing printing company whose business was 90% and supporting these web sites on behalf of production of business cards and stationery authors is another service book printers can has transitioned within a few short years to provide. In addition, the use of QR codes nearly 80% book printing, and offers these or other two-dimensional barcodes is gaining author services. Initially, his model was to popularity because of their ability to make print books in minimum quantities of 250 paper interactive and maintain currency and ship them to the author for fulfillment of content. by the author when an order was received. This resulted in more work for the author

22 Taking Advantage of Market Disruption in Book Publishing Taking Advantage of Market Disruption in Book Publishing 23 Digital Book Printing: Tools and Techniques

Since the early 1990s with the introduction of the Xerox® DocuTech® Production Publisher, Xerox has been delivering innovative digital book printing solutions to the market. The initial focus of these efforts was aligned with the needs of the software documentation business and the early adopters of print-on-demand solutions. The economics of these early models had a limited scope of end user benefits due to the cost of producing the targeted documents, and worked well when printed documents accompanied high value products and software from companies such as IBM, Microsoft and HP.

In the two decades since the launch of the research, Xerox® systems account for Over the past five years Xerox has been able DocuTech, Xerox® solutions for book printing 47% of the respondents’ installed base of to maintain its market share in monochrome have continued to mature and become more digital printing systems, with the research and color systems.” economical. According to the INTERQUEST stating, “Xerox’s dominance is roughly equal in the monochrome and color segment.

24 Taking Advantage of Market Disruption in Book Publishing Xerox® Printing Solutions The Nuvera EA systems use EA Toner, Xerox®’s • The Xerox® iGen4® increases productivity for Book Printing patented chemically grown toner that has by 25% to 30% over the Xerox® iGen3 by automating operator tasks and reducing the Xerox understands the business from the largest extremely small particles, resulting in a smooth, need to interrupt the press for adjustments. book printer to the smallest retailer. No other consistent offset matte finish and sharper A number of technology enhancements company has that perspective. The redefinition details compared to conventionally produced in the press also improve image quality. of the entire supply chain for books which toner. EA Toner also improves the overall The iGen4 features a high-speed in-line is taking place now is resulting in a change reliability of the machine, requires less energy to spectrophotometer in the paper path which in the way the book itself is being built and manufacture and generates less waste. improves image quality and spot color written. E-books are not a different product, • The Xerox® 625/1300 monochrome web press accuracy. The iGen4 offers the same rated simply a different format. Initiatives such as which runs at speeds of 300 feet per minute speed as the iGen3 (110 ipm). CourseSmart are completely changing the is the highest quality toner-based digital web educational book market. These initiatives and press in the market today. The unique flash • The 220-ipm iGen4 220 Perfecting Press more are changing the business. Along with that fusing system requires less heat and pressure combines two iGen4 print engines working change, Xerox continues to evolve and change then competitive offerings. This improves the in-line to produce 220 full-color impressions its book printing and publishing offerings. Here moisture control and stability of the sheet, per minute. Based on the same approach as are a few of the components that can be utilized which in turn expands the range of papers the Nuvera 288 monochrome system, the to build a modern book publishing/printing which can run effectively on the press. The press uses the first engine to image one side of platform: range of uncoated papers goes from light the paper and the second engine to print the reverse side. • Xerox Nuvera® EA Digital Production Systems weight 40 gsm up to 200 gsm. (monochrome) range in speed from 100 to • Xerox® Color 800/1000 presses achieve print • The iGen4 EXP supports 14.33" x 23" output. 288 ppm. The systems incorporate many of speeds of 80 ipm and 100 ipm, respectively. It can print 40 sheets per minute on the larger the technologies developed for the iGen3® • At the high end of the cut-sheet segment, sheet size, accelerating effective printing such as paper handling, non-contact imaging Xerox offers the iGen3 model 110 (110 ppm) speed to 120 A4 impressions per minute. Stock via a “toner cloud,” trickle development where for printers requiring higher print volume. can be fed from a modified paper tray or roll system. A Multigraf stacker collects the output. the fuser is packaged along with the toner, The press can be driven by the Xerox® The system also supports an Automated and electrostatic removal of waste toner. The DocuSP controller, which targets customers ® Web-to-Finish solution which leverages the units feature an integrated DocuSP controller accustomed to Xerox® workflows, as well as Xerox® FreeFlow® Digital Workflow Collection and produce 4800 x 600 dpi images on paper controllers from EFI and Creo. ranging from 16 lb bond to 80 lb cover up to to eliminate manual job setup and operator 12.3" x 18.5". intervention during production.

Taking Advantage of Market Disruption in Book Publishing 25 Taking Advantage of Market Disruption in Book Publishing

In addition to its wide range of cut sheet and continuous feed monochrome and color systems, Xerox has partnered with a range of best-in-class companies to provide integrated in-line and near-line finishing systems specific to book production. Xerox also offers a range of software solutions under the Xerox® FreeFlow® Digital Workflow Collection directly relevant to efficient book printing, including an integrated order-through-invoice workflow, copyright management and more.

To assist book printers to become more It includes two attractive, informative and as well as to share this important educated about new processes and innovatively designed books. One provides information. You’ll also receive a versatile opportunities, Xerox provides significant you with a concise overview of the book scripted PowerPoint® presentation that you business development support through its market, its digital opportunities and how can use to tell and sell the digital book story ProfitAccelerator® program, with a module to sell to book customers; that book will to your customers, prospects and sales force. specifically directed to helping print service supplement this white paper. Finally, our team of professional consultants providers build and grow a digital book Its companion is an invaluable resource is available to help you in the development printing business. The ProfitAccelerator you and your operators will rely on again of more complex production processes, sales Digital Books Development Kit has been and again for basic information in addition approaches, special applications and more. created to ensure that you can take full to helpful hints and tips about designing, advantage of this enormous opportunity. The printing and finishing digital books. kit provides the tools and information needed to get up to speed quickly on this promising Source files are included so you can print and vibrant market. both books yourself—it’s a great way to demonstrate your book printing capabilities

For more information about entering the book printing market or making your book printing operations more successful, visit www.xerox.com/bookprinting, or contact your local Xerox sales representative. Xerox, the expert in digital book printing, stands ready to assist you with a profitable book printing future.

©2011 Xerox Corporation. All Rights Reserved. XEROX®, XEROX and Design®, DocuSP®, DocuTech®, Espresso Book Machine®, FreeFlow®, iGen3®, iGen4®, ProfitAccelerator®, Xerox Nuvera® and 4112® are trademarks of Xerox Corporation in the United States and/or other countries. 08/11 T367 702P00370