Media Trend Outlook E- on the Rise

The white paper “E-Books on the Rise” provides an overview of current developments and future prospects of the e- market in , Belgium and the . Media Trend Outlook

Published by PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft (PwC)

By Werner Ballhaus, Kristin Lulei, Dr. Anastasia Hermann, Jheroen Muste, Rajendra Sitompoel, Eddy Dams and Sophie Claessens

May 2014, 20 pages, 5 figures, softcover

This material may not be reproduced in any form, copied onto microfilm or saved and edited in any digital medium without the express permission of the editor.

This publication is intended to be a resource for our clients, and the information therein was correct to the best of the authors’ knowledge at the time of publication. Before making any decision or taking any action, you should consult the sources or contacts listed here. The opinions reflected are those of the authors. The graphics may contain rounding differences.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© May 2014 PwC. All rights reserved. In this document, PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Table of contents

Table of contents

Introduction...... 4

E-books: a market overview...... 5

The users’ perspective: consumer survey...... 7

The experts’ view...... 12

The e-book market in five years: a look ahead...... 16

Sources...... 19

Contacts...... 20

Media Trend Outlook 3 Introduction

Introduction

It has taken quite some time, but now E-books are finding increasing accept­ Special thanks go to Rita Bollig, director e-readers are rapidly becoming part of ance among European consumers. In the of Bastei Entertainment at Bastei Lübbe, everyday life in continental Europe. The past year, turnover generated by Geert Decock, e- manager at share of e-books in the total revenue of electronic fiction has Lannoo, and the International the book market is small, but all signs nearly tripled, fully offsetting losses in Publishers Association (“IPA”) for point toward growth: publishers, the print segment. While for the presenting their perception of the especially the bigger ones, now also Netherlands and Belgium turnover market and its prospects in their guest offer a large part of their new releases increased over 50% and 55% respec­ pieces. and backlisted titles in digital form and tively. Examples from the US and UK are creating an attractive range of show how this market may develop over I wish you an enjoyable and informative product offerings around digital books. the long-term – in these markets more read. E-readers now offer good technical than 20% and 15%, respectively, of quality at consumer-friendly prices and turnover in the book market in 2012 was as a result of increasing tablet sales, generated through e-book sales. In more casual readers have access to Germany, as well as in the Netherlands Werner Ballhaus books in electronic form. Simpler and Belgium, the digital transition in Head of Technology, purchase and use of e-books also fuel the book market is proceeding at a much Media and Telecommunications demand. slower pace, with e-book market shares Germany still below 10%. Nevertheless, we expect In the course of the consumer survey we that the share of overall turnover conducted for this study, we discovered generated by e-books in consumer book that , Belgians and the Dutch segments will consistently rise and by are now not only well aware of e-books, 2017 will reach around 16% in but for the most part also receptive to Germany, 15% in the Netherlands and the new technology. In Germany, more 22% in Belgium. than half of respondents read e-books either occasionally or regularly; and In addition to an analysis of the current 53% stated that even though they will market environment, this white paper continue to read printed books, they will contains the results of our consumer also give electronic books a try. On the survey and presents our forecasts of how other hand, less than 33% of the the e-book-market will develop through Belgians are familiar with digital books. 2017. Nevertheless, 60% of them would attempt to read an e-book in the future. In the Netherlands, about 60% of consumers have never purchased an e-book– nearly the same portion of respondents wants to try digital book versions.

Media Trend Outlook 4 E-books: a market overview

E-books: a market overview

E-readers are becoming better In 2012, the consumer book market During the past two years, e-readers and cheaper, and the selection in Germany posted turnover of have become increasingly differentiated €4.8 billion and was thus the fourth- in terms of functionality and price. of e-books is growing. But is largest market worldwide. The Dutch Whereas prices for e-readers were still it possible for the market to consumer book market had a well in the low to average three-figure offer even more? of €560 million and consumers in range in 2010, popular models now are Belgium spent about €220 million on available for as little as €59. consumer books. However, the share of total turnover generated by digital The introduction of Apple’s iPad book sales is still small: in Germany for represented another milestone in example, a mere 3% of turnover in the the market for digital books. Tablet fiction segment was generated from computers offer significantly more e-book sales in 2012. Nevertheless, in functions than e-readers and are thus all three countries, after an initially a good option for casual readers – slow start, the e-book market is gaining resulting in a significant expansion in momentum. the potential audience for e-books in all three countries. In Germany the conditions for solid growth in electronic book sales have Players in the traditional book market been established over the past several have reacted as well: bookstore chains years. Offerings of e-books in the are offering e-books on site, online or have multiplied, via app, operate their own distribution and the selection of devices in platforms, and market their own the German market has expanded on devices; a large share of German a continuous basis. On the other hand, publishers have likewise made the the limited offer of e-books in Dutch investments necessary to be able to and Flemish remains one of the most supply all relevant distribution channels important market blocking factors in with e-books. Several bookstore Belgium and the Netherlands. chains joined efforts with Deutsche Telekom in 2013 and introduced the There are the large internet retailers Tolino Shine to the market in association who initially got the ball rolling: with a sales platform by the same name. Amazon introduced the first e-reader In Belgium, bookstore chains mostly do to gain great public awareness, the not offer e-books directly through their Amazon Kindle, in the US in 2007. The own website, but prefer to use third Kindle also has had a decisive impact on party distributors as Bol.com and the e-reader in market in Europe. It was Proxisazur.be. An exception is introduced in the German and French Standaard Boekhandel, who has its markets in 2011, followed by the Dutch own website. Furthermore, the Flemish and Belgian markets in 2013. government, in collaboration with Boek. be and Bibnet, is currently developing In Belgium, we see an uptake of the sale its own digital platform, which will be of e-books in 2013 although the market called VEP or Flemish e-book platform. is not as evolved in comparison to the UK or US. In comparison to 2012, the number of people who read e-books in Flanders doubled in 2013.

Media Trend Outlook 5 E-books: a market overview

Most e-books are offered in the open operated by the German Publishers format EPUB, Apple’s iBook format or and Booksellers Association, has also Amazon formats MOBI, AZW and Kindle supplemented its product range with Format 8. PDFs and text formats such its own lending systems. Divibib, a as DOC, TXT and RTF are of almost no collaboration between German digital relevance to today’s reading devices. , offers members a virtual EPUB3 has been placed on hold for borrowing system for e-books via some time and is now enjoying greater libraries participating in the “Onleihe” distribution; this format permits the system. In this model, the publishers realisation of enhanced e-books that receive revenue generated by the include additional material such as sale of licenses. In February 2014, a graphics or animation. new service named Readfy started in Germany offering a free, advertising The primary sales model for books funded e-book flat rate for 15,000 titles. continues to be retail sales even in the Although this platform does not yet have digital environment. Files that have any books from the biggest publishers, been purchased are downloaded to the surge of consumers on their website the user’s hard drive or added to the on the launch day far exceeded the purchaser’s virtual bookshelf, from power of their servers and clearly where they can be transmitted to a illustrates the interest for such kind reading device. of services. In Belgium, the currently being developed VEP will also allow However, other business models the possibility to lend e-books. In the based on flat rates or rentals have also Netherlands, Yindo launched their evolved. Amazon provides its paying subscription platform in 2011 Prime members a which will soon be followed by the system. In Germany Skoobe, a platform Dutch publishing group WPG Uitgevers maintained by publishing houses, offers in partnership with the Flemish unlimited access to its online e-book publisher Lannoo. library based on a tiered subscription rate, which includes various additional options based on the subscription plan. Libreka!, the e-book marketplace

Media Trend Outlook 6 The users’ perspective: consumer survey

The users’ perspective: consumer survey

Why are more and more Consumers in Germany, Belgium Consumers in Germany are more readers across Europe and the Netherlands are familiar familiar with e-books than Dutch with e-books, and many have already and Belgian users becoming interested in experienced reading from electronic More than 56% of the online users e-books? What reasons keep devices. In expectation of continued surveyed in Germany have already read others from reading books on growth in demand, publishers are an e-book; in the Netherlands there are electronic devices? Will digitalising their title portfolios 10% less e-book readers (percentage and publishing many new releases wise), but still nearly half of online e-books replace printed books directly as e-books. But who actually users, who have experienced e-book for regular readers? And are reads e-books, and how often? From reading. In Belgium, only one third there any differences between the consumers’ perspective, which of the consumers surveyed indicated e-book-usage in Germany, arguments speak in favour of the use they have read an e-book at all. In all of e-books, and which arguments countries we see that younger users are Belgium and the Netherlands? speak against their use? And are there significantly more familiar with e-books We have taken up these business models other than retail sales compared to users above the age of 45. points. of electronic books that resonate with This discrepancy between the countries consumers? is also backed up by the statement that 52% of consumers in Belgium do not In order to find answers to these read e-books and do not intend to do so questions, we surveyed more than in the future – on the other hand only 1,000 online users in Germany, as well 19% of Germans surveyed agree with as more than 500 online users in both that statement. the Netherlands and Belgium. The survey was conducted among users Fiction e-books are bought more between the ages of 18 and 65 and frequently than professional or referred to their use of e-books and educational ones their experiences with e-reading devices Print books continue to be sold in during the winter of 2013/2014. significantly higher numbers than their electronic counterparts in all three countries. In general we see that German customers are more active book “I do not read E-Books and do readers and buyers – both for printed not intend to read them in the and electronic books. Of the consumers future”: Consumers who agree 19.4% surveyed, 38% buy five or more printed in Germany fiction books per year. Around 14% of consumers placed five e-books or more into their virtual shopping carts, and an additional 19% bought between one and four e-books in the past 12 months. 39.9% In the Netherlands, nearly one in five in the Netherlands consumers have bought fiction e-books and 15% paid for non-fiction electronic reading. 51.8% in Belgium

Media Trend Outlook 7 The users’ perspective: consumer survey

Most e-book buyers are in the Fig. 1 Number of books bought in last 12 months 18-30-year-old age group: among these younger consumers in Germany, 30% Non fictional purchased at least one fiction e-book 37.1% 19.4% 12.0% 5.0 Germany in the past 12 months; this percentage Non fictional is 22% in the Netherlands and 18% in 30.2% 15.6% 10.5% 4.2 Belgium. An interesting tendency can Netherlands Non fictional be observed among female consumers 30.9% 14.0% 9.1% 4.5 both in Germany and the Netherlands. Belgium Women seem to follow the new e-book Fictional 37.5% 36.7% 18.7% 13.8% trend to a lesser degree compared to Germany male consumers: whereas women are Fictional 27.6% 23.0% 12.4% 6.3 more active buyers of fiction printed Netherlands books than men, this is not reflected in Fictional the purchase of e-books. 28.5% 24.9% 8.0% 4.5 Belgium

Tablets are used more frequently 1–4 printed 5+ printed 1–4 e-books 5+ e-books for e-book reading than dedicated e-readers Surprisingly at the first glance, we see the PC as the most frequently used device for e-book reading – a finding Fig. 2 What devices do you use for e-book reading? that is particularly true for Belgium, where more than 36% of consumers read e-books on their PC. A possible PC GER 15.1% 20.0% explanation could be that occasional e-book readers – for example people PC NL 18.6% 11.4% who read an e-book once or twice a year for professional or educational PC BEL 25.2% 16.1% purposes – tend not to buy an extra- device to that end and just read it Smartphone GER 15.8% 15.5% on a PC screen. Consumers in the Netherlands are using their tablets Smartphone NL 15.4% 7.6% particularly often as e-reading devices – one in five consumers uses a tablet at least once a week for e-book reading. Smartphone BEL 10.5% 7.6% As opposed to this, avid German e-book readers prefer to reach for their e-reader E-reader GER 15.9% 12.0% devices than their tablets. E-reader NL 11.2% 7.2% The more e-books are accepted among a population, the more specialized devices E-reader BEL 6.4% 5.6% are used to read e-books. We see this pattern in more active usage of e-readers Tablet GER 14.9% 14.6% in Germany (28%) versus Belgium (12%). We assume that many heavy readers of e-books switch from other Tablet NL 20.0% 11.6% devices to an e-reader after a certain period of time. One quarter of the Tablet BEL 14.0% 11.1% respondents in Germany, as well as 21% in Belgium and 15% in the Netherlands, intensive usage occasional usage plan to purchase an e-reader in the near future.

Media Trend Outlook 8 The users’ perspective: consumer survey

Space-saving is the most important respondents mention this advantage via an e-reader, also speak in favour argument in favour of e-books – of e-books. In Germany, 50% of of e-books. The latter is particularly missing the real-book feeling is the consumers praise the light weight of important for Dutch users. The ability to main reason against it e-books, while in Belgium this factor adjust the display, for example in terms For many consumers in all three does not seem to be as important as for of font size and additional features, countries, space-saving is the key example environmental friendliness is highlighted by consumers from argument in favour of the purchase (an argument in favour of e-books for Germany in particular, as they may have and use of e-books. Three quarters 48% of Belgian respondents). Ease more experience with e-books and their of respondents from Germany and and speed of purchase, as well as the functional benefits. around one-half of Belgian and Dutch ability to access extensive libraries

Fig. 3 In your opinion, which of the following arguments speak in favour of/against the use of e-books?

Advantages Disadvantages

Purchase of an expensive system

I want to have a Save space in real book in my the library hand

Can not be Digital books are stored in a lightweight library

The purchase is Electrical power simple and easy supply

The price is The handling is advantageous too complex

Access a broad The purchase is digital library complicated

Customise the The offer of display and e-book titles is reading too limited

E-reader Additional systems can be features damaged

I can not lend my Environmentally e-book nor buy friendly or sell second hand books

80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 %

Belgium Netherlands Germany

Media Trend Outlook 9 The users’ perspective: consumer survey

The desire to browse through the followed by free download (32%) and Whereas many users surveyed are (still) pages of a “real” book continues to be an online presence of a traditional unlikely to want to read e-books in the the strongest argument against the store (30%). One out of five future, a majority of the respondents use of e-books. The required purchase e-book buyers from Germany purchase agree with the statement that although of an expensive reading device and e-books from app stores, compared they will primarily read print books in the inevitable dependency on battery to 18% of Dutch and 13% of Belgian the future, they want to give e-books life scare away users as well. One- respondents. a try as well. In the Netherlands, third of consumers in Belgium (and Germany and Belgium, around 38%, around a quarter in Germany and the The majority of the consumers say 31% and 23% of consumers respectively, Netherlands) are bothered by the fact “I am reading a book” and doesn’t expect that they will read more e-books that e-books cannot be re-sold or passed differentiate whether printed or than print books in the future. Only along. By contrast, a limited selection electronic a minority agrees with the statement of titles, cumbersome operation and a Most people who read e-books become that since they bought their e-reader complicated buying process play only familiar with e-book reading and they they read fewer printed books – but a secondary role in the perception of do not see it as a special occupation. in Germany half of the respondents consumers. The majority of them describe e-book stated they read more books in total reading as “I am reading a book” with since purchasing an e-reading device. Even though ‘low price’ is a clear percentages of 67%, 62% and 58% in Although a large part of the group that argument in favour of buying e-books Belgium, the Netherlands and Germany was interviewed seems to be engaged for only a minority of users (29% in respectively. These figures confirm in e-reading, they also concede that the Germany, 19% in the Netherlands and that for the largest majority of the complicated and restrictive mechanisms 18% in Belgium), most consumers customers a book, whether printed or of copy protection can deter people from expect e-books to be offered at prices electronically, remains a book. In other using them. (considerably) lower than those of the words, the product itself is important least expensive print of the same for the customer and not the type of book. While German consumers overall distribution. This is especially true for seem to be most price-sensitive, only young consumers. 20% of them are not willing to pay for an e-book at all. In Belgium and the Netherlands the general willingness to pay is lower, as respondents not wanting to pay for e-books at all amounts to 35% and 29% respectively.

One striking finding concerning the of users believe that prices for source of e-book downloads is that of e-books should be considerably those consumers who have actually or very much lower than those bought e-books, 56% of consumers in 45% of the print editions the Netherlands and as much as 68% in Belgium have downloaded e-books at no charge. In Germany most respondents buy their e-books from “a leading of users believe that an e-book online dealer” (60% of e-book buyers), should be somewhat less 14% expensive than the print edition

of users believe that an e-book should be the same 9% price as the print edition

Media Trend Outlook 10 The users’ perspective: consumer survey

Fig. 4 To what extent do the following statements regarding e-books E-book rental as a promising apply to you? business model At present, the vast majority of e-books “agree” and “strongly agree” are bought at (online) retail locations. However, in the view of consumers – I read more books especially those who already have since I have an 50% experience with e-books – that does not 19% need to remain the case. Around half of e-reader system/ 14% tablet. the users surveyed in Germany (27% in Belgium and 18% in the Netherlands) would like to rent e-books. A flat- In the future, I will read 31% rate option for unlimited access to an more digital books 37% electronic library is of interest to four in 23% than printed books. ten consumers as a whole.

I will continue to read With regard to the price consumers printed versions but 53% evaluate as fair for buying a monthly 58% e-book subscription, the survey shows would also try digital 60% versions. divergent results for the three countries. In Belgium, consumers are not willing to pay any price higher than €5. Dutch As I have an e-reader/ 24% consumers believe that a price of less tablet system, I read 24% than €5 is cheap but when the price fewer printed books. 16% increases to €6–€10 the majority replied that they are not willing to buy Complicated and the subscription anymore. Finally, in restrictive mechanisms 44% Germany a monthly subscription rate of copy protection are 36% below €10 would likely be accepted by a reasons not to use 39% majority. However, in the price range of e-books. €11–€15 there is also a large percentage Germany Netherlands Belgium that considers the subscription to be well priced.

of consumers would 31% like to rent e-books

would be interested in a flat- rate subscription for unlimited 42% access to an electronic library

Media Trend Outlook 11 The experts’ view

The experts’ view

What happens after the By Rita Bollig, A basic prerequisite for this type of apocalypse? Or: telling stories Managing Director at Bastei storytelling is that authors are willing to transfer an extensive rights catalogue 1 Entertainment (Germany) in the digital age to the publisher for a reasonable fee I had my first experience with e-books so that the publisher can avail itself of in the early 2000s, and to be honest, a broad value chain in an innovative this experience was everything but and straightforward manner: from promising. At the time, we licensed the “simple” EPUB to multimedia several titles for the “Rocket E-Book apps, audio books and “read + listen” Reader”. However, commercial success versions – a combination of audio was elusive, and the device disappeared book and text developed in-house – to from the market. Nevertheless, the seed publishing a print book. This mixed had been sown, and when in 2010 the calculation enables projects to be opportunity arose to become involved financed sustainably; in the best case in this segment again and to assume the product range will be adapted to a managerial role at a department other media segments as well. The latter dedicated to e-publishing, I was has for instance been planned for the immediately full of enthusiasm. project “Coffeeshop”, which is being adapted for a film or TV series. For this Digital media offer a wide variety of reason, an additional requirement is for opportunities to establish direct contact authors to have the ability to envision with the reader, and it is an essential different means of exploiting their function of a publishing house to listen content from the very start. and to discover through listening which products can give added value Having fun when creating content to customers who are interested in new and the need for a sustainable revenue possibilities for reading. model go hand-in-hand. This is the only way to ensure that additional A product that is of great importance to investments can be made in a project. In us is the serial , which consists of addition, everything needs to be right short episodes that are quickly available from a content standpoint; the product and help consumers to pass the time in has to work flawlessly and intuitively; an entertaining way. So, the decision to and it has to be free of technical bugs design new serial and series for and needs to be reasonably priced too. the digital age was logical. Yet, you have to keep in mind that the decision as to what is a reasonable price is not made by the publisher; instead you need to be in tune with the market. “Digital media offer a wide variety This means that when making your first of opportunities to establish direct calculations you need to ask yourself up contact with the reader, and it is an front what the potential customer will essential function of a publishing perceive as a reasonable price. house to listen and to discover through listening which products can give added value to customers who are interested in new possibilities for reading.”

1 The complete article is available for download (in German) at: http://www.luebbe.de/Presse/Specials/Id/1641386/2013_09_03/Ein+Werkstattbericht+aus+der+Abteilung+Bastei+Entertainment#subtab=2

Media Trend Outlook 12 The experts’ view

This results in different prices for with different means of exploitation in different product segments. Our prices mind, we needed to learn that for our for e-books are around 20% below the new product – the app – telling a story price of the reference product (book); was not even critical. episodes of our series may be purchased starting at €0.99. The app segment is As a publisher whose very core revolves very price-sensitive, and you can hardly around “storytelling”, we should be able place a product priced higher than to take a step back when looking at new €2.69 – unless you also offer in-app media forms and ask ourselves: what purchases. Yet, investments needed for actually makes a product successful in developing apps are still high, so finding this segment? One quickly realises that a topic that enables high unit sales is the real competitors are not necessarily critical. For example, in the “books” other publishers but can be found in category, children’s apps are especially the gaming and animation segments, successful. to name just two examples. This also means that one needs to grapple with Although Bastei Entertainment has the relevant technologies, because tried many new approaches when good programming work is the basis for designing digital products, we have successful apps. This means that authors for the most part still remained true not only come into contact with the staff to the traditional, linear method of of a publishing house, but also with storytelling. However, when you, as a designers, developers and people who publisher, concern yourself with new take care of digital product marketing; aspects of storytelling (trans- and cross- colleagues from other segments medial or interactive), you are entering (film and game) also participate in unknown territory. For example, in the workshops. All this ensures high levels case of the “Das Supertalentier” project of creativity that in turn need to be which we initiated with our colleagues harnessed and represent a challenge at Boje-Verlag and which was designed from a product management standpoint. Nevertheless, even if telling a story is no longer the focus of some segments, providing entertainment still remains the main goal and fiction publishing houses have always been good at that. Entertainment is and remains important – or as our publisher says: “We want to entertain!” “Investments needed for developing apps are still high, so finding a topic that enables high unit sales is critical. For example, in the ‘books’ category, children’s apps are especially successful.”

Media Trend Outlook 13 The experts’ view

Why there should be an equal domain: a reduced VAT rate is levied on The second given is that the applicable VAT treatment between paper braille books and the standard VAT rate VAT is determined by the country is applied to audio books (in Belgium), of the buyer. This is more or less the and e-books whilst the content is the same. current starting point with the new VAT B2C place of supply rules as of By Geert Decock, e-publishing We also see that inequality in other the 1st of January 2015. However, manager at Lannoo (Belgium) formats: for instance books that come that treatment puts the digital formats with a CD (which contains a digital at a disadvantage, as it is far from Apart from the fiscal definition, there copy of the book), in principle need to obvious what the country of the buyer is currently no real, correct definition be split-up for VAT purposes, whereby a is in a digital world! Such an approach of the word “book”: “A book is a printed reduced VAT rate is levied on the book opens the door to a new kind of trade: item, sometimes illustrated, bearing a and the standard VAT rate is applied electronic post-boxes. This can hardly title and intended to reproduce the work to the CD. The CD has partly the same be said to be a solution – neither for of the mind of one or more authors...”, content as the book, however the layout companies nor customers: Companies or, in short: a book is a work (content) is different, which is necessary for the will experience a higher cost of but then fiscally always taking the reader’s convenience. compliance as they need to determine form of printed matter. That was the where their customer is established definition of what a book is in France on Geographic content is another telling and subsequently need to take care of 30 December 1971. example. The geographic content of our possible VAT obligations in different Lannoo productions (eg, an atlas) are member states. On the other hand Books convey knowledge and are, on subject to a reduced VAT rate if printed customers will still be confronted with that ground, part of the essence of but to the standard VAT rate when the fact that paper books and e-books anyone’s existence, just like the right to provided on DVD: in the Netherlands are subject to different VAT rates as the water. Books are content ambassadors of such printed products are subject to a latter can differ between member states. the right to culture and education. In 43 standard VAT rate. years’ time, however, that content has VAT differences obstruct the normal undergone a true (r)evolution without Clearly, there is a need for consistency course of an economic system in many the fiscal definition being revisited. here. In my view, there are two ways to different ways. Large groups can avail Technology has enabled the use of address the issue: either the principle themselves of favourable regimes via digital forms in addition to print. The that needs to be upheld is that everyone other countries without actually fleeing visually impaired also have the right to has the right to culture and education, to tax havens. Such groups are usually education and, thanks to the invention in which case all parties actively international players, outside Europe, of audio books, access to culture and involved in “spreading” culture and that, bit by bit, are getting a grip on education has been able to take a education should qualify for a reduced one of the essential aspects that make big leap. Big? Yes, but not in the VAT VAT regime. By “actively involved”, I Europe what it is today: patrimony. The mean that it is that party’s core business, position of local players needs to be including bearing stock-related risks restored here. This has nothing to do and actively promoting content. In other with globalisation. Culture, the cultural words, websites that generate a large patrimony, is one of the few things part of their earnings via, advertising that, just like language, are typical of a for instance, are not included in this country. reference. Not choosing this path corresponds to signalling that not Bringing everything under a low VAT everyone has equal rights. regime is, I think, the only least invasive solution, both administratively and technically, because the value used for a reduced VAT rate is the same in almost any country. Besides, a favourable VAT „VAT differences obstruct the normal course regime is also bound to improve the of an economic system in many different economy’s health and increase sales. ways. Bringing everything under a low VAT The level of tax earnings will thus regime is, I think, the only least invasive remain similar to what it was before. solution.Plus, by applying a reduced VAT rate, Plus, by applying a reduced VAT rate, we we also give back the right to access culture also give back the right to access culture and education.“ and education.

Media Trend Outlook 14 The experts’ view

Discriminatory VAT/GST As an example, in the EU, the EU VAT market, in general, and especially in treatment between printed Directive 2006/112/EC allows the the non-English and small-language application of reduced rates to “books markets. In the new digital environment books and e-books needs to on all physical means of support”, eg, where consumers expect lower prices stop e-books sold on CD-ROM or USB sticks. and authors ask for a ‘larger share of However, other e-books delivered via the pie’ (royalties), the application of 2 By IPA and PwC Belgium digital downloads remain excluded and standard VAT/GST rates adds additional cannot benefit from a reduced VAT rate, financial pressure on publishers. The International Publishers Association thus maintaining an unwarranted and (IPA), an international industry obsolete discrimination. In addition, this discrimination in VAT/ federation, along with PwC Belgium GST treatment runs directly contrary to and the Global PwC Indirect Taxes Legislative developments in some EU numerous initiatives to promote digital 3 Network , carries out a yearly global member states, in particular France and . For example, in a number of survey on the application of VAT/GST on Luxembourg, aim at abandoning this countries educational reform initiatives printed books and e-books. illogical and archaic distinction between frequently involve the introduction e-books delivered on physical media and of digital technology into classrooms From this survey it can be concluded e-books delivered via digital download. and other learning environments. that several countries in Europe, the It is our view that, as the VAT Directive Discriminatory VAT/GST regimes often strongest book economy, are lagging does not mention ‘the carrier’ of a book, provide a significant financial incentive behind in applying an equal VAT the applicable VAT rate is to be analysed for schools to continue with printed treatment to e-books. While many from the consumer’s perspective in line . countries have seized the benefit of with previous CJEU judgments. exempting or permitting reduced rates Finally, this different VAT/GST on e-books, several countries in Europe This will be a test for EU legislation, in treatment disproportionately affects and in Latin America still need to amend particular because the EU Commission persons with print disabilities. They their legislation in favour of an equal started an infraction procedure against often have no choice but to choose the VAT treatment to e-books. both France and Luxembourg for their more accessible digital book, which is use of the reduced VAT rate on e-books. subject to a higher VAT/GST rate and is In the EU-27, 59.3% of the member Next to that, another interesting Finnish therefore often more expensive. states continue to apply the standard CJEU case “K Oy” (C-219/13) is pending VAT rate to all e-books, but only 31.3% before the CJEU court that could lead We hope that governments all over the of the 16 Latin American states surveyed to more insight as to VAT treatment of world acknowledge this urge for equal apply their standard VAT/GST rate to all books on “other means of support”. treatment, so that VAT will no longer e-books. form a barrier for the uptake of the sale This obsolete distinction is likely to hold of e-books. The discriminatory VAT/GST back the development of the e-book treatment of printed books and e-books continues and this in violation of the OECD’s guidelines and benchmarks4 recommending a non-discrimination policy and the application of concessions „The discriminatory VAT/GST treatment of to e-books. As e-book consumption printed books and e-books continues and expands rapidly in the global English- this in violation of the OECD’s guidelines language market and begins to take hold and benchmarks. This obsolete distinction in other countries, this issue is becoming is likely to hold back the development of the increasingly urgent. e-book market.“

2 Represented by José Borghino ([email protected]), Policy Director. 3 PwC refers here to PricewaterhouseCoopers Tax Consultants bcvba/sccrl, which is a Belgian member firm of the global network of PricewaterhouseCoopers International Limited (“PwC IL”), all members of which are separate legal entities (herinafter also referred to as “PwC Firms”). A member firm does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. For more information visit us at www.pwc.com or www.globalvatonline.pwc.com. 4 http://www.oecd.org/tax/consumption/36177871.pdf.

Media Trend Outlook 15 The e-book market in five years: a look ahead

The e-book market in five years: a look ahead

Stabilization of technical The rapid spread of tablets and by digitalisation in general, an increased infrastructure, consolidation electronic reading devices has resulted affinity for digital media on the part in increasing momentum in the German, of consumers and increasing levels and internationalisation, new Dutch and Belgian e-book markets. For of experience with these media. For market actors, more refined publishers, entering the e-book business Germany, we expect that turnover from rental models, and finally a is no longer a voluntary choice but a e-books in the fiction segment, including constantly changing selection necessity. In Germany, the bigger part children’s books and young adult of new releases and around 80% of literature, will exceed €850 million by of e-books: all of these topics backlisted titles of the large publishing 2017 – which corresponds to an average will occupy the market in houses are available on the relevant annual growth of 43%. In the fiction the coming years and ensure e-book-platforms. Publishers are looking segment, the share of revenue generated further growth. to benefit from the growing interest by electronic books will increase from in electronic books on the part of 3% in 2012 to 16% in 2017 in Germany consumers. This interest is being fuelled and reach 15% in the Netherlands and nearly 22% in Belgium.

Fig. 5 Turnover from e-books in the consumer segment in millions of €

852

675

521

396

286

144 81 55 48 2831 4237 44 51 1 2 0 1 4 3 3 8 24 8 12 12 19 19 24

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Netherlands Belgium Germany

Turnover in the fiction segment which will be attributable to e-books in 2017 22%

in Belgium 16% 15% in Germany in the Netherlands

Media Trend Outlook 16 The e-book market in five years: a look ahead

For a vast majority of users, e-book New actors in a changing market to the reduced VAT rate of 6% and reading becomes familiar and is not The production and distribution of e-books are subject to the normal VAT perceived as a special occupation. e-books is changing the book market rate of 21%. The difference in VAT More than six out of 10 e-book users and entails new challenges and treatment between printed and e-books surveyed mention e-book reading as changing conditions. We expect that originates from the EU VAT Directive “I am reading a book”. These figures large players will claim large shares of and forms a barrier for the uptake of confirm that for the largest majority of the market for themselves by bundling sale of e-books. However, many EU the customers a book, whether printed services and through enhancing the member states do not agree with this or digital, remains a book. In other relevance of their product range. differentiation and do not want to lose words the product itself is important Continuing internationalisation of the the momentum in the e-book market. for the customer and not the type of market will be promoted by the virtual Certain member states have therefore distribution. elimination of delivery and border also acted upon this and also allow charges and will increase competitive a reduced VAT rate for e-books. The Establishing a solid pressure on content providers. German government recently included infrastructure for e-books Companies which have previously not in a coalition agreement the intention to In the coming years, an e-book operated in the industry are recognising defend the equal treatment, by applying infrastructure will be created the need for new market structures a reduced VAT rate to both printed and comprising reading devices, content and, for example, are emerging as electronic books, on an EU level. The providers and platform operators which, service-providers for the publishing current government in Belgium seems to on the whole, will be more uniform and houses. In addition, the significance be in favor of equal treatment between complete than is currently the case. of self-publishing will increase – in print and digital publications. It will be This will be achieved both by efforts particular through platforms such as important that this position is defended at consolidation and collaboration Amazon’s Kindle Direct Publishing. This by the next government (according to among market participants, as well as will compel established publishers to the elections in May 2014) also on an by standardisation of and increasing expand their offerings related to author EU level. Without a doubt, a reduction flexibility in formats. The advanced support in order to convince potential in the VAT rate applicable to e-books EPUB3 format has good chances of self-publishers of the additional value of would provide additional momentum to becoming the standard for e-books. In their services. the e-book market and increase margins these times of increasing mobility, the earned by the publishers. availability and accessibility of digital Potential reductions in VAT and offerings on mobile devices are of new business models promising Market players have their sights critical importance. Access to e-books additional growth on new business models stored in the cloud is possible anywhere In Germany and the Netherlands, books, At present and for the foreseeable and at any time via cooperation with regardless of whether analogue or future, retail sales represent the primary mobile operators. In addition, the digital, are subject to price maintenance distribution model for electronic books. expansion of mobile data networks and arrangements which allow limited At the same time, the overwhelming increasing confidence in cloud-based discretion where price is concerned. majority of publishers are offering services in general are creating the However, the legislature has made a e-books at prices lower than those for foundation for e-book rental models. distinction between print and electronic print books – despite the higher VAT books with regard to their taxation: rate; many publishers are offering whereas physical books are subject to price discounts of 20% and more. The the reduced VAT rate of 7% in Germany trend points clearly to the continual and 6% in the Netherlands, e-books decline in e-book prices. Most publishers are subject to the normal VAT rate of surveyed by the German Publishers and 19% and 21%, respectively. In Belgium, Booksellers Association in 2013 expect in principle printed books are subject increasing price differences between print and electronic books in the coming years.

Media Trend Outlook 17 The e-book market in five years: a look ahead

Even in light of these expectations, we extras in the case of non-fiction believe that alternative business models, books, and travel literature as have already become established in generally offer greater benefit for the other forms of digital media, will be of consumer and create a potentially increasing importance. For example, greater willingness to pay for this the initial chapters of e-books, or even content than is the case for novels and entire books, may be offered for free classic literature for example. as a trial using a freemium model, or flexible payment models may be The integration of books into online used for additional chapters in a serial systems will further simplify linkage to story. The fact that the small file size other digital media. In this process, the of e-books allows them to simply and publisher assumes the role of content quickly be transferred to reading promoter and markets book contents devices likewise makes them well suited in other media formats as well, either to rental models. The e-book file may, independently or within cooperative as is the case at Libreka! for example, relationships. Connections to online be offered in exchange for a one-time, games or videos, and the addition of direct payment and locally saved to the social media links or fan communities, reading device. In addition, there are permit stories to be told via different models such as Divibib’s Onleihe-System channels in a more tailored manner. where the user merely needs to pay a fee for a library card and where borrowing Conclusion the books is even subsidised by the state. The time has not yet come for print Other providers are focusing not on books to be viewed in the same category providing e-books as a file that may be as vinyl records: a collector’s item for saved locally but rather as a file that can aficionados. The overwhelming majority be accessed via an Internet connection of books sold over the next five years as needed. This is the absolute opposite will continue to be printed and bound. of print book ownership, as the user However, e-books will become a fixture pays a monthly fee and may generally in the media mix of consumers in read as many of the e-books available Europe. through the Internet as he or she wishes. The actual providers of the content are Users who already have experience with paid on the basis of the number of times e-books appreciate their benefits. By their content is accessed. 2017, we expect that turnover generated by e-books in Germany, Belgium and If these types of models increase in the Netherlands will rise to nearly €1 popularity, we believe that only a billion. This corresponds to a 16% share few large providers will be successful of total turnover in the fiction segment. in the market. In such cases, many Thanks to the increasing availability of market players – in particular small electronic reading devices and growing and medium-sized publishers – will be acceptance of digital media in general, in a difficult position during pricing we assume e-books could largely replace negotiations and will be compelled to their print counterparts for everyday reconsider their pricing policies. reading, for example for commuters or readers of books. The publisher as content promoter The addition of colour, set typography, In order to participate in this growth, multimediality and HTML has local market players will need to pool tremendously expanded the possibilities their resources when competing against for e-books. In the future, enhanced global players. In addition, publishers e-books will increasingly force their will need to place greater focus on their way into the offerings of download content-related competencies and not platforms. However, investments in only consider different book forms for multimedia e-books need always be good stories but also different media based on a view of the added value for formats. consumers. For example, additional

Media Trend Outlook 18 Sources

Sources

PwC (2013a) Global Entertainment and Media Outlook: 2013−2017

PwC (2013b) German Entertainment and Media Outlook: 2013–2017

PwC (2013c) Entertainment & Media Outlook for the Netherlands 2013–2017

PwC (2012) Tablets im Fokus – wie die Nutzung von Tablet-PCs den Markt für E-Publishing verändert (Tablets in focus – how the use of tablet PCs is changing the market for e-publishing)

Börsenverein des Deutschen Buchhandels (2013a) Buch und Buchhandel in Zahlen 2013 (Books and book trade in figures 2013)

Börsenverein des Deutschen Buchhandels (2013b) Das E-Book in Deutschland 2013 (The e-book in Germany 2013)

International Publishers Association Global Survey on Books & E-books: Europe, Latin America and Canada (report update 2013)

Media Trend Outlook 19 Contacts

Germany About us Our clients face diverse challenges, Werner Ballhaus strive to put new ideas into practice and Tel. +49 221 981-5848 seek expert advice. They turn to us for [email protected] comprehensive support and practical solutions that deliver maximum value. Kristin Lulei PwC helps organisations and individuals Tel. +49 221 981-2320 create the value they’re looking for. [email protected] We’re a network of firms in 157 countries with more than 184,000 people who are committed to delivering quality in Netherlands assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com Jheroen Muste Tel. +31 88 792-5373 [email protected] To be continued. The series “Media Trend Outlook” Rajendra Sitompoel has other topics ready for you. Tel. +31 88 792-6497 [email protected]

Belgium

Eddy Dams Tel: +32 9 268 8220 [email protected]

Sophie Claessens Tel. +32 3 259 3169 [email protected]

Media Trend Outlook 20