www.pwc.com Turning the Page The Future of eBooks Technology, Media & Telecommunications Today, it seems eBooks and eReaders This research is complemented by more Foreword provide more questions than answers for than 40 interviews with experts and senior the book industry: executives of reader manufacturers, a wide range of publishers, dealers, online • Will the industry face the same issues and traditional book shops, and libraries that music publishers did during its in Germany. The survey considers the digital transformation several years importance of eBooks and asks about their ago – primarily digital piracy and a loss market potential, drivers, obstacles for the of revenue as customers discovered future market development, and possible new methods of acquiring content and income models and marketing structures. adopted new listening habits? The survey focuses on the international Publishers, Internet bookstores, and • Who will purchase eReaders? Will market for eBooks and eReaders, companies that manufacture eReaders they be designed to appeal to a broad particularly with regard to mass market have high expectations for the digital group of customers or only to those books in the United States, United future of the book industry. A new who have a high degree of comfort Kingdom, the Netherlands, and Germany. generation of eReaders may, at last, with technology? Will people who read It also focuses on opportunities for digital achieve the long-awaited breakthrough once in a while want to buy an eReader, distribution of newspapers and magazines that lures consumers away from paper or will they only be purchased by the through tablets, such as the Apple iPad. and ink. In the United States, Amazon has small group of customers who buy and revolutionized the market by producing read a high volume of books? an eReader that is easy to use and making it easy for customers to purchase a wide • Will publishers be able to use eBooks variety of books at competitive prices. and eReaders to extend the market While some people herald the advent of for books in general, creating a wider Werner Ballhaus digital reader technology as an opportunity audience? to open new target markets and create Industry Leader • Will publishers ever move to an all- customers, others mourn the end of Technology, Media & Telecommunications digital model and abandon printed traditional books and doubt the industry Germany will be able to retain control over pricing books? and content. • Is the media responsible for much of the hype we are now hearing about eBooks and eReaders? This study will look at consumers’ attitudes toward and interest in digital reading. It will also identify market opportunities and developments for eBooks and eReaders, and make recommendations for publishers, traditional retailers, online retailers, and intermediaries. The study includes a general market analysis, a discussion of trends and developments, and the results of a consumer poll conducted among 1,000 online users in the United States, United Kingdom, the Netherlands, and Germany. Turning the Page: The Future of eBooks 3 4 PwC Contents Foreword Outlook and recommended action ......28 1. The Situation in the Year 2015 ............... 28 Management summary ............................2 2. Critical Factors of Success for Different Current situation .....................................4 Business Models ..................................... 29 1. The Book Market ..........................................4 2.1 Publishers .............................................. 29 2.2 Physical Bookstores ............................... 31 2. The Digital Book: Market of the Future? .......4 2.3 Online Stores ......................................... 31 2.1 eBooks ........................................................4 2.4 Device Manufacturers ............................ 31 2.2 Electronic Reading Devices .........................5 2.5 Intermediaries ....................................... 32 2.3 Market Overview: A Market or a Niche?.. .....8 3. Conclusion ............................................ 32 2.4 Taxation of eBooks: Artificial Price Driver ..10 2.5 Value Chain and Revenue Models ..............10 Methodology ......................................33 1. Analysis Framework ..................................33 What do the experts say? .......................12 2. Timescale and Method ........................... 33 1.1 eBooks: An Opportunity or Risk? ...............12 3. Expert Interviews .................................. 33 1.2 Market Drivers ...........................................13 4. Consumer Survey .................................. 33 1.3 Market Barriers ..........................................13 1.4 Pricing and Distribution Models .................14 Bibliography .......................................34 1.5 eReaders or Tablets? ..................................15 About us .............................................34 1.6 Looking to the Future .................................15 1.7 Challenges Facing Companies ....................15 Contacts .............................................34 Discussion: Electronic Newspapers and Magazines .................................................16 What do customers want? ......................18 1.1 Popularity of eBooks and eReaders ............18 1.2 Revenue Models ........................................22 1.3 Purchase Intentions: Tablet or eReader? ....25 1.4 The Future ................................................27 Turning the Page: The Future of eBooks 1 account for 7% in 2010. And this is only the beginning: Driven by the improvement Management of reading devices with integrated online stores, an extensive range of electronic books, and an aggressive price policy of summary online retailers such as Amazon, eBook revenue continues to expand. The market is being further stimulated by multifunction devices such as Apple’s iPad, and it has already proved lucrative for publishers, whose initial investments are paying off because of higher margins for eBooks. Digital publishing appears Nonetheless, when consumers are to be reaching critical mass. asked about their knowledge of eBooks There is no doubt that the same trends and eReaders, it becomes obvious that that spurred the adoption of eBooks and Most consumers have an many people are missing the big picture. eReaders in the United States are having understanding of eBooks and Although consumers seem amenable to a similar effect in other countries as well, eBooks and eReaders, they do not yet such as: eReaders, thanks to media grasp the larger concepts behind digital coverage, as well as extensive publishing and may not understand the • Technical development and reporting ahead of this year’s advantages of reading digital books over sophistication of reading devices that paper ones. This is especially true in provide an experience similar to that of major book fairs. Apple’s new Europe. reading an actual book. iPad, which can serve as an eReader, also brings more Attitudes toward eBooks and eReaders • The increasing penetration of the seem to differ on each side of the Atlantic. Internet in all areas of life, which is attention to the market for the In the United States, publishers appear significantly changing reading patterns digital technology. amenable to eBooks because they generally and reading behavior. offer lower costs and higher margins than print. An eBook publisher does not incur • The increasing extent to which inventory return costs that are typically consumers are open to new associated with traditional print channels. technological trends, for which in In Europe, publishers seem more likely to particular the availability of attractive view digital publishing as a step backward mobile devices such as smartphones, for their companies – a necessary evil, portable games consoles, and MP3 so to speak – that represents more risks players are responsible. than opportunities. Therefore, European Publishers, content owners, and retailers publishers may have less interest than their should act promptly to secure leading American peers in actively developing the positions in the eBook and eReader eBook market. European publishers are marketplace, and not concede ground more likely to express doubts about digital to participants new to the industry. transformation in the industry, and act Publishers, bookstores, and device slowly out of fear of high costs and the manufacturers should take the opportunity possibility of losing sales of print books. to provide the market now with innovative However, the progress toward a digital products before others do so. And authors publishing industry can only move should explore opportunities for digital forward. This is most obvious with the distribution, and support publishers in developments in the United States, where their efforts to publish content. eBooks accounted for about 3% of the Publishers in the nascent European overall market at the end of 2009 and will eBook marketplace should actively and 2 PwC aggressively digitize and market their with instant and simple delivery of separate dedicated reading devices from electronic books, even if eBook revenue content through mobile wireless or wi-fi the iPad and other tablets. does not cover costs in the short term. connections, built-in links to online These investments are necessary to stores, and competitive prices. The Publishers should view these technological establish the market, and provide a device manufacturers are now facing the advancements as opportunities to