The State of the US ebook Market
By Joe Mangan, COO The Perseus Books Group
As on average e-book sales are slowing down in the United States, what opportunities should publishers focus on?
The latest data from Bowker Market Research for ebook sales in 2013 shows that for the first half of the year, ebook sales accounted for 14% of consumer book spending, versus 13% in the same period last year, so in aggregate, the rate of growth in ebooks has slowed dramatically. But that statistic only gives us a partial view on the state of the U.S. ebook market. To truly understand whether or not growth is slowing down, we need to look at individual book categories. Ebook sales in fiction, which has started to approach 50% of total title units sold, are indeed slowing down, but other categories like health/mind/body and history/biography are still growing fast. The general trend that still seems to hold true is that the lower the overall percentage of digital, the higher the growth rate, and those categories (such as fiction) that have the highest percentages of units sold in ebook format are indeed reaching a plateau. So given this trend, what are the big opportunities and challenges publishers face in today’s marketplace?
In the U.S. we have lost more than 2,400 trade book stores since the closings of Walden, Dalton, and Borders. Bookstores have traditionally been the primary discovery mechanism for readers –in almost every poll on consumer book buying, the #1 way people discovered the last book they read was in a store. That serendipitous nature of finding what appeals to you is unique in a bookstore and hard to replicate online. Another implication of the decreased number of stores is the issue of ‘showrooming’. Successful bookstores recognize the value of themselves as showrooms and are trying hard to monetize that. Some of the major retailers in the U.S. are trying to charge higher coop fees for front of store positioning, and these fees are out of line with the number of books that positioning is going to sell. The retailers realize that the fees are disproportionate, but their reasoning is that because the title is front of store, not only will they sell more units, but a secondary benefit of increased awareness of the book is going to drive additional sales online and digitally. As a publisher, we are facing the perfect storm of discovery in that there are dramatically fewer bookstores and the ones that exist are trying to increase their coop fees in the face of declining cash register sales in an effort to participate in sales they believe the influence beyond their brick and mortar boundaries.
So what are the possible solutions to showrooming and discovery in an increasingly digital world? Clearly, consumers are moving online, and we need to improve our ability to market to them in that medium. Other industries have had success with this, but book marketing is somewhat distinctive in that we have many products, each unique, and most with relatively short shelf lives and constrained resources with which to market them. In a bid to aid marketing and identify new audiences, Perseus and Faber Factory have been experimenting with a range of ‘social listening’ platforms: software that captures disparate web conversations across web sites, blogs, Twitter and Facebook streams. By finding existing online conversations that are relevant to our book or its topic, and joining them authentically, we can increase book discovery in a digital world. This tact holds promise and for non-vertically focused publishers appears to be a much less resource intensive path than building an online destination and trying to attract and maintain an audience (i.e., the more traditional big brand approach).
2) New Consumer Pricing Models
Historically, publishers have had limited say on how their books are priced to consumers by retailers (and the recent actions of the Department of Justice are not making it any easier). Because publishers have not had influence, they have not built the tools and systems to monitor consumer-level price changes of the life of titles, and they have not built deep expertise in insight into how the price of a book needs to change over time in order to maximize revenues and profits. This has been due, at least in part, to the fact that historically changing even the list price of a book required managing complex processes as books (i.e., physical books) have the list price printed on them. But in the digital marketplace, we no longer have that constraint, so we need to pay more attention to pricing and build expertise in this area. We have been developing new systems at Perseus, such as the Pricing Analytics Tool, so that we can actively monitor and manage prices over the life of the book. While in most outlets we can’t set the consumer price, we can take advantage of the non-linear relationship between the consumer price and the retail price in order to maximize the book’s revenue potential. Using hypothetical examples helps make this clearer. For example, assume that for a period of time, any book with a retail price between $15-$20 is sold by one retailer for a consumer price of $9.99. Why give your book a retail price of $14.99 instead of $17.99? Your book will still be sold to the consumer at $9.99 but you make more on the sale to that retailer. We also need to understand the relationship between pricing and volume – how a disproportional decrease in consumer price can allow us to make up the revenue in volume sold. Using our earlier example, assume your book has a retail price of $21 and a retailer is selling it for $14.99 during its peak selling period. And your data showed that if you had priced your book at $20, they would have priced it at $9.99. The difference to you is very small but the difference in sales volume at a consumer price of $14.99 vs. $9.99 might be pretty dramatic. So by understanding the non-linear pricing relationship, and using tools like the Perseus’ Pricing Analytics Tool (which is available to clients of Faber Factory), publishers can learn more about how their books are priced to the consumer and find opportunities to maximize revenue potential.
3) Business Models Around How Readers can Purchase Books
We’ve started to see increased experimentation around alternative consumer models that monetize book reading in new ways and to the benefit of different constituents – with Owners Lending Libraries, read-all-you-want-for-free while in store, discounted ebooks for consumers who previously purchased a physical edition, and subscription models. Is it possible to take the phenomenon we are seeing with binge-watching TV series on Netflix and adapt that to the book world? Let’s assume that instead of an author writing 300 pages, they could write 30 pages and sell it in installments, allowing the readers to buy content as it becomes available or indulge on it all at once. This ‘chunking’ of content (with models that involve chapter sales, bind-ups, and serializations) might be possible in the digital world given that the legacy costs of printing and distributing physical books are no longer relevant. In the print world, the cost of selling chapters instead of full books, and making them available in a store that carries 120,000 ISBNs, was a formidable barrier to that kind of content chunking. But digital allows us to remove those constraints and think about story telling in new and different ways.
4) Digital Print
The technology for digital printing continues to advance in a way that is consistently improving the cost-quality relationship. This technology also allows for more supportable formats – we can now digitally print books with full color at varying quality/cost levels and we can digitally print hardcovers, and while both formats are in their early days, the underlying economics will undoubtedly continue to get better. This means that the availability of books through any outlet, (online, international, etc.) will continue to increase. Time to market and freight costs are reduced by printing closer and quicker via digital print.
While our industry continues to face important challenges in digital publishing, we firmly believe that ebooks and print books will co-exist for many years to come and that we as publishers need to adapt and retool so that we can absorb the additional work of digital, largely with the resources we have today – we are going to live in a hybrid world of P and E. That means that how well we publish is really going to drive our success. And as the shine starts to wear off digital, we shouldn’t take the slowing of digital sales as an “ebooks are over” message. Digital is here to stay, and we should look at this as a marathon, not a sprint, and we are in the early miles of the journey. The internet is still in its infancy, and to quote Jeff Bezos, “it’s still day one. The alarm clock hasn’t gone off yet, and you haven’t hit the snooze alarm once. It’s early. It’s day two when the rate of change slows. And so far the rate of change on the internet, if anything, is accelerating.” There is still a lot of technology advancement yet to come and the opportunities for publishers will continue to grow.