Forrester Research

One thing we try to do at Digital Book World is to present our audiences with useful, relevant, and, when we can, original data. It is a familiar complaint in our industry that we drive blind. Part of that is due to the sheer diversity and granularity of the “book business”. And another part is due to the blistering rate of change. The net result is that we are constantly trying to read tea leaves. We do our best to deliver some useful tea leaves to our DBW audience.

I make no pretension here to telling you all you’ll hear at DBW (which would be bad business even if I were able to do it!) But here is a roster of the data presentations and a small taste of what the DBW audience is going to get from each one.

We’ll start off with James McQuivey of Forrester Research doing a reprise of a high-level survey of publishing executives that they inaugurated at DBW 2011. Forrester got good participation in the survey, including getting fully filled-out responses from at least two of the Big Six executives.

One very interesting fact from the Forrester research is that the consensus for when the trade business will become 50% digital has moved up from 2015 to 2014. When Forrester announced the original number at DBW 2011, it seemed to many to be aggressive. A year later, it is not likely that the new prediction that it will come sooner is going to surprise a lot of people. We are apparently now used to the accelerating pace of change, but perhaps just in time to have to readjust to it slowing down. (More on that to follow.)

The team of the Milan office of A.T.Kearney (the big global consulting firm) and the Italian ebook retailer Bookrepublic have been tracking the spread of digital reading worldwide. They presented research at last year’s IfBookThen conference in Milan and followed it up with additional research presented at the Publishers Launch conference in Frankfurt. They’ve extended their investigation further — about devices, about internet purchasing, about ebook uptake, market-by-market around the world — for this year’s Digital Book World. They have added questions about self-publishing and piracy to the research they did previously and responses to them will be reported at Digital Book World.

One insight they’ve had is extremely provocative. They say, “We should stop thinking of self-publishing simply as a nice way for indie authors to be published. Viewed another way, measuring self-publishing activity calculates the amount of money Amazon (and others) are no longer sharing with publishers. And it’s growing.”

The data that will justify that insight will be part of the presentation we’ll see at Digital Book World.

We decided to take an intensive look at the romance genre because it is often considered to be the consumer segment that has moved most rapidly into the digital future. We were fortunate to enlist the help of the ebook retailer AllRomanceEbooks.com in our investigation. They circulated a survey that got responses from almost six thousand of their customers. The results of that survey will be announced at DBW and will be followed by a panel discussion with special attention to what other genres and segments of trade publishing can learn from what has happened in the romance market.

What caught my eye from the preliminary results was that only 4% of the ebooks All Romance sells have DRM. Since they carry the ebooks of all the major publishers, and all of those have DRM, what this statistic tells us is what a vast business exists in romance publishing outside the realm of the biggest players in the industry. I’ll leave the analysis to the experts we’ll have on stage for this discussion, but I personally wouldn’t leap to the conclusion that DRM-free is the only reason that 96% of the sales were of that category. Those books are undoubtedly cheaper as well. They may score higher on All Romance’s unique “flame” scoring system (which is all about how frequent and explicit the sex scenes are). But I would imagine that any big publisher hearing that statistic would, at the very least, have its curiosity piqued.

It turns out that a big component of All Romance’s sales success is that they took it upon themselves to add sub-categories describing romance — such as that flame index referred to above — that didn’t exist in the industry’s BISAC standard. That’s metadata!

Metadata isn’t ever going to be a “sexy” subject but it is certainly becoming an increasingly popular one. Our early polling of Digital Book World registrants indicates that our breakout session on metadata might be the most heavily-attended of the 30 breakouts on the schedule. (And everybody who goes will be glad they did. We just reviewed the content of the session with presenters Bill Newlin and Fran Toolan; it’s going to be great!)

Having been told for months and years that good metadata enables sales and bad metadata prevents them, I wanted to get some factual confirmation of that. So I asked Jonathan Nowell, the UK-based head of BookScan and the bibliographic source BookData, if he could do some research to connect the two (his being the only organization that has the information to tie metadata to sales data.) Jonathan did a presentation on this subject for Publishers Launch Frankfurt; he’s updating it for Digital Book World.

The most arresting takeaway last October at the Frankfurt presentation was that adding “enhanced metadata” elements to a basket of backlist books not only stopped their normal sales decay, it reversed it and actually made sales of those books rise after the metadata was improved. Everybody will really be able to visualize the importance of metadata after they hear Jonathan’s presentation.

Verso Media is an advertising agency with high digital consciousness and a deep interest in book purchasing and consumption habits. They survey book consumers looking for insights about the digital changeover. The single most startling takeaway for me from the preliminary results I saw from this year’s research is that the number of people who actually resist the idea of reading digitally has gone up from 49% to 51% of respondents. This data point is in line with other tea leaves that suggest that we might have started to hit real resistance to ebooks, slowing down the digital switchover from the rates of the past few years. And that certainly would not have been what I would have predicted. Jack McKeown, who has held senior positions at three major publishing houses, oversees the Verso research and will present it.

At our Publishers Launch “Children’s Books Go Digital” show on Monday, Conference Chair Lorraine Shanley recruited two trend analysts who are offering interesting trend and data observations of their own.

Amy Henry, VP of Youth Beat, observes that parents and kids are sharing personal experiences more than we remember from our youth. More than 2/3 of teenagers listen to music with their parents! The takeaway is that parents can be marketing conduits to their kids; they’re not just gatekeepers you need to sneak your way past, which is how they have often been characterized in the past.

Ira Mayer, Publisher of Youth Market Alerts, delivers data that tells us that two-thirds of the apps Moms get for their kids are either free or under a buck. Fewer than 10% are more than $3. These are sobering facts, but anybody entering the app space to make money better know them!

Kelly Gallagher, Vice-President in charge of research at Bowker, will have important data to share at both shows. His team has been surveying a pool of book purchasers on behalf of BISG for a couple of years and has charted the growth of the ebook market for the industry throughout that time. The data he’ll be reporting from the latest fielding is so fresh that it misses the deadline for this post. But it would seem likely that the data will show that the ebook switchover is finally slowing down after about five years of doubling or more than doubling annually. That would be of meaningful interest to everybody in trade publishing and would tend to confirm Verso’s finding that the point of more determined ebook resistance grows nearer.

Bowker also runs a study of the children’s book market and he will share appropriate data from that research at the Pub Launch show on Monday. Kelly showed me a couple of slides that suggest that young children’s print could be around for a while. Parents like the idea that a book isolates kids from what are otherwise constant digital stimuli. And what attracts kids to digital is portability (having access to more titles) which, broadly speaking, is more important as kids get older. And he’ll reprise that data presentation at Digital Book World on Tuesday, followed by a panel discussion among participating publishers in the study, including Disney, Scholastic, and HarperCollins. That discussion will be moderated by Kristen McLean, founder of Bookigee and former executive director of the Association of Booksellers for Children.

I don’t mean to suggest that data is all we do at our conferences, or even most of what we do. It isn’t. But we see it as part of our job to encourage the development of original information, such as we did in conjunction with All Romance and Nielsen, as well as to deliver information from efforts already underway within the industry, like the reports we’ll get from Bowker.

Digital Book World will also feature main-stage presentations from Amazon, Barnes & Noble, and Kobo which we expect will also be data-rich (as well as one on business model experimentation from Oren Teicher of the American Booksellers Association), helping us all understand what happened this past Christmas. Keeping up with this pace of change is hard enough; doing it without data is impossible.

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A few things worthy of a pre-Thanksgiving comment have passed in front of my eyeballs in the past few days.

1. Sainsbury’s, one of the big supermarket chains in Britain, has announced that it will open a digital download store before Christmas. They’re starting with movies and music, but plan to expand to ebooks before long.

The working assumption has been that Amazon, Apple, and Google (even though Google Editions hasn’t launched yet) would be the major global players for ebook distribution. Barnes & Noble has taken significant market share in the US, putting them second in sales to Amazon at the moment. There are rumors that B&N is going to start competing globally before long; it would certain make sense for them to do that. (Perhaps B&N’s aggregation of books in Spanish is a step in that direction.) Sony and Kobo are already active all over the world; Copia intends to be and they have just opened for business.

But if Sainsbury’s wants to be in this business, so might mass merchants in every other corner of the globe. We had already had our eyes opened by a French publisher who expressed his fervent hope that local French book retailers would carry English-language ebooks. His reasoning was very simple. Since Amazon, Apple, and Google would be carrying ebooks in French as well as English, the local merchants won’t be competitive unless they carry English as well as French.

There is a tendency in some quarters to declare the ebook wars over and that somebody (usually Amazon or Apple is the one annointed) has “won.” It is important to remember that ebooks have about 10% pentration in the US and less than 1% everywhere else (except, as we’ll see below, China). Many more players will be competing for the ninety-something-percent of the 2015 world’s ebook readers that haven’t tried it yet.

2. A story in China Daily puts the Chinese digital publishing business at $12 billion and at more than half of the Chinese book business. I have some immediate skepticism about these numbers since the US book business (all in: trade plus school plus college plus professional plus anything else you can think of) is only $30 billion and the US ebook business was just estimated by Forrester to be $1 billion. For China’s book business to be 80% or more of ours in total and for China’s digital publishing business to be 12 times ours seems very unlikely, if not impossible. Who knows what errors of methodology or currency conversion could explain these numbers? (I surely don’t.) But half digital is a powerful statement, even if the comparison with the US can’t be right.

The fact that China has moved so fast to digital opens up another line of thought to me: how translation might work in the future. Google Translate doesn’t deliver you a publishable version of anything. But it does deliver an intelligible version that a good writer or editor can turn into something publishable pretty quickly. How long can it be before a combination of Google Translate and a single literate person is delivering a perfectly acceptable translation of anything to anybody who can afford the single literate person?

(Added after publication: you’ll see a comment below pointing out that the statistics in the China Daily article referred to all publishing in China, not just book publishing. That makes the figures make more sense. It also means that much of what appears in the two paragraphs above has been mooted, except that Google Translate plus one good editor can deliver a readable version of anything in any language.)

3. Sarah Weinman, who is one of the more acute analysts of the commercial realities of digital publishing, just wrote a piece wondering whether the iBookstore is actually working. She suggests that iBookstore is trailing both Amazon Kindle and B&N Nook by a considerable amount in sales. She has data from one particular book for which the ebook sales were about 60% Amazon, 26% B&N, and only 6% iBookstore. When I asked a few publishers how those percentages broke down about four months ago, they put Amazon closer to 50% than 60% and put B&N and iBookstore pretty close to each other. The iBookstore, which I call the Walden or B. Dalton mall store of ebooks, has been a head-scratcher for me. They have far fewer titles than their competitors: Amazon, B&N, and Kobo. While they do a nice job of title presentation for the bestsellers, their lack of breadth is evident if you do any kind of subject or genre search. Meanwhile, Amazon’s very tough position (so far) resisting agency for any but the biggest publishers makes it very difficult for smaller publishers to put books in the iBookstore without exposing themselves to the danger of conflicting contracts and a downward spiral of revenue if Amazon decides to discount their books. (I have been told lately by two small entities that they’re going to get agency terms from Amazon; one actually wonders why Amazon would permit that right now since their current strategy seems to be working to keep the iBookstore uncompetitive on title breadth.)

On the other hand, it has been pointed out by others that iBookstore is going to develop a big offshore following. The iPad is making inroads abroad faster than Kindle and Apple’s iBookstore is the only book purchasing experience that comes already loaded on the iPad device.

I would never expect iBookstore to go away, but I do wonder whether it will be a significant force in ebook retailing, ever in the US and, in the long run, anywhere, unless they are willing to back off on requiring agency terms from smaller publishers. Or unless Amazon will back off on requiring wholesale to that same cohort.

4. PW reported yesterday that HarperCollins is shutting down its ebookstore. While there could be any number of factors at play, one has to assume that sales were not robust. The guess from here is that the problem of not enough traffic from consumers is going to be a generic problem for general trade publishers. You can only get traffic as a horizontal aggregator if you are a complete horizontal aggregator. iBookstore can’t do it with a fraction of the titles that Amazon and Barnes & Noble have and neither can a publisher.

With our good friends at Market Partners International, we’ve just launched a questionnaire on Survey Monkey to learn from agents what ebook deals they’re making with publishers. We’ll balance our inputs by interviewing publishers on the same subject before Connie Sayre of MPI and I deliver what we’ve learned at Digital Book World in January. If you’re an agent and you haven’t received an invitation to participate in this effort, contact Jess Johns at Idea Logical (jjohns@idealog.com) and she’ll get you included.

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In a post last week we reviewed what Sourcebook CEO Dominque Raccah did — announcing she was holding back the ebook publication of a new hardcover YA novel coming this September — and why she said she did it. Over the weekend, we posted about what we see as the four stages of ebook adoption. Today we will examine how one ebook stakeholder — the publisher — is affected by the change from a no-ebook world 10 years ago to what will be a largely- (if not mostly-) ebook world 10 years from now.

The first stage of ebook adoption, which we called “vision”, ended with the appearance of the Kindle. In that period of roughly 10 years, ebooks found early adopters who read them on PCs and handheld PDAs. The dedicated ebook devices introduced early in the vision period (Rocketbook and Softbook) went nowhere. The Sony Reader came along at the end of the vision period. It is an e-ink device quite similar in size to the Kindle 1 and 2, but without two critical components that gave Kindle an edge: a much larger body of titles to choose from and direct connectivity from the device to the source of the titles. There were other advantages Kindle had (the massive Amazon online book-buying audience) and that they presented (the built-in dictionary), but the title selection and connectivity were key.

Amazon quickly added a third advantage: the price of the books in the Kindle store went way lower than anybody expected because Amazon was willing to sell the individual titles at a loss to grow the market for the devices. The net effect was to propel ebook adoption from the vision stage to the establishment stage, which is where we are now.

Ebooks were not a priority concern to publishers at the time the Kindle came out. There had been too many false alarms. In 2000, both Arthur Andersen and Forrester Research offered projections for a multi-billion dollar ebook market which was to appear by 2005. Nothing close to that happened. In the vision stage, only the visionaries cared, inside the publishing houses and among the readers. Sales grew in fits and starts but when the Kindle came out were still well under 1% of units or dollars for every major trade publisher.

Because the dollars weren’t big, business decisions were not hard-fought and probably not well thought out. Publishers used the retail price of the prevailing print edition as their benchmark, with most setting the ebook price at nearly that level. After some turn-of-the-century feelgood talk about 50-50 splits with authors, royalties settled at about 25% of net or 15% of publisher suggested retail. Agents accepted it, at least partly because, whatever the percentage, there wasn’t enough ebook revenue at stake to be worth fighting a publisher offering an attractive print book deal.

It should be noted that the big accomplishment of the vision stage was the creation of the International Digital Publishing Forum (IDPF) and the creation of the epub standard, which drives most ebooks today with the exception of Kindle, which Amazon keeps in their own special flavor of mobipocket format, and ScrollMotion, where the content comes embedded in the company’s proprietary app.

There was very little thinking necessary about the ebook’s impact on the sales of the printed book because ebook uptake was so limited. In fact, there became a growing body of evidence that giving away the ebook would stimulate sales of the printed book. Lost in the thrill of that discovery was the likely underlying reason: people didn’t want to read ebooks so when they were given something digitally that they started reading and liked, they’d buy the printed version to finish it. Now that we’ve moved from the “vision” stage where most people don’t read on screens to the “establishment” stage when many do, we’re likely to find the stimulative effect of ebook giveaways will be diluted, if not eliminated.

Another fact that made little difference in the vision stage but matters more and more now is that ebook sales are not reported to the bestseller list. So even if ebook availability (at Amazon’s much lower price) only cannibalizes a fraction of printed book sales, it could affect a book’s bestseller chances or placement.

Since the actual profits from ebook units are higher than they are for print books if the publisher price is the same (unless the publisher has cut an unusually generous deal with the author for royalties), this decision by Sourcebooks — which is being watched and contemplated by other publishers — must be motivated by something more complex than the publisher’s profit per unit sold.

In PublishersLunch, Michael Cader reviewed this decision and seemed to suggest that it was largely about taming the Amazon beast. I seldom disagree with Cader, but I don’t buy that argument in this particular case. It would take a very foolish publisher to publicly stick their thumb in Amazon’s eye (and Dominique Raccah is not foolish). And a one-off experiment of this kind does not seem like an approach that would affect Amazon much one way or the other.

What Dominique said in her post was that she didn’t want aggressive ebook pricing to devalue the high-priced hardcover. She believes that higher-priced editions are critical for the publisher and the author to maximize revenues so she prefers to slot ebooks into a “staged release” strategy resembling what publishing has done (hardcover, trade paperback, mass-market paperback) and what Hollywood has done (theatrical release then DVD.)

Before we evaluate that idea, let’s look ahead to the further stages of ebook adoption. In the current establishment stage, we can expect the number of ebook channels and vendors to proliferate. In that environment, the resellers will do everything they can to keep prices down. They will subsidize individual product sales from device margins or anticipated longtime customer value. If Amazon is willing to swallow a hit of two or three bucks a unit with virtually no competion, what will they do now that B&N and soon Indigo also have devices? B&N has announced that they will match Amazon’s $9.99 flagship price and they are clearly charting a course of appealing to all devices (insofar as they can) with their ebook store. And B&N content will power another device competitor, Plastic Logic, in early 2010.

This period of loss-creating discounting by retailers won’t last forever, but it will last until the market stablizes, which will take several years. While that happens, the number of ebook points of purchase for the consumer will mushroom, which is good news for publishers. At the same time, propositions like Scribd and Smashwords will disrupt the in-supply-chain pricing; Scribd offers publishers 80% of retail and Smashwords pays 85%. As the devices proliferate, so will the tools to make it easy to put ebooks from those sources on the devices. If Amazon has disrupted the publishers’ hopes of controlling ebook pricing, might not Scribd and Smashwords disrupt the retailers who took away that control?

Evan Schnittman makes the point that holding back the ebook has consequences. It dilutes the impact of the publisher’s marketing efforts. It could encourage piracy. Evan’s solution is an introductory promotional price that is raised when initial demand has ebbed and he has a notion (which I don’t quite understand) of how publishers can get retailers to collaborate on that. I don’t think that’s the answer. First of all: it strikes me as backwards. The ebook price should be a dollar more than the print book for the 3 weeks or so before the print book comes out when an ebook could be available. Then it should be the same as the print book for the first couple of months so that it doesn’t disturb the bestseller list possibilities. Then it should drop sharply to reflect the lower cost (to publisher and retailer) of providing ebooks.

Now that’s a great theory I just posited; unfortunately there is no way to implement it. All retailers will try to beat each other on price and ebooks constitute a much less expensive place for them to subidize a low-price perception than print.

Sourcebooks — any publisher — wants to maximize revenue for themselves and for their author. To the extent that Sourcebooks can preserve hardcover bestseller status by holding back the ebook, it makes sense to do it. But beyond that, it doesn’t. Retailers selling at a loss are good for the revenue of publishers; it is their margin they are giving away to increase sales for everybody. Would Sourcebooks, or any publisher, refuse to make a book available to a price club or mass merchant because they’d sell at a deep discount? I’m not aware of one that ever did.

If I were Amazon, I’d enlist 10 publishers to try selling their ebook 10 days before the printed book was on sale and use the data to prove (most likely) that the digital head start propels early print sales. Seems at least as likely to me than that early or simultaneous release of the digital version reduces them.

Aside from the new ebook device and retailing entrants we can expect in the next few months, another flashpoint will arrive when publishers start to sell digital downloads themselves, which all of them will by a year or two from now. The discounts publishers offer and the price war among retailers will put publishers in an extremely difficult position. When publishers sell their books at a discount (which they will absolutely have to do), retailers will be knocking at their virtual door saying “I thought my discount was off your price. I want my discount off the price you really sell at, not the price you made up that nobody sells at!” And that’s when the publishers who hadn’t seen it earlier will know that the discount structure has to change.

In the next post on this subject, we’ll look at what other stakeholders have to look forward to as ebook adoption continues. And we’ll see another reason why the publisher-to-retailer discounts will come under pressure: authors will be demanding, and getting, a bigger piece of the ebook pie.

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