Book industry: a shift in power, and new players coming in.

It is amazing how when you go on the street and you find so many people saying that the web is going to change everything, from the way we interact with other people to even the way we read books. I do agree with the fact that digital is changing radically things, but what we need to understand is that even though devices or stakeholders appear and disappear continuously from the landscape of certain industry… is also truth that we focus too much on the details, and we do not try to understand  the underlying reasons why a certain change is fully accepted by society.

Let´s take a look for example to the publishing industry, specifically to the book industry and how it has changed. The size of the book industry is around €80 Billion, and is the 2^nd largest creative industry in the world. Publishers expect out of 10 books to loss money on 3, breakeven in 3, and with some luck make profit only on 4 of them.  Despite 78% of the books published worldwide each year come from small and independent companies (highly fragmented), 80% of the revenues of the industry are made by 5 conglomerates (high concentration of revenues).

 

Before….

The traditional way of publishing books was made of two phases: content development and content distribution.  A manuscript need to be provided by the author(s), and then reviewed, improved (grammar or tweak the story) by the publisher. Following, artwork and design were developed, sales were forecasted, marketing plan was devised, and then the books were sent to the retailers. So far everything looks great, but books that were not sold were given back to the publisher (who carried with all the losses), and books that were printed and not even sent to be distributed were usually sold at below cost selling price (more losses fully covered by the publisher).  

By taking a look to the above chart, do not get me wrong I am not a publishers` defender, but it seems that the distribution channel is getting the best slice of the pie without suffering any risk.  Another stakeholder suffering from LMS (lousy margin scheme) is the one that has provided in the first place with the raw material to make business on top of that, the author.

So wrapping up, we have:
a) The publisher:  high fixed cost, every book is a new product (nothing more than a bet). Carrying with most of the risk, but still with the power of deciding which books is going to be published.
b) Author: getting small royalties compared with the selling price at bookstores.
c) Distribution channel: getting the best, by doing less.    

…and now, the raise of the eBooks!

With the high penetration rate of the Internet (developed countries) as well as of mobile devices that make our life easier, portable, and ubiquituous (tablets, smartphone, eReaders), the way books were created and distributed have changed a bit. Let`s start from scratch. Still in order to introduce a new book to the market the content  must be developed and also must be distributed. So… at this level nothing seem to have change radically, right?... let`s go a bit deeper into the detail:

a)      Content must be developed and improved:
-     Manuscript: we need the author of course.

-          Improve the content: you may use a publisher or choose from a ton of specialized independent agents willing to help.

-          Artwork design, and marketing: publisher, or independent agents.

b)      Content distribution:

-          Bookstores (physical book): we need the traditional guys from the industry, who will try to get the profits but will not carry with the risk.

-          eBooktores (eBooks): they make a margin, they let you set the price, there is no inventory risk, everything is sent throuh the web so no logistics or trucks are required.  

It becomes clear by reading the above info that a stakeholder that was tremendously powerful before... might be “easily bypassed” nowadays if we decide to go for eBooks?. The author can simple hire different specialized independet agents for the different tasks to be carried out, increase his margins, and get rid of the publishers.  Despite being extremely simplistic in this analysis, this is happening for some authors/books. Authors such as Paulo Coelho have managed with their strong  brand names to publish books without having a strong publisher backing him up.  Having said all of this… we do not have to forget that:  eBooks have a major disadvantage: you want to read them? You need a device. The eReaders and tablets have three limitations, (1) they are not cheap, (2) my grandma and your grandpa don´t have a clue about how to use them, (3) depending on the language there are not many eBooks titles available, so the device with nothing to feed them is simply hardware.   

So wrapping up:

a) The publisher:  his only added value, is that can provide authors with higher visibility due to they can spend more money on marketing the product (visibility).

b) Author: they can go for higher margins, and have the power to decide how their books will evolve and how they are going to be commercialized.
c) Distribution channel: no logistics, no trucks, no inventory management.  To distribute eBooks we will need eBookstores. But what will happen with people that prefer printed books? Should we just forget about them?

New stakeholders and trends:

·         POD (Print On demand): for this you still do not need major logistics, you can use companies such as DHL or Fedex to distribute it for you to the final buyer.

·         eReaders & tablets providers: as said before, if you want to read an eBook, you need a device able to display that content. This is were the money is moving, and were the players have identified the opportunity to create walled garden ecosystem in which I provide you with the device, but also with access to my eCatalog of eBooks so you can buy easier, buy more, and more frequently.       

References:

www. amazon.com

www.pwc.com

http://www.bizmark.net/Articles/article21.htm

http://www.smartkpis.com/kpi/industries/publishing/

http://idpf.org/about-us/industry-statistics