Thursday, October 06, 2011

Market analysis of the Australian book industry

The federal government's Book Industry Strategy Group (BISG) has released "Cover to cover: A market analysis of the Australian book industry". This is a 134 page report (1.3 Mbyte PDF) report prepared by Jeremy Thorpe at PWC for the Department of
Innovation, Industry, Science and Research.

The report makes the point that books are the most popular on-line product in Australia and books are in transition from physical paper goods to electronic eBooks. One problem with the current inquiry, which the report reflects is that most of those in the current "Book Industry" are unlikely to be part of future industry, so they may not be the best people to consult. The creative part of the industry, in preparation of content, will not change much, but most of the manufacturing, distribution and retail of the paper book industry is rapidly becoming redundant. Even where paper books are still made and sold, they will not be printed or sold the way paper books are now.

This report is timely as at the moment I am taking part in Senator Lundy's Digital Culture Public Sphere, looking at government policy on the on-line contribution to culture. While the games industry and digital video are well represented, I seem to be the only one here interested in "books".

Unfortunately the report is distributed in a difficult to read PDF format. Here is the table of contents and Executive Summary:

Important notice
Executive summary
  • Current and historic performance
  • Key segments
  • Key sub-sectors
  • Print books and eBooks
  • International comparison
  • Factors likely to affect the future eBook market
  • Relative performance of the Australian book industry
  • Projecting the future eBook market
  • The competitiveness of the Australian book industry
  • Production – book authoring
  • Production – book publishing
  • Production – book printing
  • Distribution
  • Point of sale
  • Opportunities
  • Opportunities and challenges of online book sales Challenges
  • Exports, investment and innovation
  • Australia’s book exports
  • Department of Innovation, Industry, Science and Research
  • Investment and innovation
  • Examples of traditional business models
  • Publishers
  • Printers
  • Booksellers
  • Distributors
  • Emerging business models 8 Business models need to address consumer purchasing drivers
  • Price and differentiation
  • Product experience
  • Familiarity and trust
  • Options for improved business models
  • Improving the distribution of books
  • Individual sector changes
  • Appendix A Terms of Reference
  • Appendix B Bibliography

Executive summary
Books are an enabler of creativity: they provide a means of connecting authors and content developers with readers, allowing for the dissemination and germination of ideas, across both space and time.

The production, distribution and sale of books in Australia – in short, the country’s book industry – is thus an important enabler of Australia’s creative economy.

The market for books, however, is on the cusp of potentially paradigmatic change. Digitisation has provided new ways for consumers to produce, purchase and read books. It is also shifting the industry’s focus away from the production of a physical good (i.e. a print book) to the production of content (i.e. the prose composed by authors).

This shift is encouraging a re-conceptualisation of what constitutes a ‘book’ and where the boundaries should be drawn (if at all) between print and electronic books and apps, websites and other means of digital content delivery.

Furthermore, the market for books is increasingly a globalised one.

Australians are buying more and more books online, as they are other retail goods. A bookstore in Sydney now has to compete with not only its rivals down the street, but also the likes of Amazon and Book Depository. These online giants are also challenging the business models of publishers, as the latter were traditionally the only source of imported books into Australia.

As a result of these factors, there is uncertainty about how Australia’s book industry will continue to contribute to the country’s creative potential. Recognising this, the Australian Government has established the Book Industry Strategy Group (BISG). Comprising of representatives from across the book industry supply chain, the BISG is tasked with developing “a comprehensive strategy for securing Australia’s place in the emerging digital book market, while making the Australian book industry more efficient and globally competitive.”

To support the BISG in achieving this goal, the Department of Innovation, Industry, Science and Research (DIISR) commissioned PwC Australia (PwC) to undertake a detailed study of the Australian book industry. The purpose of this study is to provide the BISG with a foundation of evidence about:
  • the current and historic performance of the Australian book industry and expectations about its future potential
  • the competitiveness of the book industry supply chain (taking into consideration such factors as online retailing, investment and innovation, and exports), and
  • traditional business models, how these have changed and are changing in the new digital environment, and options for improving business models in the Australian context (see Appendix A for the complete Terms of Reference).
The study is primarily informed by a comprehensive desktop review of publicly available and confidential data. It also draws on the findings of a consumer survey of 1,000 Australians, commissioned specifically for the purposes of the study. The key findings of the study are outlined below.

Industry size and potential
  • We estimate the total value of books sold in Australia during 2010 was $2.3 billion. Trade book sales are estimated to have been worth $1.5 billion and educational book sales $820 million.
  • Online book sales are estimated to have been worth $280 million in 2010, or 12 per cent of the total book market. According to a survey of 1,000 Australians, 53 per cent of books purchased online in 2010 were bought from overseas online booksellers.
  • Adjusted for inflation, the total value of books sold in Australia increased by an annual average of 1.1 per cent from 2001 to 2010. Relative to other retail industries, the Australian book industry underperformed over the past decade. It performed more favourably, however, when compared against other creative industries in Australia and overseas book industries.
  • Australians purchased approximately $35 million worth of eBooks in 2010, which is equal to 1.5 per cent of the total value of book sales for that year. The eBook market in Australia is projected to reach between $150 million and $700 million in 2014, representing between 6 per cent and 24 per cent of total estimated book sales.
Industry competitiveness and global opportunities
  • The available evidence suggests that Australian book publishers are reasonably efficient and competitive relative to their international peers. The competitiveness of Australia’s book printers is impeded by high input costs, under-utilisation of printing capacity, and the strong Australian Dollar.
  • Distribution is widely seen as impeding the competitiveness of the Australian book industry. Fragmentation and a lack of agreed standards are seen as they key problems limiting the efficiency of Australia’s book distribution system.
  • Lengthy delivery times and insufficient availability of eBook titles are seen as impeding the competitiveness of Australia’s booksellers (‘bricks and mortar’ and online).
  • The available evidence suggests that overseas online booksellers are generally able to sell books published overseas at prices (including delivery) that are cheaper than those charged by Australian online booksellers. The price competitiveness of Australian booksellers is affected by the GST, the exchange rate, wholesale book prices, and postage costs.
  • Our initial analysis suggests that an Australian business posting a book-like parcel to an Australian address would pay approximately 90 per cent more than a British business would to post the same package to the same address.
  • Opportunities from online retailing include greater market penetration, reduced costs and (for authors) more viable self-publishing options. Online retailing does have the potential, however, to marginalise elements of the book industry, increase competitive pressures on booksellers, and challenge the primary business model of trade book publishers.
  • Australia’s English-language advantage and its existing trade links with the emerging economies of China and India provide opportunities for greater exports. Publishers could aim to overcome the ‘tyranny of distance’ in market development by establishing a common promotional mechanism.
  • Existing industry structures, the novelty of the eBook market and a lack of a mechanism to encourage and enable industry collaboration are seen as key factors impeding investment and innovation in the book industry.
Business models
  • As new supply chains emerge – particularly around the delivery of print books via online overseas booksellers and eBooks – pressures will increase on traditional business models – primarily ‘bricks and mortar’ booksellers, printers and print book distributors.
  • To support the development of alternative business models and ensure the sustainability of the book industry, Australia’s book distribution system needs to be improved. This could be achieved by consolidating print distribution, establishing an industry body tasked with improving supply chain efficiency, and establishing an industry-owned eBook wholesaler.
  • Options to improve business models for publishers could involve entering into international agreements to share global rights, competing directly for global rights, and controlling costs through centralisation. Experimentation will remain a priority for book publishers.
  • Consolidation and embracing print on demand offer means of improving the competitiveness of Australia’s book printers.
  • Booksellers could seek to mitigate a strong Australia Dollar and the market presence of major overseas online booksellers by focusing on differentiation and leveraging people’s affection for books and bookstores.

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