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:

Contents
Important notice
Executive summary
Glossary
INDUSTRY SIZE AND POTENTIAL

• 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

INDUSTRY COMPETITIVENESS AND GLOBAL OPPORTUNITIES

• 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

BUSINESS MODELS

• 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

Appendices

• 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.

• 
  

Australian Digital Culture On-line Policy Forum

Senator Kate Lundy is running a Digital Culture Public Sphere on-line and in Sydney, 6 October 2011. This will consider input on digital arts and industries for the National Cultural Policy discussion paper, released by Simon Crean, Australian Minister for the Arts, on 11 August 2011.

There was a Book Industry Strategy Group (BISG) set up by Senator The Hon Kim Carr, Minister for Innovation, Industry, Science and Research, in 15 February 2010. But that seems to be more about propping up the declining paper based printing industry, not mainstream digital publishing.

On the 11^th August 2011 Minister Crean released a discussion paper seeking public input on a National Cultural Policy. This consultation will help determine a 10 year strategic vision to ensure our arts, cultural and creative endeavours resonate with a 21st century, globally competitive, internationally celebrated and culturally diverse Australia.

The National Cultural Policy itself covers three major sectors:

• traditional core arts such as opera, dance, theatre, literature, music, visual arts and craft,
• creative industries such as games development, film, animation, media content, architecture, fashion, design & publishing,
• cultural heritage such as the work done by cultural institutions (regional metro & national galleries, libraries, archives & museums) and Australia’s Indigenous culture.

The Office of Senator Kate Lundy in collaboration with the Office of Minister Simon Crean is running a Digital Culture Public Sphere consultation to look specifically at the digital arts and industries as well as opportunities for cultural institutions around digitisation, public engagement and collaboration. This consultation will result in a submission that will be presented directly to the Minister as part of the broader National Cultural Policy consultation.

“The Digital Culture Public Sphere consultation is a breakthrough exercise in bringing together ideas and projects, working them through and providing a rich base of information and pathways for Australia’s digital cultural challenges and opportunities. It will provide a valuable contribution to the National Cultural Policy Consultation which is an important opportunity to examine how the Australian Government should support arts and culture in the 21st century,” said Minister Crean.

“We are laying the foundations for the broad cultural arts and industries in Australia at a time when high speed broadband will provide a platform to use our cultural collections and creative skills for new applications, education and research services. I welcome contributions from the digital arts and industries as well as cultural institutions across Australia”.

RESTful Statistical Service Powered by R

Greetings from the SyPy: Sydney Python Users group meeting at Google Sydney. Richard Volpato is talking on "Making R restfully enterprising with Django". Richard works for the Copyright Agency Limited, which has a lot of statistical data to process and is important to Australia's authors. He created a RESTful 'statistical service' powered by the statistical language R. Richard pointed out that the open source R language could be used in a similar way to statistical packages SPSS and SAS. This could be more significant to the Austrlaian publishing industry than the government's Book Industry Strategy Group (BISG) inquiry.

To prevent the large statistical analyses overloading the server, they are queued (reminding me of old fashioned batch processing). The queuing is done using RabbitMQ. Then RESTful is used to interface to the clients (simpler than SOAP). The Django web framework was used with Python to tie all the components together.

I had difficulty understanding the technical details of Richard's explanation of how the system works, as not I am a Python user (I felt he was giving the equivalent of five conference talks at once). This reminded me a little of LaTex for typesetting, but applied to statistics.

However, the issue of having to carry out complex and very precise calculations on large amounts of data which effects large payments is familiar to me from work at the Commonwealth Schools Commission to calculate billions of dollars in payments to schools.

What was exciting was Richard's broad vision of how such systems could be used for corporate and public benefit. He mentioned Google's Content Identification and Management System which allows rights owners to "Choose, in advance, what they want to happen when those videos are found. Make money from them. Get stats on them. Or block them from YouTube altogether...".

One interesting comment was about how important the payments from the Copyright Agency were to Australian authors.

Richard then talked about how a Kanban Board is used for the software development.

Richard will be at John Maindonald's Statistical Learning and Data Mining using R course at ANU in Canberra 17 to 21 January 2011.

Australian e-Book Industry Report

The Australian Government has invited submissions to the Book Industry Strategy Group (BISG) on Digital book production, by 10 December 2010. Under the BISG Terms of Reference, group has until April 2011 to "... develop 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...".

In my view, the best way to help the Australian publishing industry transition to the digital age would be with education for those in the industry. Authors and editors in particular need to know how the technology and business models work. Also key to this is the role of libraries and universities. In addition the publishing industry needs to explore links with other creative industries, particularly video game production, which has overtaken film production in terms of revenue.

So far the group has commissioned a report "Digital Technologies in Australia’s Book Industry" (Jenny Lee, July 2010). Unfortunately this 73 page report starts by saying it is already out of date, due to rapid development. However the analysis is reasonable and new data is unlikely to change the conclusions.

What is of concern is that the report, along with other BISG documents, is provided in PDF and RTF, not in a web based format. This is contrary to the advice of AGIMO, the Government's own e-publishing experts. It is of concern that the group advising the government on digital book production is not able to produce its own report in an acceptable digital publishing format. This calls into question the competence of this group to provide advice to the Australian Government.

From the BISG Terms of Reference:

The Book Industry Strategy Group will deliver a report to the Minister that tells us:

1. What digital platforms for books are available in Australia, how they work, what features they offer, and how extensively they are used.

2. How fast the market for digital delivery of books will grow in Australia and internationally, what factors might slow or hasten that growth and what is the relative position of printed books.

3. The potential size and structure of the Australian digital and printed book markets, taking into account (a) demand from individuals, libraries, government agencies, and research, educational and cultural institutions; (b) the needs of the aged and people with disabilities; and (c) the needs of regional and remote communities.

4. How the supply chain for trade, educational, scholarly, scientific and technical books has been and will be affected by digital technologies, taking into account the impact on authors, publishers, printers, wholesalers, retailers and consumers.

5. Options for encouraging efficiencies in the supply chain for printed books, integrating it with digital delivery of books on a global scale, and increasing the overall competitiveness of the Australian book industry.

6. (a) How business models are likely to change in the digital environment; (b) how this is likely to affect business models for printed books; and (c) what can be done to facilitate these changes.

7. Opportunities for the Australian book industry to participate more actively in the global marketplace for printed and digital books over the next decade, including by creating, adopting, and using new technologies.

8. How existing Commonwealth programs and activities can be refocused to support the industry’s adaptation to new technologies.

From: Digital Technologies in Australia’s Book Industry" (Jenny Lee, July 2010):

Executive Summary

1. Digital platforms in the Australian book supply chain

The key digital platforms in the Australian book supply chain are those through which end users obtain books, whether in print or electronic form.

The conventional printed book is now part of a continuum that includes:

• digital files printed in small or even single numbers;

• pay-per-view files where a single item may be purchased;

• audiobooks;

• electronic books (ebooks): digital files that reproduce the layout and typographical characteristics of printed books); and

• ‘enhanced’ ebooks in which text is linked to video, sound and interactive elements.

Books in all these forms, including print, are increasingly available through digital platforms. Retailers and libraries are the primary agents in this process, though publishers and other parties in the supply chain also play a role.

Retail platforms

Australian consumers make extensive use of online retail platforms to purchase printed books. This practice has been encouraged by:

• copyright provisions permitting individuals to parallel import books for personal use;

• the exemption of online global retailers from Australian GST; and

• the appreciation of the Australian dollar.

The dominant players in this field are global suppliers such as Amazon and The Book Depository, but Australian firms have also set up online book supply platforms, either as stand-alone enterprises or in conjunction with bricks-and-mortar stores.

Ereaders and ebooks have also become more widely available in Australia since the second half of 2009. Ereaders have black-and-white screens that simulate ink on paper. Since the global release of the Kindle ereader, through which users can purchase ebooks from Amazon’s store, several competing devices have appeared and prices have fallen sharply.

Consumers can also read ebooks on multipurpose devices such as the Apple iPad, which is also linked to an online store, and on computers and mobile phones. Google Editions, due to be launched by the end of 2010, will be a global platform offering ebooks that can be read through a computer’s web browser.

Libraries

Digital platforms supplement libraries’ traditional role by helping users to gain access to printed material. Libraries also increasingly provide books, journals and other documents in electronic form.

The growing emphasis on online services enhances the visibility of the larger public libraries, which have built up extensive collections of digital resources, but the cost implications for smaller libraries warrant further examination.

In particular, any significant shift from printed books to ebooks could impose additional costs on libraries. Because ebooks are generally made available for lending only to registered users at a particular library, libraries may need to purchase multiple licences rather than sharing resources through interlibrary loans. Costs may also be affected if territorial Digital Rights Management (DRM) restricts libraries to purchasing Australian editions.

Publishers

All sectors of the publishing industry use digital platforms to promote their publications, but they differ in the extent to which they have adopted online delivery of electronic texts.

• Digital platforms are most widely used in scholarly journal publishing, where electronic texts have virtually replaced print.

• Online delivery is also common in reference and professional publishing, especially in fields where frequent updates are required.

• In the publication of scholarly monographs, conventional print publishing (subsidised by the universities) co-exists with Print on Demand (POD) and the production of electronic texts.

• Various forms of online delivery are used in higher education publishing, both as a means of providing supplementary material and in compiling customised textbooks.

• School publishers also make use of supplementary digital materials, either delivered through password-protected areas of their websites or supplied with print textbooks on CD-ROM.

• Publishers of consumer/trade books have generally been hesitant about producing ebooks because of concerns about piracy and price, but many are now producing a selection of books in electronic form and in some cases making them available through their websites.

The Australian Publishers Association has also announced that its online TitlePage service, which supplies retailers with information on the availability of printed books, will be extended to permit customers to be supplied with ebooks through independent retailers who do not have online delivery facilities of their own.

Other parties in the book supply chain

There is a wide range of practices among authors. While some maintain a digital presence through websites, blogs and social media, others have little involvement in online media outside their agents’ and publishers’ websites.

Other parties such as distributors and printers use online platforms mainly to assist commercial transactions in printed books.

Finally, end users participate both actively and passively online as researchers, readers, reviewers and commentators on books. Their activities help to support online book retailing platforms, and also sustain a variety of special-interest sites where part of the mix is online discussion of books.

At this early stage, it is difficult to assess how far Australian readers view digital texts primarily as supplementing printed books or as substituting for them. The position warrants monitoring as trends become clearer.

2. Digital platforms in use outside Australia

The principal contrast in the availability of digital platforms for books is between the USA and the rest of the world, with Australia in the same position as Britain, Europe and other developed nations. The gap is closing as platforms previously available only in the USA are released in other markets.

The most obvious case of a technological lag is in the supply of ereaders and consumer/trade ebooks, where US availability improved markedly from November 2007 with the release of the Kindle ereader. US sales of ereaders and ebooks have risen sharply since then, though from a low base.

This development is less a result of new ebook technologies than of longer-term changes that have formed an infrastructure for consumer adoption of ebooks. Much of this infrastructure is also available elsewhere, though there are some exceptions:

• Some of the most popular online retail platforms and ebook readers, notably the Barnes & Noble Nook, are only available to US consumers.

• Specialised digital asset distributors have made rapid headway in the conversion, storage and distribution of ebooks. Similar firms are becoming active in Australia, but there has been a considerable lag.

• There is a higher level of activity in online self-publishing and micropublishing in the USA than in Australia, partly because it is difficult for Australian authors to establish a presence in the much larger US market.

It is also evident that the rapid globalisation currently taking place in the market for ebooks poses numerous unresolved questions and challenges for established practices in the global book supply chain.

3. The extent to which digital technologies are currently being used in the Australian book supply chain

Digital technologies are almost universally employed at all stages of the Australian book supply chain. To date their primary use has been in streamlining print production, but the same technologies are being adapted to supply electronic resources. The current use of digital technologies at each stage in the book supply chain is summarised below.

• Authors: Qualitative research for this report indicates that authors almost universally prepare their books as digital files, and most perform research online as well as using print. Some also make use of technologies such as digital photography, scanning and voice recognition. It is difficult to quantify the extent of authors’ digital technology use, however, because the category ‘author’ is itself elastic. Only 3798 people identified their primary occupation as ‘author’ in the 2006 census, but a 2007 study by ABS estimated that some 244,000 people, about 1% of the Australian population, were engaged in writing books. The bureau did not gather information about their technological practices.

• Agents universally use digital technologies in communication with authors and publishers, and often secure authors’ digital files against illicit copying before submitting them to publishers for consideration.

• Publishers in most sectors make extensive use of digital technologies to streamline print production. The publishing process is based on a single set of digital files, which is transformed into a print-ready book by editing, proofreading, indexing, illustration and book design, using word-processing software in the first instance and desktop publishing software in the latter stages. Publishers can also integrate these processes with the production of electronic resources, including ebooks. This integration has proceeded furthest among higher education and professional/reference publishers, which together accounted for 11.4% of industry income at the last ABS industry survey in 2003–04. The use of digital processes to integrate print and electronic production remains a work in progress in the two largest sectors of the industry, school textbook publishing (23.2% of industry income in 2003–04) and trade/consumer publishing (65.4%). While no quantitative information is available about the extent to which publishers are integrating print and electronic production, qualitative information from interviews suggests that most major firms are actively reviewing their processes to this end. Among the consumer publishing firms that are already producing print and electronic resources side-by-side are Pan Macmillan, Allen & Unwin, Lonely Planet and the University of Queensland Press. The largest global publishers also employ sophisticated publishing software to manage and monitor operations such as budgeting, scheduling and royalty payments. These technologies are mostly beyond the means of small and independent publishers.

• Book printers use computer-to-plate technology to produce printed books, and have invested extensively in digital printing technologies that allow books to be printed in small numbers, or even in single units using POD. Printers also supply a range of other digital services, including file storage and archiving.

• Book distributors have used digital technologies to streamline the supply of both print and electronic materials, especially through the use of online searching and ordering. In trade publishing, the major global publishing firms have invested heavily in computerised distribution facilities for printed books and have made these facilities available to selected independent publishers.

• Book retailers employ computerised stock management and database searching throughout their operations. The most recent ABS survey of book retailers in 2003–04 found that 75% of specialist bookshops had computerised stock control, almost 90% were recording transactions by barcode, and just under half had online ordering services.

• Libraries have invested heavily in digital technologies at every level, including providing computer and internet facilities to people without private access. Electronic resources are a large and growing component of expenditure in university libraries, where they accounted for 62% of expenditure in 2008. The public libraries’ acquisition of electronic resources is less even, with the proportion of library budgets spent on electronic resources ranging from 20% in the ACT to 3% in South Australia and NSW.

• Readers in Australia, especially women, are enthusiastic consumers of books, with average per capita purchases of about three books per annum at a cost of $60, representing by far the largest item of personal expenditure on cultural goods. Book purchasing is skewed towards higher-income households, but disadvantaged sections of the population, especially the unemployed, are overrepresented among library users. The question that remains unanswerable at this stage is how the general interest in book reading is likely to translate into demand for electronic texts. There are no official statistics on Australians’ online reading habits, but Australia now has much of the infrastructure that has underpinned the recent growth in demand for ebooks in the USA. For example, an ABS study of internet penetration in December 2009 placed the number of active users in Australia at 9.1 million, with the fastest-growing category being those with mobile access. There is scope for further research into Australians’ reading of electronic texts, especially in view of the current pace of change.

• The supply chain information infrastructure has greatly benefited from the introduction of digital technologies and internet-based communication, with the provision of online bibliographical information through Thorpe-Bowker’s Books in Print, price and availability information through the Australian Publishers Association’s TitlePage, and sales data collected by Nielsen Bookscan.

Conclusion

The changes currently occurring in the global book market are potentially epochal in nature. The rise to prominence of major players from outside the sector signals an intensification of competition in the supply of books.

Although digital technologies already play an important role in the book supply chain, to date their main role has been to support the production and distribution of printed books. In recent times, however, alternative channels have opened up for supplying books directly to readers in digital form online.

It is difficult to assess the impact of these changes in Australia, but they have the potential to affect all stages of the book supply chain. Australia is already a small player in the global book market. Any substantial migration from print to digital would compound the difficulty of achieving sufficient scale to publish printed books in Australia. On the other hand, digitisation may have a positive effect if it expands the overall market without compromising print sales.

The major parties involved in the Australian book supply chain are already engaged with digital technologies to varying degrees. They are unlikely to experience serious technological obstacles in adapting to the production and supply of electronic texts alongside printed books.

The broader process, however, should be closely monitored, as changes are occurring with uncommon speed and fundamental issues essential to establishing an orderly global market remain unresolved.