Do Readers Dream of Electronic Books?

Reading Digital: Where Are We? Where Are We Going?Do Readers Dream of Electronic Books?Presentation for the IfBookThen 2012 ConferenceMilan, February 2nd 2012Giovanni Bonfanti (A.T. Kearney), Edoardo Bottai (A.T. Kearney), Marco Ferrario (BookRepublic)

PrefaceObjective ■ Provide an overview of digital publishing in Europe, Asia, South America and North America, highlighting the primary differences and emerging trendsApproach ■ We’ve surveyed countries that cover 80% of the global book market ■ All the numbers presented for 2011 derive from: •  40 interviews with key players (publishers, retailers…) from major markets1 •  Analysis of public data from public sources / press search ■ This is an ongoing research project that debuted at IfBookThen 2011 and was presented in Frankfurt (Publisher’s launch); London (Futurebook) and New York (DBW)All the analysis presented in these pages are a summary of a larger researchthat was developed as a joint effort of A.T. Kearney and Bookrepublic1.  EU: UK, France, Spain, Germany, Italy, Denmark, Sweden, Norway, Netherlands; North America: US, Canada; South America: Brazil, Mexico, Argentina; Asia: Japan, India, China, Australia, South Korea A.T. Kearney 2

eBook market size is ~€2.4 Bn – Europe is third largest regioneBook Trade Market Size Regional eBook Market(mln€; 2011E) Share by Country 1900-2000 • U.S.: 98% • Canada: 2% • UK: 52% • Germany: 28% • South Korea: 45% • France: 7% • Japan: 25% • Italy: 3% • China: 25% • Spain: <2% • Other: ~5% • Other: ~8% • Brazil: 40% - 50% 250-270 170-180 1 North America South Asia EU America eBook penetration 17%-18% <0.1% 2.2%- 2.4% 1%-1.1%Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney A.T. Kearney 3

Key market drivers vary by countryeBook Market Penetration 7%(%; 2011E) <1.5% 0.9% UK Japan 20% 0.5% Germany 14-15% France 0.5% <0.5% U.S. Italy <1% Spain South In US about 33% Korea of device owners China have eReader + tabletXx% 0.9% <0.1% E-book penetration Selection of countries Brazil Australia analyzedDrivers as of 2011 USA Brazil Australia Japan China UK Germany France Italy Spain Availability of titles in local 2,700,000 8,000 400,000 50,000 270,000 400,000 80,000 60,000 15,000 15,000 language Tablet Penetration 40 0.5 0.8 2 7 2.7 2.65 1.8 0.7 0.6 (mln; %) 20% <0.5% 4% 1.6% 0.5% 4.4% 3.2% 2.9% 1.2% 1.8% eReader 40 7.8 3.0 0.5 0.1 0.14 0.4 Penetration n.a. n.a 20% <0.1% 0.6% 4.9% 0.6% 0.2% 0.25% 0.8% (mln; %) A.T. Kearney 4Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Harris Interactive Poll, Pew Internet

New release eBook price is ~10€ with variation by country Average eBook price for new releases1 (€ - average from interviews with publishers / book retailers ) 15,0 14,0   Differences in eBook 13,0 2,5 price derive from factors 2,1 12,0 like: VAT 2,2 11,0 -  Taxation (VAT) 10,9 2,4 -  Difference in pricing of Av. 9.98 1,7 1,9 (net VAT) 9,3 “correspondent” print book 7,5 -  Legislation (ex. max discount of print book) 12,5 11,9 Price net VAT 10,8 -  Agency model 9,2 9,6 9,1 9,3 -  Currency fluctuations 7,5   In each country we identified several cases of eBook prices that differ significantly from average UK Ger France Spain Sweden Italy Brazil U.S.1 Average eBook prices of new Hardcover releases A.T. Kearney 5Source: interviews with publishers / bookretailers; A.T. Kearney / Bookrepublic analysis

“Traditional” factors create growth patternsExpected penetration of eBooks after 5 years from adoption(% of trade book sales) 20% 20% U.S. 2011   eBook penetration grows 18% 16%-17% with varying speeds depending on: 16% Early Adopters 14% •  UK •  Technology Penetration •  Canada “proficiency”: •  South Korea –  Internet penetration 12% •  … –  Mobile penetration 10% –  eReader/ tablet U.K. 2011 penetration Second 8% Wave –  eCommerce 6%-7% •  Germany penetration 6% •  France •  Italy •  … •  eBook market 4% readiness: 2% Latecomers –  eBook title availability Ger. 2011 –  eBook price strategy 0.3% 1%-2% •  India 0.1% 0% 0.1% •  Latin America –  Taxation (VAT) •  … 1 2 3 4 5 –  Big player presence Years of adoptionSource: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis A.T. Kearney 6

“Non traditional” drivers accelerate growthTechnological drivers The new “Digital Wheel” value chain of theof change Publishing Industry1 Self publishing & digital publishing programs 52 D.M.D. 4 Customer Digital Marketing & reading behavior D.A.S. Distribution 13 Digital Asset Asset Value 3 Sourcing Customer behavior profiling4 Ratings, reviews (Metadata) 25 Social reading D.A.M. and networking Digital Asset Management (Metadata sharing) A.T. Kearney 7

How the drivers of change could impact the size and structure of the book market? – The U.S. case U.S. AAP trade book market U.S. AAP trade book market ($mln) (#) 4,1% -‐5,4% 222 3185 213E-‐book 266 3012 (8%) 28 649 +144% (13%) 72 +158% (22%) (32%) E-‐book Paper book 2,008 (92%) 185 1,695 -19% (87%) -19% (78%) 150 Paper (68%) book jan - aug jan - aug jan - aug jan - aug 2010 2011 2010 2011 Source: AAP, Analysis A.T. Kearney A.T. Kearney 8

How the drivers of change could impact the size and structure of the book market? – The UK case UK trade book market UK trade book market (£mln) (#) +0,5% +5,2% 411 144 145 391 28 1 7 E-‐book 8 +263% E-‐book (1%) +560% (7%) (5%) (2%) Paper Paper 143 book 383 384 +0,1% book 139 -3,4% (99%) (95%) (98%) (93%) jan - jun jan - jun jan - jun jan - jun 2010 2011 2010 2011 Source: The Publishers AssociaDon Ltd, Analysis A.T. Kearney A.T. Kearney 9

Self-published ebooks are experiencing success in the U.S.reducing publisher turnover by $ 70mln - $ 120mln% of selfpublished titles in Kindle Store Self-publishing is an established trend driven by the growth of the ebooktop 100 paid ebooks in U.S. market: 26% 26% •  in 2010, there was almost no selfpublished titles in Amazon top 100 paid 22% ebooks 21% 20% 18% •  in 2011, in volume terms self-published 17% books counts for 3%-5% of the total ebook market 14% 14% 13% •  US self-publishing market size: $ 20mln - $ 30mln •  Resulting revenue loss for publishers is $ 70mln - $ 120mln in 20111 Apr 2011 May Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 nov 2011 dic 2011 gen 2012 2011 Average price for self published books is 1,5$ -2 $(range between 0,99$ and 4,99$)1 Assuming 10$ per p-book as turnover for publishers A.T. Kearney 10Source: Kindle Store Bestsellers archive, A.T. Kearney - BookRepublic analysis

A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningfulresults and long-term transformative advantage to clients.Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations acrossall major industries and sectors. A.T. Kearney’s offices are located in major business centers in 38 countries.Americas Atlanta Chicago Detroit Mexico City San Francisco Toronto Calgary Dallas Houston New York São Paolo Washington, D.C.Asia Pacific Bangkok Hong Kong Kuala Lumpur Mumbai Seoul Singapore Tokyo Beijing Jakarta Melbourne New Delhi Shanghai SydneyEurope Amsterdam Budapest Helsinki Ljubljana Moscow Prague Vienna Berlin Copenhagen Istanbul London Munich Rome Warsaw Brussels Düsseldorf Kiev Madrid Oslo Stockholm Zurich Bucharest Frankfurt Lisbon Milan Paris StuttgartMiddle East Abu Dhabi Johannesburg Riyadhand Africa Dubai Manama A.T. Kearney 11

About BookRepublic•  BookRepublic is one of the leading Italian eBook stores and the front end of a system including: •  eBook distribution •  Readers community •  Metadata management •  Customer behavior profiling.•  We organize IFBOOKTHEN, an international conference on digital publishing in Milan.•  40K is a native digital imprint specialized in “novelettes” and “short essays” translated in 5 languages and sold worldwide (90% of our sales coming from US). 40K is also the digital partner of a leading national newspaper in a “long articles” program.•  http://www.bookrepublic.it•  http://www.ifbookthen.com•  http://www.zazie.it A.T. Kearney 12

ContactsGiovanni Bonfanti Marco FerrarioPrincipal CEO / CofounderA.T. Kearney Bookrepublicgiovanni.bonfanti@atkearney.com marco.ferrario@digitpub.it+39 02 76295 225 +39 335 604 6861Edoardo Bottai Marco GhezziManager COO / CofounderA.T. Kearney Bookrepublicedoardo.bottai@atkearney.com marcog@bookrepublic.it+39 02 76295 476 +39 348 22 44 836 A.T. Kearney 13

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Do Readers Dream of Electronic Books?

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Do Readers Dream of Electronic Books? — Presentation Transcript