Successfully moving into the age of digital books (2)

Successfully moving into the age of digital books: an international case study Michael Bhaskar Pan Macmillan

Background
Two years ago things started changing
Ebooks had been on the scene for ten years. But nothing much had happened
In 2007 UK publishing houses started putting together the beginnings of their digital teams
Digital publishing- beyond websites

Jeff Gomez (ironically) published this book. Made the case that the market had finally changed. This was it.

A small company called Sony decided to launch an e-ink device and ebook store in the US, supplied exclusively through Borders….

The Web 2.0 boom was in full flow
Investment piled in ($455.5 million into web 2.0 start ups in Q1-3 2006 alone) and the poster boys- Youtube, Facebook, Flickr etc, went from success to success
Suddenly the web was the future. Again.

Meanwhile…

We had watched while our sister industries in music, newspapers and film had been hit hard by digital:
Piracy from peer to peer networks
Unsuitable business models to a culture of low ad dollars and free delivery
The increased demands on frictionless delivery
New standards were set by web natives- Google for online, Apple for download and Amazon for retail
Despite working closely with a range of partners only 1 in 20 music downloads is paid for. The IFPI claims downloads have cost the record $3.7 billion by 2008!

It dawned on us….we were next. Better get ready.

Macmillan’s Digital Response
Pan Macmillan- UK’s fifth largest trade publisher
Part of the Macmillan Group, which includes businesses like the Nature Publishing Group, Palgrave, Macmillan Education, Macmillan Publishing Services and Macmillan Distribution
In the States we have a sister company Macmillan US which is one of the largest US trade publishers- and of course we have Pan Mac South Africa, as well as Australian and Asian companies
Our imprints include: Pan, Picador, Macmillan, Boxtree, Tor, Sidgwick & Jackson, Macmillan Children’s Books and Young Picador
We are owned by the Holtzbrinck Group, one of Germany’s largest media conglomerates.

Our owners had already decided that they liked digital… In Germany Holtzbrinck had put itself at the forefront of the new web. Buy and build. It’s HGV IT crack team were making new systems for publishers.

Mac US
More advanced market
Converted thousands of titles to ebooks
Totally revamped web presence
Moved into web development territory
Very proactive on the Google settlement- 17,000 books in the program

What about us?

Pan Mac UK
We started to experiment and think critically about how to engage with digital
Small run of producing and publishing ebooks from our website- big learning experiment
Started working with bookish social networks, Second Life, started blogging and proposing specific digital projects
Began to think about the marketing potential.
But no real market up to the end of 07…

Then we heard this was coming.

Over night the landscape changed
Sony had announced they were coming to the UK
The device would be an improvement on the US model
They would be using the open epub format for their ebooks
Content was needed for preloading on the device- we had 4 out of 20 slots
Waterstones, the UK largest dedicated book chain, would sell the device in store
They would also produce an online store where people could buy ebooks
There would be heavy promotion in the media and, crucially, physical stores
Waterstones were hungry for titles

We would have to build a publishing process for hundreds of ebooks- and fast This would involve sorting out contracts, all our business systems, assembling and keying in the metadata. Not to mention scheduling all the titles, monitoring them, over seeing the production process, the transfer of files to the third party aggregator, liaising with the retailers, Q&A each title and then sending it back for adjustments. In essence we had to build the whole publishing process in miniature. X 600 In the end we launched with 300 titles- more than virtually any other trade publisher. We were the top selling publisher at launch, in volume and revenue, and in doing so had built a robust ebook publishing process.

Our ebooks
600 by the end of this year
Including all our best known names like Wilbur Smith, Jeffrey Archer and Alice Sebold
Spread across all our imprints, frontlist and backlist- our strategy is to focus on frontlist and cherry pick core stock backlist
Secondary focus on genres that perform well as ebooks
We are now publishing frontlist titles in parallel with print
Strong growth in revenue
We sell some DRM free ebooks

And not just ebooks…

Enhanced ebooks- like DVDs New models for content

New ways of marketing

And ways of talking to our peers.

International Markets: What’s Going On?

The biggest…
US is the world leader in ebooks
This is driven by:
The size of the market
The availability, penetration and attitude to technology
Ready finance
Strong ecosystem of retail, publishing and technology creates virtuous circle

International Digital Publishing Forum figures suggest we are at the beginning of massive growth (upwards of $20 million per quarter in 09). These figures are from just fifteen publishers and excludes the massive library and mobile reading markets- the real numbers are much higher. Upwards of 15-20% of total sales are coming from the Kindle on ebook titles.

Kindle is a Big Factor
Amazon Kindle offers wireless download
All books priced at $9.99
Endorsed by Oprah
Retails at $359
Hundreds of thousands of titles
Sold over 500,000 units- although no one knows the exact figure

New Potential
US market potentially worth billions
Smartphones creating new reading models
Google Book Search now a very major player, driving sales to publishers worth millions

How about us?

UK- small, but growing
Drivers of growth have been the Waterstone’s/Sony partnership and library aggregators in academic- Waterstones currently have 14k titles
Borders are also moving and have been selling the iLiad
W.H. Smith now selling ebooks
All universities are hooked into ebook aggregators

Some hard figures
Publishers Association say total UK download market worth £85 million in 2008- 3% of the market
Audio downloads very significant
This represented 27.4% growth on the 2007 figure, but 127% growth in the general consumer category
Academic/professional the biggest element
Sales of the Sony Reader “exceeded expectations”; under 100k (300k worldwide)

Some lessons:
What sells in print also sells in digital
Merchandising and positioning on the retailer front page is key
It is worth getting in on small and niche channels early and building a system - they will grow, and when they do it will be fast
Demographics are from across the age range, but many people reading ebooks are in their fifties. They have disposable incomes, lots of books and want something for travel
Getting a title good publicity, and then hooking this into the ebook is a key part of selling them. They work in virtuous, and vicious, cycles

Are we here yet? Not quite.

The iPod Moment Myth
Not going to be one moment
Kindle, Apple will make a big difference
Mobile and gaming platforms coming in
New colour, touch and flex technologies

The iPhone and DS matter
37m iPhones and iPod touches have been sold, 22m of them iPhones (in 21 months)
UK market is 5% of this; US is 45% with 18-44 males making 70% of the market
51% of US smartphone web traffic and 18% globally is from the iPhone
70% of users have downloaded an app with over 1 billion apps being downloaded in 10 months
There are 41, 556 apps in the App Store- 78% of them (32,326) are paid for- games are the biggest category, books the fastest growing
The DS has sold over 100m units in five years, while the Wii has sold 45m units in 3 years
The new DSi has wireless web access and an application platform

These guys?

Sony Enters France and Germany
As with Waterstones, Sony has partnered with leading retailers
FNAC in France, Libre and Thalia in Germany
Kindle- wireless hold up in UK and Europe, phone apps could be a way forward
German publishers banding together for the Libreka project

While out here, it’s a very different story…

Japanese Keitai fiction
New form of mobile fiction pioneered by teenagers
Now a market worth hundreds of millions - has saved Japanese publishers
Keitai writing template site Maho iLand gets 3.5 billion views per month
Keitai novel “Love Sky” has been downloaded and bought over 12 million times. The young author-Mika- is now a millionaire

China has seen a similar phenomenon but with online novels. Commercial publishing houses, as in Japan, are now repackaging these as print titles with huge sales volumes. “ Novel” is the seventh most searched for term on Chinese search engine baidu.cn. Perhaps in Asian societies there is less attachment to the book as an object?

So…the world is changing.

And our models are changing with it.

Not So Fast
At the minute ebooks replicate print
Same publishers, agents and writers
Same content
Same retailers
Same internal processes
Same price
Same sales pattern

But things are shifting nonetheless… Some emerging models and trends we are thinking about:

Content is changing
The model of DVDs is coming in to play- many publishers looking at adding value
Bundling and chunking mean that text will not be tied to the length and format of a book
Multimedia elements will start to come into play
There will be new interactions between print and digital- like O’Reilly

Producers are changing
Opens up new long tail, crowd sourced and networked opportunities for content creation
Publishers have to redefine their intermediary role
Retailer consolidation with the big players on one side
Grass roots distribution on the other

Marketing is changing
From broadcast to conversation
Viral possibilities opens up a new frontier
Social media tools are free
But are “owned” by their users
Allows consumers to kick back as well as appreciate

Readers are changing
Want frictionless delivery
Do not like industry measures like DRM software
Are increasingly expecting things for free
Are talking to each other online
Expect digital to be cheap and easy

Platforms are changing
Audio downloads are growing at a huge rate
Mobile is the new big platform for digital publishing
Games platforms like the Nintendo DS have huge promise
Many new websites allow for “social publishing”
Distribution could be either download or online access

Pricing is…??
Currently contentious
Generally pegged to print price
Retailers want to exert downward pressure to drive sales
Publishers don’t want to fall off a cliff
Consumers of books are willing to pay
Although pricing experiments confirm there is a strong correlation between lowering price and increasing sales

IP is…??
Piracy danger only just emerging
Books available on bit torrents
Document hosting websites like Scribd and Wattpad already displaying many novels
Takedown notices more frequent
But we don’t want to alienate readers

The killer device is…??

The view from where we are: There has been a lot of progress Systems set up, programmes in place, revenues coming in Experimenting and learning fast has been key Having an open mind to new things helps As does a rigorous approach to the details

Conclusion + = … ?

The End. Thank you! Michael Bhaskar http://thedigitalist.net / www.10membranes.com

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