Do readers dream of e books (atkearney, febrero 2011)
Do Readers Dreamof Electronic Books?Reshaping the publishing industry amid the e-book revolution
A mazon has the Kindle, Apple the iPad, Sony the Reader and Barnes & Noble the Nook. The race is on as an e-reader phenomenon that began in the United States is ready to spread to Europe andbeyond. More players are fighting for more customers in an ever-growingelectronic book market, and within 10 years e-books could represent upto 20 percent of the total book market. The question is: What impact wille-books have on the global publishing industry?The e-book revolution has begun, capturing market has constricted slightly, e-book sales in theconsumers’ imaginations and pocketbooks. More trade sector have grown five-fold in three years, topeople today are downloading e-books, a trend $165 million in 2009, or roughly 1.3 percent ofthat will only accelerate in the next decade and the market, according to the International Digitalundoubtedly change the publishing value chain. Publishing Forum. It could reach 20 percent pen-Core industry participants—printing companies, etration within seven years (see sidebar: What Tookdistributors and book retailers—will find it diffi- So Long for E-Books? on page 2).cult to adapt. While some existing players and U.S. e-book penetration differs by segmentnewcomers to the market— publishers, authors, and target sector. Within the non-trade sector,telecommunications operators and device manu- which includes educational, reference, technicalfacturers—will find this an ideal time to capitalize and scientific books, e-book penetration is near 30on the opportunities. percent and rising, thanks to their easy access (from In this paper, we analyze the evolution of the university workstations), search options (diction-e-book market, the main factors around its aries and research papers) and storage capacitygrowth, recent trends in the United States and (educational books and technical manuals).Europe, and the changing structure of the pub- The real revolution, however, is occurring inlishing value chain. Our goal is to answer a larger the trade sector. E-book sales increased 213 per-question: What should the publishing industry cent year-over-year from 2008 to 2009, and whileexpect and how should they prepare? penetration and market value remain low, future growth forecasts are high and growing.A World of E-Books, Finally How e-books will affect the overall publishingAfter years of false starts, e-books finally took off market is hotly debated. Some believe an overallin the United States. While the overall publishing decrease in market value is logical, since e-books DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney . 1
generally cost about half the price of paper books. effect is a limited decrease in market size and Conversely, Amazon has asserted that e-readers a significant shift in customer mix. such as the Kindle are not cannibalizing hard- The supporting devices used for e-books copy sales; it says that Kindle owners are reading offer relevant insights as well. According to the more than they would otherwise because of the Association of American Publishers, e-readers convenience of buying new books, and that account for about 40 percent of total down- loads of e-books; iPods, iPhones and mp3 players account for another 20 percent; and per- E-book sales in the trade sector sonal computers represent the remaining 40 percent. Further have grown five-fold in three analysis suggests that most downloads to PCs are not com- years, to $165 million in 2009, or parable with e-reader down- loads, as they relate mainly to roughly 1.3 percent of the market. non-trade books (such as tech- nical manuals), or products that are eventually transferred to e-readers or mobile devices.1 e-books are in fact increasing overall revenues. We have analyzed recent sales data and believe the Future Scenarios in Europe reality is somewhere in between: Between 30 and Based on the current experience in the U.S. market 40 percent of e-book sales represent incremental and taking into account lessons learned from other gains in consumption, while the remainder is sectors, we believe the e-reader market in Europe a cannibalization of paper books. The compound will be shaped by the following factors: What Took So Long for E-Books? E-books are not new—they have allows for a more enjoyable, user- and services online, such as music received considerable attention since friendly experience—such as paper- and tickets. the 1990s, when industry observers like reading. “Digital” environment. Digital projected they would replace paper Supporting devices. Digital books are easier than ever to obtain— books in a very short time. However, books can be read on e-readers, both new and old, such as through it took a decade for sales to take off. but they can also go on laptops and the digitization of out-of-copyright What happened this time around? mobile devices that have wider reach. publications from Google Books. Why are e-books suddenly popular? Consumer attitude. People are A new generation of e-readers. more accustomed than they were New devices have technology that 10 years ago to purchasing products 1 For further details on the e-reader, see “The E-Reader (R)evolution,” at www.atkearney.com.2 DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney .
Enhanced technology devices. The devices Technical proficiency. A cultural “digitiza-of the future will be colorful and fashionable while tion” will increase the number of people usingalso maintaining flexible hardware, animation and e-readers, and those who can adopt them forcompetitive prices. personal use easily. Product availability. Consumers will have We see two different patterns for how theseincreasing choices over pricing and the breadth of factors will increase the penetration of e-books,the e-book catalog. based on the country. On one side, more “digitized” Improved content. Multimedia convergence countries, similar to the United States in terms ofand the use of “apps” is destined to grow, ren- digital friendliness with a direct presence of Webdering the e-reading experience closer to that of portals such as Amazon, will adopt the new tech-printed books. nologies early. These countries include the United Editors’ attitude or resistance. Particularly in Kingdom, Germany and those in Scandinavia—non-English speaking countries, some within the places where we expect digital books to reach 20industry are resisting the move to new media. percent share in 10 years. On the other side, less Presence and power of major international digitized countries such as Italy, Spain, Greece andplayers. Amazon and Apple’s popular designs and those in Eastern Europe have gaps in one or moreearly presence in the market will give them the of the main factors, and will likely reach only 10early advantage. percent penetration by 2020 (see figure 1).Figure 1As total book sales dip, e-book sales will risePercentage of total book sales(base 2010)100% Total book market 80% 60% Paper book market 40% 20% “Digitized”countries Less “digitized” countries 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Note: Excludes non-trade books Source: A.T. Kearney analysis DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney . 3
Figure 2 E-books will usher in new activities and players in the publishing value chain Existing publishing players Distribution Publisher Printers Booksellers companies E-book activities Placement Online Electronic Publishing Digitizing Promoting on book placement distribution device Players • Publishers • Publishers • Publishers • Existing online • Telecom • Producers • Digital • Existing stores companies of electronic warehouses promoters • New players devices Minor or no modifications Major modifications in activity New activity Source: A.T. Kearney analysis in activity Overall, we expect the value of the publish- structures from Apple and Amazon — quite simi- ing market to decrease by 10 to 15 percent in the lar to what they receive for a hard copy. While next 10 years. Price cuts (in terms of e-books competition may eventually drive prices down, versus hardcover) and illegal downloads will have there is still a significant opportunity to increase limited impact, as we assume the main players— revenues and margins through a clear multimedia particularly Amazon and Apple — successfully strategy that can succeed in many different chan- battle piracy, adopt the lessons from the online nels, new and old. In light of the uncertainty and music market, and create the right thresholds for the strength of new players, publishers might pricing (see sidebar: Lessons Learned from Other want to take an asset-light approach, avoiding Digital Revolutions). big investments in IT systems to focus instead on content development and generating addi- Implications for the Old-Timers tional demand. The introduction of e-books is reshaping the pub- Perhaps the most relevant threat to publishers lishing value chain for the publishers, printing is if new technology allows authors to sell digital companies, distributors and book retailers that rights directly to online stores. The most likely have anchored the industry for years. How is the areas where this will happen are on opposite ends balance of power shifting for these existing players of the spectrum. Newcomers that are usually (see figure 2)? filtered out by traditional publishers could find Publishers. E-book publishers receive about greater ease of publishing. Meanwhile, big-name, $4 to $5 per e-book, according to recent pricing blockbuster authors could go out on their own —4 DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney .
Stephen R. Covey and Stephen King have already players will need to focus on the sub-segmentsdone this with exclusive Kindle arrangements. that are still not typically digital, such as illus- Printers. Clearly, e-book growth brings more trated books, or on countries where digitization isthreats than opportunities for printing compa- coming slowly.nies. E-book growth will drive down volume sales, Long term, they must prepare for a futureessential for countering the costs of large, expen- in which digital books become more wide-sive printing machines. In the short run, these spread. In particular, printing companies shouldLessons Learned from Other Digital RevolutionsE-books arrived late to the digit- and legally by charging for down- mid-2000s as prices and qualityization party — after music, photog- loads. In the United States, digital improved. By 2006, digital picturesraphy and video had already gone music accounted for more than accounted for 60 percent of photos;through massive changes (see figure). 40 percent of the music market, in 2010 penetration is expected toLet’s examine the lessons these mar- thanks largely to Apple’s explosively be more than 90 percent.kets can teach us. popular iPod. However, because of Video. File downloading remains Music. Digital music entered the piracy, falling prices and competition limited in this sector, which includesmainstream in 1999 with Napster, from other entertainment, the over- DVDs and VHS, with market sharewhose peer-to-peer technology all music market is nowhere near only reaching 10 percent. Technolog-allowed users to share mp3 files. what it used to be. ical constraints influencing downloadAlthough Napster was eventually Photography. Digital cameras time and quality have slowed thisforced to shut down, many other gained mass-market steam in the market, but the recent growth ofoperators have offered similar ser- mid-1990s and eventually ushered online rentals through Netflix meansvices to online customers, both ille- in a radical change in photography. this may be changing.gally using peer-to-peer technology Usage increased steeply in theFigure: What can e-books learn from other digital revolutions? Key lessons learned Possible implications for e-books • 10 years after Napster, the music market lost • Increases piracy and further reduces prices marketshare mainly due to piracy and falling prices • Improves e-book sales as online stores, e-readers Music • Digital music rose, fostered by online stores and multipurpose devices gain steam and the iPod as a fashion item • Digital photo penetration rose as camera prices • Boosts e-book market growth as e-reader prices fell and quality of pictures improved fall and device quality improves Photography • Switch is almost complete, but many still prefer • Considers offering print-on-demand services (after to print their pictures analyzing customer reasoning behind printing of digital photos) • Digital penetration in the video sector is limited • Damages e-book sales due to current technology due to technology constraints and poor quality constraints (for example, backlit screen, trouble Video of streaming reading in sunlight)Source: A.T. Kearney analysis DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney . 5
focus on making their businesses more sustain- will likely cannibalize existing sales. Lower prices able by expanding their offerings to include next- may force book retailers to provide more dis- generation, cost-effective digital printing. This counts and promotions, which would affect all is already taking place in some countries, where book shops from independent dealers to major some printers have become digital warehouses chains. The larger chains can mitigate the impact for small publishers—one-stop shops for printing, by adopting a multi-channel strategy that includes digitizing, distributing and promoting books for e-books in their online selling portfolio. publishers not large enough to do it on their own. Distribution companies. E-book proliferation What About the Newcomers? will affect distributors more than printers, yet even While facing incredible growth opportunities, the in the most aggressive scenarios, there remain sig- newer players in this e-book market face some nificant opportunities to consolidate the market threats. Let’s look at their prospects. Telecommunications companies. Telecom companies face some impact on their revenues from increased data Retail booksellers can miti- flow over their networks. Major reve- nue changes could come from offering gate the impact of e-books more services to existing customers, and by assuming the role of technol- with a multi-channel strategy ogy and data provider. A market flush that includes e-books in their with small publishers coupled with the complexity of managing and updating online sales portfolio. large product databases could make these firms excellent partners for large book retailers. Media companies. Convergence is profitably by restructuring operations, rethinking the name of the game for media companies. service offerings, reducing costs and managing the E-book devices’ expansion into different areas customer base better. The leaders can succeed along the value chain could result in downward while broadening their services and offerings integration, such as bundled offers that combine through efficiency improvements, including opti- devices, content and platforms. mized logistics networks and redesigned internal Device manufacturers. Amazon and Apple processes. New services could include new digital dominate the market for now, leaving limited printing, digital warehouses, promotion and adver- opportunities for other manufacturers in some tising on the e-market, and distributing other prod- markets. The top opportunity may be in partner- uct categories. ing with local book retailers to accelerate market Booksellers. Traditional booksellers will be entry. We expect the market to split in two ways: most affected by e-book growth. Even if we esti- branded devices that continually launch innova- mate that about 30 to 40 percent of e-book sales tive and multi-purpose products, and cheaper will lead to new revenues, the remaining amount products that use open formats that can be easily6 DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney .
personalized by major e-retailers. There is little strive for operational excellence, with a radicalspace in between for positioning, so the leaders approach to improving efficiencies and offeringwill be those that define and pursue a clear and more tailored services.profitable strategy. While e-books grow in prominence and profitability, paper books will likely continue toRock, Paper, Scissors dominate. As the two formats coexist, leadingTwo major imperatives await current industry companies will develop, distribute and sell newplayers. First, they must pursue industry develop- multimedia content and formats that account forment, exploring innovation and new business the value that hard copies can still generate.paradigms without a defensive approach. New In the years ahead, continuous improvementplayers will arrive and easily adopt innovative will not be enough as this industry prepares forconcepts to take the lead. Second, they must a step-change transformation.AuthorsMarco Santino is a partner in the operations practice. Based in the Rome office, he can be reachedat firstname.lastname@example.org.Giovanni Bonfanti is a principal in the communications and media practice. Based in the Milan office,he can be reached at email@example.com.Omar Carcano is a consultant in the Milan office. He can be reached at firstname.lastname@example.org. DO READERS DREAM OF ELECTRONIC BOOKS? | A.T Kearney . 7
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