Good Morning and thank you for inviting me to speak to you today. As you listen to each of us today you are likely to hear some common themes about the circumstances of our respective markets. But there are differences, and I hope these will be evident as we deliver our presentations. All in the publishing community whether in the US, Europe or Asia are managing through significant change and uncertainty. In truth, the only certainty we can rely on is that customers still need our information, knowledge, statistics or stories – the essential elements of publishing. However, we face uncertainty and change in the way we are compensated, the manner in which our products are distributed, our strength as curators is under assault and, if those issues are not problem enough, we compete for the attention of our customers to an extent no one could have anticipated. Some one new to the industry with only a few years experience could be forgiven for thinking that they had made a bad career move: Perhaps other careers offered more promise. On the other hand, our business does not have an exclusive on change. As I go through my presentation today I hope that you will appreciate the aspects of change we are all dealing with now, while also recognizing that segments of the publishing business have already dealt successful with massive changes to their business models during the last 10 years
In this presentation, I will provide a snap shot of the US market showing revenues and growth trends. In the second section I will discuss how segments within the publishing industry have dealt with change with particular focus on information publishing. Lastly, we will also look at some predictions and trends that I see developing over the next several years.
From a macro perspective the publishing industry is no different than any other – whether the auto industry, newspapers or broadcast media - that has existed for many decades. Seismic shifts do occur. In the case of publishing, our industry tends to see these changes at much wider intervals than others – Stone, charcoal, Gutenberg, movable type, to the Macintosh computer – but my point is all industries face changes and publishing is no different. In publishing we are experiencing changes in how and what we publish, how content is delivered to our customers, and the speed by which the market demands products including the amount of real-time updates that must occur vis-à-vis database and directory content. Technology is now so fundamental to our company’s ability to produce and compete that technologists sit at the top of many publishing businesses directing the company’s strategy.
In this context of change we also deal with macro economic problems that have made the US publishing market subdued and anxious about the future. Retrenchment is evidenced in the continued reduction of staff at publishing houses, the reduction of retail operations across the country and the severe reduction in tax collections that impact library and state education budgets. There is also an element of confusion regarding how to deal with important partners: Amazon over e-Books and pricing, students over the cost of textbooks, Google over scanning and display of content or states over educational textbook content. These issues absorb the attention of individual senior publishing executives, yet the industry as a whole must feel jealous of business such as Amazon, Apple, Google and others which depend on publisher product, don’t produce any of their own and yet post record profit gains. The size of the publishing industry in the US is not completely recorded either in revenues, impact on the economy or numbers of employees. There are statistics but in my view they are incomplete. Regardless, the publishing industry (not including newspapers, magazine and other similar content) is far smaller than many other industries than might be apparent from its prominence in culture and society. Thus the level of government attention is limited. While all states have publishing companies, the states of New York, California and Florida represent far higher concentrations of publishing companies than other states. Publishing is important to New York but the city and state does not allocate investment or development funds in its support. In short direct government involvement in publishing is fairly limited. The government does influence publishing in other ways for example: State and local governments agencies choose and buy textbooks and can materially impact the success or failure of educational publishers The government monitors mergers and acquisitions and is particularly concerned about competition in the marketplace Copyright legislation is administered by congress and is generally perceived to support the interests of larger publishing companies
The US Publishing market is traditionally divided into three segments: Information & Professional, Education and Trade. Business drivers across each are similar but each segment retains specific drivers critical to their success. In the trade segment, big authors and celebrity authors are increasingly important (and thus an emphasis) for success. In information publishing macro-economic factors exert an important influence in defining success. For example, the global financial crisis has impacted information companies selling solutions to the financial and banking community. There aren’t as many employees therefore there aren’t as many subscriptions. In education, as I mentioned earlier both federal and state governments exert significant influence over the success of education publishers either by legislation or more directly in the allocation of funds for purchases. But before I spend some time on the evolution of the US market, let’s spend a few minutes on some industry data collected by the US Book Industry Study Group. BISG publishes an annual report named Trends that captures key industry statistics. This document is available for purchase from their website.
Reported revenues look healthy – so despite all the negative emotion about the state of the business maybe things aren’t so bad after all. This data was compiled in the last quarter of 2009 and so 2010 is an estimate based on 2009. The actual 2010 revenues may not be quite this high but will not be significantly different.
Title output has continued to grow. The number of titles published by traditional publishers has risen incrementally since 2003 (215K) to 2010 (288K). This is despite public pronouncements by some of the largest trade publishers over the past few years that they were trimming their publishing lists and becoming more selective. And while I am not going to speak about the following in this presentation, more explosive growth is depicted in the non-traditional or self-published segment. Much of this volume is not monitored in the traditional supply chain and is thus not counted in revenue or distribution and other sectors. How much that matters is not clear but it is useful to understand much of this volume increase is not counted in the first chart I presented.
By segment, we see flat revenue for trade and consistent annual increases for Professional. Elhi and College. BISG is the only ‘official’ entity collecting data of this sort representing the depth and width of the industry. They do a good but incomplete job.
As you delve into the statistics you begin to realize that they appear to record trade books well but do less well collating stats from Education and Information. Directionally, the statistics remain useful across all categories; however, in this chart for example, given the large size of many professional and information companies – which I will note in a moment – I would suggest that the 22% share understates the position of information publishers.
Many education and information companies have been producing content in electronic format for many years. And in this chart, the bias towards trade is shown in the percentage of electronic titles. This 2% would be an accurate reflection of the percentage of only trade titles sold in electronic format. The percentage is likely to be much higher overall if other categories were captured more accurately.
In sales by channel many non-trade publishers are selling into the education, library and corporate markets. Those segments are virtually non existent in this chart. Similar to the sales by format chart, this chart is an accurate reflection of trade channel sales but is not a complete picture.
In contrast to general perception, growth in the business has occurred. For the past several years the business has enjoyed annual and compounded growth rates. These are forecast to continue. The growth in Adult trade has been fueled by big titles such as Harry Potter, The Secret and the Stephanie Meyer titles.
In the next chart, BISG sees significant compound increases across the board other than religion.
E-Books and the transition to eContent has been the focus of attention for all publishing executives in the trade and education space. In the industry it is generally accepted that trade eBooks still represent less than 5% of all revenues. Yet eBooks absorb a disproportional amount of attention and management time. This is because their sale raises significant issues for publishers about the future of their businesses. These issues include, pricing, ownership – whether sale or license, distribution, author contracts, international rights and many other issues. Even though digital revenues are small in comparison with legacy businesses the questions are fundamental to the potential success or failure of these businesses as future going concerns. Addressing these important issues accounts for the time spent by executive management. The International Digital Publishing Foundation in collaboration with the Association of American Publishers has been tracking eBook sales in trade for several years. In this chart from the IDPF, we see the acceleration of ebook sales by quarter for the past two years.
The transition to eContent in education is equally important to this business’s success. Their transition is running faster than trade. This eBook forecast was recently prepared by educational books wholesaler Missouri Book Company. MBS believes digital textbooks will represent over 18% of all textbook revenues by 2014. I suspect looking to 2015 the percentage would approach 35%.
As I noted before, eBook publishing which is generating a lot of attention and excitement is old news to many information and education publishers.
In their recent financial reports, Pearson highlighted the proportion of digital content sold at 31%. Other publishers such as John Wiley and Wolters Kluwer have made similar pronouncements.
In order to give some indication of the size of some of the largest US publishers, I thought it would be interesting to list the top US publishers. In doing so, it pointed out to me another inconsistency in the BISG reporting. This chart lists most of the top US publishers by revenue. The 17 listed here represent revenues of $43billion. The revenues are not universally consistent in capturing only US revenues but comparing this small number of companies against the total revenue for the industry that BISG reports – which was $41bill – convinces me that the US market is a lot bigger in total revenues than $41bill.
All of the preceding very useful statistical analysis – and it goes far deeper in the BISG Trends report – suggests that nothing is clear cut in measuring the US market. Significant confusion exists over what the true picture of revenue, segment and channel performance really is.
So how does the industry and those in it gain perspective and the benefit of experience?
Are there experiences useful to understand where the publishing business is going?
I think so, if we look at the evolution of information publishing.
If we place each publishing segment on a spectrum of experience representing their businesses transformations from print/traditional models to eContent and service delivery, we have something like this. Information companies began this process in the early 1990s when they consolidated content into silos for tax information, legal, financial, medical/health, etc. They continue to innovate by building platforms that support the content and provide a mechanism for delivery of the content and customer specific tools and solutions. They hold a five year lead on the others in terms of their capabilities and sophistication. Education publishers began their migration in early 2000’s as companies rapidly consolidated; however development in online and eContent really didn’t accelerate until 2005/6. This current rapid investment and experimentation in Education supports the forecast for eContent sales you saw from MBS on an earlier chart. Trade is much further behind the others even though they experimented with aborted eContent initiatives in CDROM (1985) and early eBooks (1995). They continue to proceed slowly and cautiously. Current levels of investment are concentrated at the top of the business and most medium and small publishers are doing nothing with respect to development and innovation with eContent.
To provide some concrete examples suggesting how education and trade may migrate their businesses to ones oriented around eContent, I like to use the example of Lexis. As an information provider, Lexis took nothing for granted when they re-examined their business towards the end of the 1990s. Lexis is a legal reference information provider. This company found themselves thinking of the boundaries of their products and in that process they no longer began to see themselves as a publishing company in the traditional sense. Lexis understood that getting closer to their customers was critical and reaching them directly became highly important to understand their own future as an information company. Advances in technology and the uses of technology by their customers forced much of this change in thinking but technology also became an enabler of some of the ideas they had for the development of the company.
Lexis’s early publishing model was very simple. They produced in print legal content for legal librarians and lawyers. These products were siloed: They were print-based and there was little integration across products. Lexis saw themselves serving a very narrow market and the company may never have interacted with an attorney.
As they redefined their business and improved the product suite, they developed a platform approach adding more content, addressing more functional needs, eliminating the distance between them and the customers and built tools that enabled integration with their clients’ workflow.
Fast forward to 2010 and Lexis has widened their chain of value for their customers. The company delivers B2B and B2C products and even facilitates their client base’s (law firms) ability to reach their consumers directly. Lexis is also experimenting with a social network for lawyers. In the Lexis model, the company offers client development tools that enable attorneys to prospect and research for new clients, practice management tools that help them budget and control their practices and now offer specific products for Corporate Councils who’s job function is different from a litigation attorney. The content provided across the Lexis platform is now deeper and the platform itself is leverageable internationally and to other markets.
Lexis built a sales force that built meaningful connections with clients and fed product development new initiatives and improvements. Lexis and other information publishers following this model have built products that support the core job functions of professionals, are essential to job performance and improve users productivity. In recent years, information publishers have also improved information retrieval by building targeted vocabularies and thesauri.
In summary, information publishers started at the same spot that educational and trade publishers find themselves today but have migrated to delivering ‘integrated solutions’. These solutions are considered ‘platforms’ for delivery and exist across a variety of information segments from news, legal, tax, etc. For Lexis, this transformation has had some very real financial consequences. Lexis and other publishers now view the markets in which they compete as significantly larger in scope. At the turn of the century for example, LexisNexis by their own definition competed in a $12billion market. By expanding their value proposition to their target market they now view see themselves competing in a $48bill market. Thus they expect to grow their business accordingly – an opportunity to improve their revenue fourfold. Additional financial benefits also result from their subscription based revenue models which make revenue more predictable and wider application of database marketing aids in the improvement of sales penetration and other performance. As information publishers look to the future they need to continue to add specialized content and maintain the connection with their customer base that results in the addition of more services and solutions supporting subscribers. Importantly, the ability to add more functionality, content and integration with workflow makes it easier to justify price increases and to keep subscription renewals at the highest levels.
As I mentioned, I see Education as rapidly moving along the spectrum of sophistication towards an integrated solutions model. They have followed a similar path to information companies in consolidating around segments – elhi and College and subject areas. The resulting scale efficiencies have improved operating margin supporting product development in digitizing content and building electronic first products. The diminished position of the college bookstore has opened up the market and education publishers now offer direct to consumer models including, for example, textbook rental programs. What you see happening in education currently is a rapid conversion of their content from print to electronic including changing their work flows to leverage technology and new production techniques. Additionally, these businesses are all building new digital first products which have been launched into the market. Lastly, the companies are acquiring technology companies and solutions providers what fill holes in the education provider’s market offering. In similar fashion to the Lexis model, Education publishers are expanding their value chain to include assessment and remediation software, school administration products and content management tools. Pearson has been particularly aggressive in this area but other publishers are chasing them. As a result, the education publisher now has a wider definition of customer and a larger market place to compete in. In the first part of this presentation I gave you an overview of the US market using some statistics provided by the Book Industry Study Group. In the second part, I provided my opinion on what we could expect from education and trade publishers over the next five years if they are to use the viable model developed by information publishers to grow their business.
Which brings me to the final segment of my presentation for today which is to present some thoughts and predictions about publishing in the digital age. Before we do that let’s remind ourselves about the publishers view of their current environment.
And let’s wonder – Are things really that bad, at least by comparison?
Versus other media, Book publishing looks like it was a winner in 2009. In the US, Newspapers, magazines and television represented an almost never-ending cascade of bad news during 2009 with revenue loss, closures and bankruptcies. Nothing improved over the balance of 2009 for book publishers and senior executives continue to be hesitant to expect much improvement in 2010. In the library and education space lower tax collections means reduced spending; however, in the case of education, the Obama administration is committed to funding new education initiatives that should help publishers. Lastly at least the industry didn’t need a bail out like General Motors – so perhaps we in the US should feel a lot better about things.
During 2009 we did not see further consolidation in the trade segment as some - including me - continue to expect. There was also far less merger and acquisition activity compared to prior years. There were a number of companies for sale but far fewer investors were prepared to take the bait. During 2009 we also saw an increase in friction between publishers, retailers and wholesalers. Problems in the physical retailing space particularly with the Borders chain hasn’t helped improve supply chain relations.
To return to my theme about Change I believe we will see the following specific changes develop in each of the three publishing segments. Hardest to predict is the information segment which will continue to invest in the content and technology products they are delivering to their clients. They will continue to integrate content and technology and offer customers more flexibility in how they gain access to these integrated products via software as a service, application providers, outsource partners and embedded content. Education publishers are following the lead of the information publishers in expanding their value chain to service more educational segments and in the process they become solutions providers. The education publishers will also increasingly offer custom content creation for consumers/students, administrators, academics and state systems. Trade will generate the most attention but change will come slowly. All major publishers are currently reevaluating their value chain and redefining what it means to be a publisher. For example, they are changing their workflows to rely more on xml. How their activities evolve will be interesting to watch. Trade publishers will also continue to experiment with direct to consumer models which will include developing subscription products.
eBooks and eContent will naturally continue to garner significant attention. With the release of the iPad we may be witnessing a broadening of the online retail options available for publishers and consumers. This is a good thing. A major development to watch during 2010 will be the introduction of Google Editions. My expectation is that this product will raise awareness of how “books in the cloud” will impact traditional ideas of ownership, rights and copyright. As e-Books and e-Content evolve they will become more recognizable as just another content format option similar to hardcover, paperback and audio. A more interesting development will be the atomization of content as publishers allow their products to be sold in chunks, segments and parts as defined by their customers. The print option will exist for a long time to come and may actually become a more functional format for consumers than it is today. So as I begin to close this presentation you may be skeptical whether trade is even capable of adopting any of the characteristics of information or education publishing. I think the elements are there for some similarities in approach.
Currently the trade business is highly fractured around topics and markets and this will consolidate as consolidation has occurred in other publishing segments. As publishers build content silos that have addressable markets they will better understand and cater to these markets and financial investment will make sense. I see publishers as augmenting their own content with content provided by others to drive repeat traffic and deeper interactions with their customers. This could include for example encyclopedia, reference, blog networks and other content. Building services that integrate and address needs in the trade segment will be a challenge and the solutions are less obvious than in information or education. The example provided by Lexis strongly suggests that a deep understanding of your customers can yield significant results – yes, even in publishing! Currently, trade publishers only have an indirect relationship with customers: This will change with positive results for both.
In summarizing my last section of this presentation I would close with the following statements: Publishing and technology will become synonymous if it isn’t already. Those publishers who are slow in adopting what are rapidly becoming standard practices in our industry – the use of xml for example - will be overtaken rapidly by more adventurous publishers. The “platform” workflow approach which is all about addressing customer needs and requirements will expand in education and see some development in trade The biggest and most innovative changes will be seen in education publishing over the next five years as new born digital content is delivered to students and we see proportional revenues exceed 30% by 2016.
(Add comments about Making Information Pay last week and theme of “no-returns”) Finally, In closing I hope I’ve provided you with an overview of the size and profile of the US market, some perspective on how the information segment is leading the education and trade segments and suggests a development path for both, and lastly, identified some predictions for the industry. Thank you.
The United States of Publishing 2010: Status and Predictions
Information Publishers Took Nothing for
Granted <ul><li>Where are the boundaries? </li></ul><ul><li>Who is the customer? </li></ul><ul><li>How to reach them? </li></ul><ul><li>What is the role of technology? </li></ul>
Critical Success Factors <ul><li>Direct sales
effort fuels product development </li></ul><ul><li>Core to basic functions: Doctors, lawyers, and business analysts, etc </li></ul><ul><li>Raise job performance </li></ul><ul><li>Improves worker productivity </li></ul><ul><li>Topic specific vocabularies and thesauri </li></ul>
From Print Monographs to Integrated
Solutions <ul><li>Development of ‘platforms’ </li></ul><ul><li>Expanding the Market </li></ul><ul><li>Subscription Revenue Model </li></ul><ul><li>Database Marketing </li></ul>
Education is next to adopt
the strategy <ul><li>Consolidation: Segment and subjects </li></ul><ul><li>Investment supported by margin growth </li></ul><ul><li>Reduce distance to customer </li></ul><ul><li>Expand value chain </li></ul><ul><li>Broader definition of ‘customer’ </li></ul>
Are things really that bad?
<ul><li>During 2009 Book Publishing a winner </li></ul><ul><li>No ‘resurrection’ during 2009 </li></ul><ul><li>Executives guarded about immediate future </li></ul><ul><li>Short to medium term problems with education and library funding </li></ul><ul><li>No industry bail-out </li></ul>
What hasn’t happened? <ul><li>No trade
consolidation </li></ul><ul><li>Far less Merger/Acquisition activity </li></ul><ul><li>Collaboration across the supply chain </li></ul><ul><li>Stable physical book retailing environment </li></ul>
Change is Coming <ul><li>Trade </li></ul><ul><li>Re-evalution
of value chain </li></ul><ul><li>Direct to consumer models </li></ul><ul><li>Publishers as retailers, retailers as publishers </li></ul><ul><li>Information </li></ul><ul><li>Software as a service </li></ul><ul><li>Application providers </li></ul><ul><li>Service outsourcers </li></ul><ul><li>Embedded content </li></ul><ul><li>Education </li></ul><ul><li>Expanded value chain </li></ul><ul><li>Solutions providers </li></ul><ul><li>Custom production </li></ul><ul><li>Content, Assessment, Remediation, Management </li></ul>
eBooks and eContent holds center
stage <ul><li>2009 ‘Year of the E-Book’ </li></ul><ul><li>Apple’s (Hardware) role in book/media content will be defining </li></ul><ul><li>Google Editions: “The Cloud” </li></ul><ul><li>Content ‘rights’ challenged: Concept of ownership </li></ul><ul><li>E-Content rather than E-Books </li></ul><ul><li>E-Content another format option </li></ul>
How Trade Evolves their Communities
<ul><li>Subject specific content silos </li></ul><ul><li>Exchange titles/imprints with other publishers </li></ul><ul><li>Publishers license ancillary and related content: Drive repeat traffic </li></ul><ul><li>Become sites within sites: Build community with consumers </li></ul><ul><li>Build other services </li></ul>
Forecasting Publishing In The Digital
Age <ul><li>Publishing and technology will become synonymous </li></ul><ul><li>Web delivery, xml based and ‘open’ social network orientation </li></ul><ul><li>Expansion of solutions based publishing </li></ul><ul><li>Education publishers rapid adoption of solutions based applications </li></ul><ul><li>Slow publishers will loose to new entrants </li></ul>