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Reading Digital: Where Are We? Where Are We Going?


Do Readers Dream of Electronic Books?
e-book market
Milan, March 2013




Giovanni Bonfanti (A.T. Kearney), Edoardo Bottai (A.T. Kearney), Marco Ferrario (BookRepublic)
Preface

Objective

 ■ Provide an overview of digital publishing in Europe, Asia, South America and
   North America, highlighting the primary differences and emerging trends

Approach
 ■We surveyed countries that cover 80% of the global book market
 ■All numbers presented for 2013 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, London and New York


All the analysis presented in these pages are a summary of a larger research
that was developed as a joint effort of A.T. Kearney and Bookrepublic

1. 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 ~€3.5 Bn – Europe is second largest
region, driven by UK impressive growth
eBook Trade Market Size                                                                                                                            Regional eBook Market
                                                                                                                                                     Share by Country
(mln€; 2011; 2012E)
                             +32%
                                                         • U.S.: 95%
                                     2500                • Canada: 5%
                                                                                              2011
                                                                                              2012                                                 • UK: 64%
                                                                                                                                                   • Germany: 22%
                       1900                                                                                                                        • France: 4%
                                                                                                     • South Korea: 32%
                                                                                                                                                   • Italy: 3%
                                                                                                     • Japan: 32%
                                                                                                                                                   • Spain: 3%
                                                                                                     • China: 23%
                                                                                                                                                   • Other: ~4%
                                                                                                     • India: 9%
                                                                                                     • Other: ~4%
                                                                                                                                               +200%
                                                              • Brazil: 40% - 50%                         +69%
                                                                                                                                                       540
                                                                                                                  440
                                                                                                     260
                                                                                                                                           180
                                                                1             5

                      North America                         South America                                  Asia                                Europe
          eBook
        penetration          23-24%                                 <0.1%                            3.6%-3.9%                             3.4%-3.6%

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis               A.T. Kearney   3
Key market figures by country in 2012 - value
                                                                              14.0%
eBook Market Penetration
(%; 2012E, value)
                                                                                                          3.5%
                                                                                 UK
                                                                       1.2%
                                                                                                                                                                        2.8%
                                                                                                       Germany
            23.9%                                                    France
                                                                    1.5%                                                                                                Japan
                                                                                      1.5%
                                                                                                                                                             2.6%
                                                                   Spain
                                                                                      Italy
             U.S.                                                                                                                                           China
                                                                                                                      <1%


                                                                                                                     India          1.7%
        E-book penetration                                             <1%
        on total book market
       Selection of countries                                         Brazil                                                    Australia
       analyzed

2012                            USA           Brazil      Australia        Japan        China          India         UK        Germany          France          Italy          Spain

 Availability of titles      2,000,000
                            (100.000 self     11,000       600,000         70,000      300,000          n.a.      1,750,000      120,000        100,000        25,000          28,000
 in local language            published)
 Tablet Penetration              60               -           3.8           5.0           12                         5.9           3.2            5.4            2.7            1.6
 (mln; %)                       25%           <0.5%         16.8%          4.0%          0.9%          <1%          9.5%          3.9%           8.7%           4.5%           3.4%
 eReader                         48                                         1.0           9.0                        3.8           1.5            0.45           0.4            0.9
 penetration                                    n.a.          n.a
                                20%                                        0.8%          0.7%           n.a         4.9%          1.8%           0.7%           0.6%           1.9%
 (mln; %)
 eBook buyer
                                 58              15            4             8            n.a           25            10            8              2             n.a.            4
 (mln)
Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Bowker, Harris Interactive Kearney
                                                                                                                                                                        A.T. Poll, Pew   4
Internet
Key market figures by country in 2012 - volume
eBook Market Penetration (trade)
(%; 2012E, volume)                                                              20.0%
                                                                                                      1.0%


                                                                                                  Sweden                      4.9%

       34,0%                                                                     UK
                                                                     1.7%                                                                                                 5,5%
                                                                                                                          Germany
                                                                  France
                                                                 2.5%                                                                                                   Japan
                                                                                               2.5%

        U.S.
                                                                Spain
                                                                                              Italy

Xx%
        E-book penetration
        (volume)


       Selection of countries
       analyzed


 2012                                USA                Japan             Sweden                 UK              Germany               France               Italy              Spain

  Trade                               34%                5.5%                1.0%                20%                4.9%                1.7%                2.5%                2.1%


  Self Publishing                     2%                <0.1%               <0.1%                 n.a               <0.1%                n.a               <0.1%               <0.1%

                                                                                                                                                                           A.T. Kearney    5
Source: 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
So far, the main European markets’ growth has outpaced
forecasted ones…
Expected penetration of eBooks after 5 years from adoption                                        This year Forecast
(% of trade book sales)                                                                           Last year Forecast
              22%                               20.4%                 20%
              20%                                                     18%
              18%                                                     16%
              16%                      14.0%                          14%                  +0.8
              14%
                                                                      12%                  p.p.
              12%       +4.0
                                                                      10%                                     8.1%
              10%       p.p.
                                                                      8%
              8%                       10.0%
              6%                                                      6%
                                                                                   3.5%
Penetration




                                                        Penetration
              4%                                                      4%
              2%                                                      2%
              0%                                                                   2.7%
                                                                      0%

              20%
                    1      2    2011
                                  3    2012
                                         4        5
                                                                      20%
                                                                            2011   2012
              18%                                                     18%
              16%                                                     16%
              14%                                                     14%
              12%                        +0.5                         12%                 +0.9
              10%                        p.p.                         10%
                                                                                          p.p.
              8%                                                                                              7.2%
                                                6.0%                  8%
              6%                                                      6%
              4%                                                      4%
                                1.5%                                               1.5%
              2%                                                      2%
              0%                                                      0%
                                1.0%                                               0.6%
                                 3                                                   3
                         2011   2012                                        2011   2012              A.T. Kearney    6
…and in volume terms the relevance of ebook will be even
higher in the coming years
Expected penetration of eBooks volume
(% of trade book sales)                                                                                            Comments

                                                                                            59%
                                                                                                        US
                                                                                                                   • In 2014, U.S. market will
60%
                                                                                                                     experienced the overtake of
                                                              53%                                                    the digital quantities: books
50%
                                                                                                                     will sold more digital than
                                 46%                                                                                 paper
                                                                                                        UK
40%                                                                                                                • UK market will continue to be
       36%                                                                                  41%                      the “best proxy” of the U.S.
                                                                                                                     market, and the countries to
                                                              35%
30%                                                                                                                  be analyzed to capture “what’s
       20%                                                                                                           next” in the European market
                                 29%
                                                                                            20%
20%
                                                                                                    Average main
                                                              13%                                   European       • In 2015, In Europe, 1 book out
                                                                                                    countries        of 5 will be digital
10%                               8%                                                                • Germany
                                                                                                    • France
       4%                                                                                           • Italy
                                                                                                    • Spain
  0%                                                                                                • Sweden

   2012                         2013                          2014                         2015


Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis                                 A.T. Kearney   7
European average price has declined over the last three years,
this in fact will erode margins in the future
European Average Price
(€ - average from interviews with publishers / book retailers )

10 – 12 €                                              Price drivers
 12
                                                       • Drivers that could raise the price:
                                                         – Consumer perception:
 10                                                       - Price of “correspondent” print book
                                                         – Law:
                                                           - Fixed price law
  8
                                             7-8€          - Commissionaire Model adoption

  6
                                     6-7€              • Drivers that could push down the
                                                         price:
                                                         – Consumer perception
  4                                                        - Special deals (i.e. Amazon)
                                                           - Price of other “mobile
  2
                                                             entertainments” (apps, MP3…)
                                                           - Self publishing
                                                           - Revenue model (subscription
  0
                                              0,2-1€         model; pay per read…)
 2010                             2012                   – Law:
                                                           - VAT reduction
                                                           - Retail model adoption

                                                                                      A.T. Kearney   8
The challenge is to look beyond the trade ebook market

Where we are…                                             …New areas to be explored

           Paid ebook
                                                  Collaborate with other media players to
                                                  maximize return of investments in
           • Growing in quantities but eroding    technology and better seize content
             margins
           • Should be seen as a stepping stone
             to opening up new opportunities
                                                  Address and seize the power of a larger
           • …is not just content                 customer base: readers are in fact much
                                                  more than only trade (self publishing, free
                                                  and piracy)

                                                  Enhance content and service leveraging
                                                  on new technologies and opportunities
                                                  driven by data




How to capture opportunities from these new areas?

Source: A.T. Kearney / BookRepublic                                                      A.T. Kearney   9
To catch these business opportunities publishing players should
be able to “play” with three pillars of digital
Publishing is going to be…

                  • Enable further readers’ engagement
                  • Evolve the reading experience in a social experience
  Technology
                  • Enable multi-level reading paths
                  • Enable new ways to get the content


                  • Become “retailers“: know and profile your own customer
                  • Track market reactions in real time
     Data
                  • Treat literature and stories as big-data
                  • Measure any kind of interaction between content and user




   Content        • “Publish stuff that matters” (Tim O'Reilly)


                                                                               A.T. Kearney   10
A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful
results and long-term transformative advantage to clients.
Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across
all 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        Sydney

Europe         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           Stuttgart

Middle East    Abu Dhabi   Johannesburg   Riyadh
and Africa     Dubai       Manama




                                                                                                              A.T. Kearney   11
Bookrepublic is a leading Italian player within     IFBOOKTHEN is an international network of
the digital publishing industry with an             local events taking place in Milan, Stockholm,
integrated system including:                        Madrid and Barcelona, providing trends and
                                                    top highlights about the digital publishing
The first Italian Independent ebookstore with
                                                    business.
a growing customer base who appreciates high
quality editorial contents. The ongoing              The local formats grant the upcome of
interaction with the reader and the creation of a   specific issues related to any single market; the
partecipatory meeting place for readers,            discussion inside the network allows a great
publishers, booksellers and authors enhanced by     exchange of different experiences.
original reading paths, contribute to his
distinctive positioning in the Italian market.
An advanced ebook distribution platform for
small and medium sized publishing houses with
the most advanced online tools and services.
Our positioning:                                    Visit us:
                                                     http://www.bookrepublic.it
                    Original                         https://exlibris.bookrepublic.it/
                    Contents
                                                     http://www.ifbookthen.com

           Ongoing
                               Unique
          Interaction
                               Care for
              with
                               Partners
            Readers




                                                                                                    A.T. Kearney   12
Contacts


Giovanni Bonfanti                 Marco Ferrario
Principal                         CEO / Cofounder
A.T. Kearney                      Bookrepublic

giovanni.bonfanti@atkearney.com   marco.ferrario@digitpub.it
+39 02 76295 225                  +39 335 604 6861




Edoardo Bottai                    Marco Ghezzi
Manager                           COO / Cofounder
A.T. Kearney                      Bookrepublic

edoardo.bottai@atkearney.com      marcog@bookrepublic.it
+39 02 76295 476                  +39 348 22 44 836


                                                               A.T. Kearney   13
A.T. Kearney - Bookrepublic: Do Readers Dream of Electronic Books?

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A.T. Kearney - Bookrepublic: Do Readers Dream of Electronic Books?

  • 1. Reading Digital: Where Are We? Where Are We Going? Do Readers Dream of Electronic Books? e-book market Milan, March 2013 Giovanni Bonfanti (A.T. Kearney), Edoardo Bottai (A.T. Kearney), Marco Ferrario (BookRepublic)
  • 2. Preface Objective ■ Provide an overview of digital publishing in Europe, Asia, South America and North America, highlighting the primary differences and emerging trends Approach ■We surveyed countries that cover 80% of the global book market ■All numbers presented for 2013 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, London and New York All the analysis presented in these pages are a summary of a larger research that was developed as a joint effort of A.T. Kearney and Bookrepublic 1. 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
  • 3. eBook market size is ~€3.5 Bn – Europe is second largest region, driven by UK impressive growth eBook Trade Market Size Regional eBook Market Share by Country (mln€; 2011; 2012E) +32% • U.S.: 95% 2500 • Canada: 5% 2011 2012 • UK: 64% • Germany: 22% 1900 • France: 4% • South Korea: 32% • Italy: 3% • Japan: 32% • Spain: 3% • China: 23% • Other: ~4% • India: 9% • Other: ~4% +200% • Brazil: 40% - 50% +69% 540 440 260 180 1 5 North America South America Asia Europe eBook penetration 23-24% <0.1% 3.6%-3.9% 3.4%-3.6% Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis A.T. Kearney 3
  • 4. Key market figures by country in 2012 - value 14.0% eBook Market Penetration (%; 2012E, value) 3.5% UK 1.2% 2.8% Germany 23.9% France 1.5% Japan 1.5% 2.6% Spain Italy U.S. China <1% India 1.7% E-book penetration <1% on total book market Selection of countries Brazil Australia analyzed 2012 USA Brazil Australia Japan China India UK Germany France Italy Spain Availability of titles 2,000,000 (100.000 self 11,000 600,000 70,000 300,000 n.a. 1,750,000 120,000 100,000 25,000 28,000 in local language published) Tablet Penetration 60 - 3.8 5.0 12 5.9 3.2 5.4 2.7 1.6 (mln; %) 25% <0.5% 16.8% 4.0% 0.9% <1% 9.5% 3.9% 8.7% 4.5% 3.4% eReader 48 1.0 9.0 3.8 1.5 0.45 0.4 0.9 penetration n.a. n.a 20% 0.8% 0.7% n.a 4.9% 1.8% 0.7% 0.6% 1.9% (mln; %) eBook buyer 58 15 4 8 n.a 25 10 8 2 n.a. 4 (mln) Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Bowker, Harris Interactive Kearney A.T. Poll, Pew 4 Internet
  • 5. Key market figures by country in 2012 - volume eBook Market Penetration (trade) (%; 2012E, volume) 20.0% 1.0% Sweden 4.9% 34,0% UK 1.7% 5,5% Germany France 2.5% Japan 2.5% U.S. Spain Italy Xx% E-book penetration (volume) Selection of countries analyzed 2012 USA Japan Sweden UK Germany France Italy Spain Trade 34% 5.5% 1.0% 20% 4.9% 1.7% 2.5% 2.1% Self Publishing 2% <0.1% <0.1% n.a <0.1% n.a <0.1% <0.1% A.T. Kearney 5 Source: 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
  • 6. So far, the main European markets’ growth has outpaced forecasted ones… Expected penetration of eBooks after 5 years from adoption This year Forecast (% of trade book sales) Last year Forecast 22% 20.4% 20% 20% 18% 18% 16% 16% 14.0% 14% +0.8 14% 12% p.p. 12% +4.0 10% 8.1% 10% p.p. 8% 8% 10.0% 6% 6% 3.5% Penetration Penetration 4% 4% 2% 2% 0% 2.7% 0% 20% 1 2 2011 3 2012 4 5 20% 2011 2012 18% 18% 16% 16% 14% 14% 12% +0.5 12% +0.9 10% p.p. 10% p.p. 8% 7.2% 6.0% 8% 6% 6% 4% 4% 1.5% 1.5% 2% 2% 0% 0% 1.0% 0.6% 3 3 2011 2012 2011 2012 A.T. Kearney 6
  • 7. …and in volume terms the relevance of ebook will be even higher in the coming years Expected penetration of eBooks volume (% of trade book sales) Comments 59% US • In 2014, U.S. market will 60% experienced the overtake of 53% the digital quantities: books 50% will sold more digital than 46% paper UK 40% • UK market will continue to be 36% 41% the “best proxy” of the U.S. market, and the countries to 35% 30% be analyzed to capture “what’s 20% next” in the European market 29% 20% 20% Average main 13% European • In 2015, In Europe, 1 book out countries of 5 will be digital 10% 8% • Germany • France 4% • Italy • Spain 0% • Sweden 2012 2013 2014 2015 Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis A.T. Kearney 7
  • 8. European average price has declined over the last three years, this in fact will erode margins in the future European Average Price (€ - average from interviews with publishers / book retailers ) 10 – 12 € Price drivers 12 • Drivers that could raise the price: – Consumer perception: 10 - Price of “correspondent” print book – Law: - Fixed price law 8 7-8€ - Commissionaire Model adoption 6 6-7€ • Drivers that could push down the price: – Consumer perception 4 - Special deals (i.e. Amazon) - Price of other “mobile 2 entertainments” (apps, MP3…) - Self publishing - Revenue model (subscription 0 0,2-1€ model; pay per read…) 2010 2012 – Law: - VAT reduction - Retail model adoption A.T. Kearney 8
  • 9. The challenge is to look beyond the trade ebook market Where we are… …New areas to be explored Paid ebook Collaborate with other media players to maximize return of investments in • Growing in quantities but eroding technology and better seize content margins • Should be seen as a stepping stone to opening up new opportunities Address and seize the power of a larger • …is not just content customer base: readers are in fact much more than only trade (self publishing, free and piracy) Enhance content and service leveraging on new technologies and opportunities driven by data How to capture opportunities from these new areas? Source: A.T. Kearney / BookRepublic A.T. Kearney 9
  • 10. To catch these business opportunities publishing players should be able to “play” with three pillars of digital Publishing is going to be… • Enable further readers’ engagement • Evolve the reading experience in a social experience Technology • Enable multi-level reading paths • Enable new ways to get the content • Become “retailers“: know and profile your own customer • Track market reactions in real time Data • Treat literature and stories as big-data • Measure any kind of interaction between content and user Content • “Publish stuff that matters” (Tim O'Reilly) A.T. Kearney 10
  • 11. A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful results and long-term transformative advantage to clients. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across all 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 Sydney Europe 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 Stuttgart Middle East Abu Dhabi Johannesburg Riyadh and Africa Dubai Manama A.T. Kearney 11
  • 12. Bookrepublic is a leading Italian player within IFBOOKTHEN is an international network of the digital publishing industry with an local events taking place in Milan, Stockholm, integrated system including: Madrid and Barcelona, providing trends and top highlights about the digital publishing The first Italian Independent ebookstore with business. a growing customer base who appreciates high quality editorial contents. The ongoing  The local formats grant the upcome of interaction with the reader and the creation of a specific issues related to any single market; the partecipatory meeting place for readers, discussion inside the network allows a great publishers, booksellers and authors enhanced by exchange of different experiences. original reading paths, contribute to his distinctive positioning in the Italian market. An advanced ebook distribution platform for small and medium sized publishing houses with the most advanced online tools and services. Our positioning: Visit us: http://www.bookrepublic.it Original https://exlibris.bookrepublic.it/ Contents http://www.ifbookthen.com Ongoing Unique Interaction Care for with Partners Readers A.T. Kearney 12
  • 13. Contacts Giovanni Bonfanti Marco Ferrario Principal CEO / Cofounder A.T. Kearney Bookrepublic giovanni.bonfanti@atkearney.com marco.ferrario@digitpub.it +39 02 76295 225 +39 335 604 6861 Edoardo Bottai Marco Ghezzi Manager COO / Cofounder A.T. Kearney Bookrepublic edoardo.bottai@atkearney.com marcog@bookrepublic.it +39 02 76295 476 +39 348 22 44 836 A.T. Kearney 13