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


Do Readers Dream of Electronic Books?
Presentation for the IfBookThen 2012 Conference
Milan, February 2nd 2012




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’ve surveyed countries that cover 80% of the global book market
 ■ All the numbers presented for 2011 derive from:
    •  40 interviews with key players (publishers, retailers…) from major markets1
    •  Analysis of public data from public sources / press search
 ■ This is an ongoing research project that debuted at IfBookThen 2011 and was
  presented in Frankfurt (Publisher’s launch); London (Futurebook) and New York
  (DBW)

All the analysis presented in these pages are a summary of a larger 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 ~€2.4 Bn – Europe is third largest region
eBook Trade Market Size                                                                                                      Regional eBook Market
(mln€; 2011E)                                                                                                                  Share by Country

                              1900-2000                  • U.S.: 98%
                                                         • Canada: 2%




                                                                                                                            • UK: 52%
                                                                                                                            • Germany: 28%
                                                                                                    • South Korea: 45%      • France: 7%
                                                                                                    • Japan: 25%
                                                                                                                            • Italy: 3%
                                                                                                    • China: 25%
                                                                                                                            • Spain: <2%
                                                                                                    • Other: ~5%
                                                                                                                            • Other: ~8%
                                                              • Brazil: 40% - 50%
                                                                                                         250-270
                                                                                                                           170-180
                                                                         1
                          North America                              South                                  Asia             EU
                                                                    America
          eBook
        penetration         17%-18%                                 <0.1%                             2.2%- 2.4%           1%-1.1%



Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney                 A.T. Kearney   3
Key market drivers vary by country
eBook Market Penetration                                                          7%
(%; 2011E)                                                                                                                                                                   <1.5%
                                                                                                       0.9%

                                                                                  UK                                                                                        Japan
            20%                                                          0.5%
                                                                                                  Germany
                                                                                                                                                                               14-15%
                                                                       France
                                                                                               0.5%
                                                                   <0.5%
            U.S.                                                                               Italy                                                             <1%
                                                                   Spain                                                                                                       South
   In US about 33%                                                                                                                                                             Korea
   of device owners                                                                                                                                            China
    have eReader +
         tablet

Xx%                                                                                                                                     0.9%
                                                                        <0.1%
        E-book penetration

       Selection of countries                                          Brazil                                                      Australia
       analyzed


Drivers as of 2011            USA            Brazil        Australia          Japan            China             UK           Germany           France            Italy          Spain
 Availability of
 titles in local           2,700,000          8,000          400,000          50,000          270,000          400,000          80,000          60,000           15,000          15,000
 language
 Tablet Penetration            40              0.5              0.8              2                7              2.7             2.65             1.8              0.7             0.6
 (mln; %)                     20%            <0.5%              4%             1.6%             0.5%            4.4%             3.2%            2.9%             1.2%            1.8%
 eReader                       40                                                                7.8             3.0              0.5             0.1             0.14             0.4
 Penetration                                   n.a.             n.a
                              20%                                             <0.1%             0.6%            4.9%             0.6%            0.2%            0.25%            0.8%
 (mln; %)

                                                                                                                                                                             A.T. Kearney   4
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
New release eBook price is ~10€ with variation by country

  Average eBook price for new releases1
  (€ - average from interviews with publishers / book retailers )


                                                  15,0	
  
                                                                14,0	
  
                                                                                                                             Differences in eBook
                           13,0	
                  2,5                                                                        price derive from factors
                                                                 2,1         12,0	
                                           like:
                 VAT	
      2,2                                                            11,0	
                             -  Taxation (VAT)
                                      10,9	
  
                                                                              2,4                                             -  Difference in pricing of
   Av.	
  9.98	
                       1,7                                                  1,9
    (net	
  VAT)	
                                                                                               9,3	
           “correspondent” print
                                                                                                                                 book
                                                                                                       7,5	
                  -  Legislation (ex. max
                                                                                                                                 discount of print book)
                                                  12,5	
        11,9	
  
Price	
  net	
  VAT	
   10,8	
                                                                                                -  Agency model
                                       9,2	
                                  9,6	
         9,1	
                9,3	
        -  Currency fluctuations
                                                                                                       7,5	
                 In each country we
                                                                                                                              identified several cases of
                                                                                                                              eBook prices that differ
                                                                                                                              significantly from average
                            UK        Ger        France        Spain       Sweden          Italy      Brazil     U.S.




1 Average eBook prices of new Hardcover releases                                                                                              A.T. Kearney   5
Source: interviews with publishers / bookretailers; A.T. Kearney / Bookrepublic analysis
“Traditional” factors create growth patterns

Expected penetration of eBooks after 5 years from adoption
(% of trade book sales)
        20%                                                                                                   20% U.S. 2011
                                                                                                                                      eBook penetration grows
        18%                                                                                      16%-17%                               with varying speeds
                                                                                                                                       depending on:
        16%                                                                                                     Early
                                                                                                                Adopters
        14%                                                                                                     •  UK               •     Technology
 Penetration




                                                                                                                •  Canada                  “proficiency”:
                                                                                                                •  South Korea           –  Internet penetration
        12%                                                                                                     •  …
                                                                                                                                         –  Mobile penetration
        10%                                                                                                                              –  eReader/ tablet
                                               U.K. 2011                                                                                     penetration
                                                                                                                Second
               8%
                                                                                                                Wave                     –  eCommerce
                                                                                                  6%-7%         •  Germany                   penetration
               6%                                                                                               •  France
                                                                                                                •  Italy
                                                                                                                •  …
                                                                                                                                    •     eBook market
               4%
                                                                                                                                           readiness:
               2%                                                                                                Latecomers              –  eBook title availability
                        Ger. 2011                                                                                                        –  eBook price strategy
                                                                              0.3%
                                                                                                   1%-2%         •  India
                                                           0.1%
               0%                   0.1%
                                                                                                                 •  Latin America        –  Taxation (VAT)
                                                                                                                 •  …
                    1                      2                3                   4                     5
                                                                                                                                         –  Big player presence
                                                  Years of adoption

Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis                                                A.T. Kearney   6
“Non traditional” drivers accelerate growth
Technological drivers                 The new “Digital Wheel” value chain of the
of change                                           Publishing Industry

1
    Self publishing &
    digital publishing
        programs                                             5

2
                                                                                     D.M.D.
                                                                          4
       Customer                                                                   Digital Marketing &
    reading behavior        D.A.S.                                                   Distribution
                                            1

3                         Digital Asset              Asset Value              3
                           Sourcing
       Customer
    behavior profiling

4
    Ratings, reviews
        (Metadata)                                            2


5
     Social reading                                     D.A.M.
     and networking
                                                Digital Asset Management
     (Metadata sharing)

                                                                                              A.T. Kearney   7
How the drivers of change could impact the size and structure
   of the book market? – The U.S. case

     U.S. AAP trade book market                                                    U.S. AAP trade book market
     ($mln)                                                                        (#)
                                                                                                               4,1%	
  
                                                -­‐5,4%	
                                                                  222
                        3185                                                                       213
E-­‐book	
                  266	
                             3012
                           (8%)	
                                                                    28	
  
                                                                649	
      +144%                   (13%)	
                   72	
       +158%
                                                               (22%)	
                                                     (32%)	
  

                                                                                   E-­‐book	
  


 Paper	
  
 book	
                   2,008	
  
                          (92%)	
                                                                   185	
  
                                                               1,695	
      -19%                   (87%)	
                                -19%
                                                               (78%)	
                                                      150	
  
                                                                                    Paper	
                                (68%)	
  
                                                                                    book	
  




                       jan - aug                              jan - aug                           jan - aug               jan - aug
                         2010	
                                 2011                                2010                    2011
                               	
  
   Source:	
  AAP,	
  Analysis	
  A.T.	
  Kearney	
                                                                                    A.T. Kearney   8
How the drivers of change could impact the size and structure
   of the book market? – The UK case

     UK trade book market                                                                          UK trade book market
     (£mln)                                                                                        (#)
                                                                                                                               +0,5%	
  
                                           +5,2%	
  
                                                                411                                                144                      145
                      391                                          28	
                                               1	
                      7	
  
E-­‐book	
               8	
                                                               +263%   E-­‐book	
       (1%)	
                              +560%
                                                                  (7%)	
                                                                     (5%)	
  
                       (2%)	
  




 Paper	
                                                                                           Paper	
          143	
  
 book	
                383	
                                      384	
                    +0,1%   book	
                                    139	
      -3,4%
                                                                                                                   (99%)	
                  (95%)	
  
                      (98%)	
                                    (93%)	
  




                   jan - jun                                  jan - jun                                           jan - jun                jan - jun
                     2010	
                                     2011	
                                              2010	
                   2011	
  
                          	
                                         	
                                               	
                       	
  
   Source:	
  The	
  Publishers	
  AssociaDon	
  Ltd,	
  Analysis	
  A.T.	
  Kearney	
                                                                   A.T. Kearney   9
Self-published ebooks are experiencing success in the U.S.
reducing publisher turnover by $ 70mln - $ 120mln

% of selfpublished titles in Kindle Store                                                                                                                        Self-publishing is an established trend
                                                                                                                                                                 driven by the growth of the ebook
top 100 paid ebooks in U.S.                                                                                                                                      market:
    26%                                                          26%
                                                                                                                                                                 •  in 2010, there was almost no self-
                                                                                                                                                                    published titles in Amazon top 100 paid
                     22%                                                                                                                                            ebooks
                                                                                                21%
                                                                                 20%
                                                                                                                18%                                              •  in 2011, in volume terms self-published
                                                 17%                                                                                                                books counts for 3%-5% of the total
                                                                                                                                                                    ebook market
                                                                                                                                14%             14%
                                 13%
                                                                                                                                                                 •  US self-publishing market size:
                                                                                                                                                                    $ 20mln - $ 30mln



                                                                                                                                                                 •  Resulting revenue loss for publishers is
                                                                                                                                                                    $ 70mln - $ 120mln in 20111

   Apr	
  2011	
     May	
      Jun	
  2011	
   Jul	
  2011	
   Aug	
  2011	
  Sep	
  2011	
   Oct	
  2011	
   nov	
  2011	
   dic	
  2011	
   gen	
  2012	
  
                     2011	
  


Average price for self published books is 1,5$ -2 $
(range between 0,99$ and 4,99$)

1 Assuming 10$ per p-book as turnover for publishers                                                                                                                                                  A.T. Kearney   10
Source: Kindle Store Bestsellers archive, A.T. Kearney - BookRepublic analysis
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
About BookRepublic
•  BookRepublic is one of the leading Italian eBook
   stores and the front end of a system including:
      •    eBook distribution
      •    Readers community
      •    Metadata management
      •    Customer behavior profiling.
•  We organize IFBOOKTHEN, an international
   conference on digital publishing in Milan.
•  40K is a native digital imprint specialized in
   “novelettes” and “short essays” translated in 5
   languages and sold worldwide (90% of our sales
   coming from US).
   40K is also the digital partner of a leading national
   newspaper in a “long articles” program.
•  http://www.bookrepublic.it
•  http://www.ifbookthen.com
•  http://www.zazie.it




                                                           A.T. Kearney   12
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
Do Readers Dream of Electronic Books?

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Do Readers Dream of Electronic Books?

  • 1. Reading Digital: Where Are We? Where Are We Going? Do Readers Dream of Electronic Books? Presentation for the IfBookThen 2012 Conference Milan, February 2nd 2012 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’ve surveyed countries that cover 80% of the global book market ■ All the numbers presented for 2011 derive from: •  40 interviews with key players (publishers, retailers…) from major markets1 •  Analysis of public data from public sources / press search ■ This is an ongoing research project that debuted at IfBookThen 2011 and was presented in Frankfurt (Publisher’s launch); London (Futurebook) and New York (DBW) All the analysis presented in these pages are a summary of a larger 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 ~€2.4 Bn – Europe is third largest region eBook Trade Market Size Regional eBook Market (mln€; 2011E) Share by Country 1900-2000 • U.S.: 98% • Canada: 2% • UK: 52% • Germany: 28% • South Korea: 45% • France: 7% • Japan: 25% • Italy: 3% • China: 25% • Spain: <2% • Other: ~5% • Other: ~8% • Brazil: 40% - 50% 250-270 170-180 1 North America South Asia EU America eBook penetration 17%-18% <0.1% 2.2%- 2.4% 1%-1.1% Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney A.T. Kearney 3
  • 4. Key market drivers vary by country eBook Market Penetration 7% (%; 2011E) <1.5% 0.9% UK Japan 20% 0.5% Germany 14-15% France 0.5% <0.5% U.S. Italy <1% Spain South In US about 33% Korea of device owners China have eReader + tablet Xx% 0.9% <0.1% E-book penetration Selection of countries Brazil Australia analyzed Drivers as of 2011 USA Brazil Australia Japan China UK Germany France Italy Spain Availability of titles in local 2,700,000 8,000 400,000 50,000 270,000 400,000 80,000 60,000 15,000 15,000 language Tablet Penetration 40 0.5 0.8 2 7 2.7 2.65 1.8 0.7 0.6 (mln; %) 20% <0.5% 4% 1.6% 0.5% 4.4% 3.2% 2.9% 1.2% 1.8% eReader 40 7.8 3.0 0.5 0.1 0.14 0.4 Penetration n.a. n.a 20% <0.1% 0.6% 4.9% 0.6% 0.2% 0.25% 0.8% (mln; %) A.T. Kearney 4 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
  • 5. New release eBook price is ~10€ with variation by country Average eBook price for new releases1 (€ - average from interviews with publishers / book retailers ) 15,0   14,0     Differences in eBook 13,0   2,5 price derive from factors 2,1 12,0   like: VAT   2,2 11,0   -  Taxation (VAT) 10,9   2,4 -  Difference in pricing of Av.  9.98   1,7 1,9 (net  VAT)   9,3   “correspondent” print book 7,5   -  Legislation (ex. max discount of print book) 12,5   11,9   Price  net  VAT   10,8   -  Agency model 9,2   9,6   9,1   9,3   -  Currency fluctuations 7,5     In each country we identified several cases of eBook prices that differ significantly from average UK Ger France Spain Sweden Italy Brazil U.S. 1 Average eBook prices of new Hardcover releases A.T. Kearney 5 Source: interviews with publishers / bookretailers; A.T. Kearney / Bookrepublic analysis
  • 6. “Traditional” factors create growth patterns Expected penetration of eBooks after 5 years from adoption (% of trade book sales) 20% 20% U.S. 2011   eBook penetration grows 18% 16%-17% with varying speeds depending on: 16% Early Adopters 14% •  UK •  Technology Penetration •  Canada “proficiency”: •  South Korea –  Internet penetration 12% •  … –  Mobile penetration 10% –  eReader/ tablet U.K. 2011 penetration Second 8% Wave –  eCommerce 6%-7% •  Germany penetration 6% •  France •  Italy •  … •  eBook market 4% readiness: 2% Latecomers –  eBook title availability Ger. 2011 –  eBook price strategy 0.3% 1%-2% •  India 0.1% 0% 0.1% •  Latin America –  Taxation (VAT) •  … 1 2 3 4 5 –  Big player presence Years of adoption Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis A.T. Kearney 6
  • 7. “Non traditional” drivers accelerate growth Technological drivers The new “Digital Wheel” value chain of the of change Publishing Industry 1 Self publishing & digital publishing programs 5 2 D.M.D. 4 Customer Digital Marketing & reading behavior D.A.S. Distribution 1 3 Digital Asset Asset Value 3 Sourcing Customer behavior profiling 4 Ratings, reviews (Metadata) 2 5 Social reading D.A.M. and networking Digital Asset Management (Metadata sharing) A.T. Kearney 7
  • 8. How the drivers of change could impact the size and structure of the book market? – The U.S. case U.S. AAP trade book market U.S. AAP trade book market ($mln) (#) 4,1%   -­‐5,4%   222 3185 213 E-­‐book   266   3012 (8%)   28   649   +144% (13%)   72   +158% (22%)   (32%)   E-­‐book   Paper   book   2,008   (92%)   185   1,695   -19% (87%)   -19% (78%)   150   Paper   (68%)   book   jan - aug jan - aug jan - aug jan - aug 2010   2011 2010 2011   Source:  AAP,  Analysis  A.T.  Kearney   A.T. Kearney 8
  • 9. How the drivers of change could impact the size and structure of the book market? – The UK case UK trade book market UK trade book market (£mln) (#) +0,5%   +5,2%   411 144 145 391 28   1   7   E-­‐book   8   +263% E-­‐book   (1%)   +560% (7%)   (5%)   (2%)   Paper   Paper   143   book   383   384   +0,1% book   139   -3,4% (99%)   (95%)   (98%)   (93%)   jan - jun jan - jun jan - jun jan - jun 2010   2011   2010   2011           Source:  The  Publishers  AssociaDon  Ltd,  Analysis  A.T.  Kearney   A.T. Kearney 9
  • 10. Self-published ebooks are experiencing success in the U.S. reducing publisher turnover by $ 70mln - $ 120mln % of selfpublished titles in Kindle Store Self-publishing is an established trend driven by the growth of the ebook top 100 paid ebooks in U.S. market: 26% 26% •  in 2010, there was almost no self- published titles in Amazon top 100 paid 22% ebooks 21% 20% 18% •  in 2011, in volume terms self-published 17% books counts for 3%-5% of the total ebook market 14% 14% 13% •  US self-publishing market size: $ 20mln - $ 30mln •  Resulting revenue loss for publishers is $ 70mln - $ 120mln in 20111 Apr  2011   May   Jun  2011   Jul  2011   Aug  2011  Sep  2011   Oct  2011   nov  2011   dic  2011   gen  2012   2011   Average price for self published books is 1,5$ -2 $ (range between 0,99$ and 4,99$) 1 Assuming 10$ per p-book as turnover for publishers A.T. Kearney 10 Source: Kindle Store Bestsellers archive, A.T. Kearney - BookRepublic analysis
  • 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. About BookRepublic •  BookRepublic is one of the leading Italian eBook stores and the front end of a system including: •  eBook distribution •  Readers community •  Metadata management •  Customer behavior profiling. •  We organize IFBOOKTHEN, an international conference on digital publishing in Milan. •  40K is a native digital imprint specialized in “novelettes” and “short essays” translated in 5 languages and sold worldwide (90% of our sales coming from US). 40K is also the digital partner of a leading national newspaper in a “long articles” program. •  http://www.bookrepublic.it •  http://www.ifbookthen.com •  http://www.zazie.it A.T. Kearney 12
  • 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