These slides accompanying my January 2014 blog post "The Book Publishing Startup Problem" at http://thefutureofpublishing.com/2014/01/the-book-publishing-startup-problem/. You'll find there also the accompanying Excel spreadsheet.
Copyright 2014 by Thad McIlroy. All rights reserved (see last slide for Creative Commons license).
I want to try and place the financial impact of the book publishing industry into context. The numbers are always hard to pin down. The latest figures from the largest trade publishers (as you’ll see on the next slide) total just over $7 billion. Nearly all of the venture-seeking startups are focused in the trade (and children’s) publishing space, rather than STM (Scientific, Technical and Medical) or in textbooks (though textbooks have commanded a fair share of attention and are represented here). I can see things in a more clear perspective when I realize that the lowest ranking company on the Fortune 500, Nash-Finch, is some two-thirds as large as the 5 big trade players (by sales). RR Donnelley, which prints many of their books, is a third larger.
These are the latest annual sales summaries from the big 5. Industry estimates guess that these 5 firms represent some 50% of annual trade sales, and 25% of the overall U.S. book business.
This slide is the first the references the attached Excel spreadsheet. I’ve located over 600 startups (there are more that I’ve located, but the ones not on the spreadsheet were announced two or three years ago and have no subsequent activity in the press or on their websites. I note that 7% of those startups have recorded investments. This number doesn’t really tell you much. Is it low or is it high? That depends on how large a pool you’re referencing. I could easily have added another 100 startups to the spreadsheet to pull this number down. So don’t spend any time with it. Far more interesting is the size of the investments. You don’t need cross-industry comparisons to realize that average investments of between $35,000 and $70,000 and just not significant. They hardly cover the expense of a single employee. I note that 2.5% of the startups listed have cashed out or “exited”. Hard to read this number as well. Except for the two big buyouts, Rakuten taking Kobo and Amazon taking Goodreads, there’s not enough publicly available data to indicate the quality of the transactions. Which, to me, says that they weren’t worth clapping hands for.
Outliers – in this case a few relatively very large transactions – throw off all the numbers. On the one hand I’d say that a startup was delusional if they thought that they could successfully position themselves to be acquired by Amazon. But it happened to Goodreads (and previously to a few other smaller tech companies) so it’s not out of the question. My greater concerns is to try and isolate these numbers from the average and the mean of the data.
Sometimes pinning down the exact market that a startup addresses is a challenge. There’s more of a crossover with periodicals and books than of newspapers. So just a caution as you read the spreadsheet: not all of the companies are pure book publishing ventures.
Lots of VC dollars. In the third quarter of 2013 4.1 BILLION was raised. The publishing industry may have accounted for $50 million of the downstream targets for that investment; not even a blip on the radar.
Several reports examine today’s hot and fertile startup industries. Book publishing is never among them.
When you’re close to the publishing industry and follow the hype and frenzy on a daily basis it’s easy to lose perspective on the simple truth that publishing is not growing. It was ripe for a degree of disruption, which is accumulating bits of value to hundreds of thousands of self-published authors, a few self-publishing aggregators (Smashwords, Lulu) and of course Amazon.
Even when you find a place on the chart with a designation like “media & entertainment” you soon learn that they’re not even considering book publishers.
As the report definition makes clear.
During the life of a company financing can take several forms. At the beginning angels and VCs. Somewhere in there a bank gets involved. Then there are exits or partial exits: a merger or an acquisition (M&A) or an IPO. The book publishing industry also proves to be a no-show at the M&A party.
Trying to zero in on the startup value of the publishing industry I throw the spaghetti on the wall against some proven investment magnets. Book publishing doesn’t resemble any of these classes of opportunities. There’s a good article in the January 10 New York Times on Uber: “Is Uber’s Surge-Pricing an Example of High-Tech Gouging?” (http://www.nytimes.com/2014/01/12/magazine/is-ubers-surge-pricing-an-example-of-high-tech-gouging.html). From my perspective Uber is a perfect example of disrupting an intransigent business. In certain big cities in rush hour or bad weather there are next to no cabs or limos available. Sure Uber’s drivers push the price as high as they can. And there are customers who can afford to pay the supplement. So be it. It’s hard to draw anything like a parallel from this type of opportunity to book publishing.
On the other hand book publishing is hugely vulnerable against a series of common industry benchmarks. Book publishing has never been classified as a hot industry. Why would the invasion of new technology necessarily make it more attractive? There are just as many arguments that a fragile industry will suffer from the changes.
Book publishing shares some of the “sex appeal” of the music and film industries. That’s valuable, though it also attracts gadflies. The investment dollars don’t suggest that mature venture sources are taking publishing very seriously as an investment opportunity. There’s been but one IPO in the “startup class” of book publishing industry companies. That’s Chegg, the innovator in textbook rental. The company is unprofitable and its shares are trading lower since its IPO in fall 2012. Not worth pointing to as a successful financing moment.
Yep, there’s Chegg’s IPO, arguably not a startup in the sense we’re using here. VICE is a fun website, gathering millions of pageviews. But that has nothing to do with the book industry.
When you look at the discreet advertisements of the big M&A players they’re not dealing with $2 million transactions. They’re selling big old companies to other big old companies who expect that they can raise the dead.
Another little reminder that book publishing is a no-show in the VC community.
Mark Coker, founder and CEO of Smashwords, is a smart, in-the-trenches type of executive who continually offers smart analysis and advice. It’s well worth tuning into his blog at smashwords.com. A few of his year-end 2013 predictions/observations are startling. What will happen to all of these precarious startups if, as Mark notes, “a normal cyclical shakeout is coming”?
The #1 source of information about startup funding is Crunchbase. They don’t miss many transactions. Down the list though still relevant, is AngelList, which tries to pair very early stage startups with some money from the Angels in the sky.
Unfortunately perusing the AngelList directory of publishing startups can make you depressed. It reminds me that all you need to do to pretend you’re a start-up is launch a half-decent website that explains your offering. No one can say that you’re not the real thing: they can’t climb under your kimono. But as you read the short descriptions of the value that some of these site propose to offer you can certainly feel some despair for the broad prospect of book publishing start-ups.
Gust is another match-the-startup-with-the-investor type of site. Very few book publishing listings emerge.
On Dosdoce.com you’ll find a good report (and accompanying slide deck) that represents the most thoughtful and optimistic view of startups in the book publishing industry. I’m not optimistic, but I did want to represent the optimist’s viewpoint.
I’m glad to be able to offer the “raw” data on the accompanying spreadsheet so that readers can draw their own conclusions about the prospects for startups in the book publishing industry. This is my read.
I can understand that the startup frenzy is attracting entrepreneurs to book publishing.
I’ve been track this stuff for decades.
It still the #1 book for publishers to help them get a handle on the metadata challenge.
Please contact me with questions or comments, positive or negative. Thank you.
Venture Funding in the Book Publishing Industry
Vancouver & San Francisco
January 11, 2014
A Brief Overview
Book publishing is not a major industry
Book publishing is not growing nor is it
Physical book retailing is under threat,
and that threatens the balance
A single dominant company (Amazon) is
calling most of the shots
Here’s is the smallest member of the 2013
Nash-Finch is in the food distribution business
and has sales of nearly $5 billion per year.
RR Donnelley, the largest U.S. printer, had 2012
sales of $10.2 billion (10% market share).
In Perspective: The Largest (‘12)
Penguin Random House
Simon & Schuster
= 50% of trade sales; 25.3% of total books sales
What’s in the Numbers?
Over 600 startups
About 7% of those startups have
The average investment is $70,000k +/Remove the half-dozen over $10m and
the average investment is $35,000k +/2.5% startups have “cashed out”
Ignore the Exceptions?
These aren’t likely to repeat
Kobo sold to Rakuten for $315m
Goodreads sold to Amazon for $150m
Microsoft invests $600m in Barnes &
Books vs. Mags vs. Newspapers
Several of the startups cross the space
between books & periodicals. The blurring
of the boundaries is encouraged by the
likes of Kindle singles – in some cases
long magazine articles repackaged.
While newspapers are issuing ebooks in a
flurry, there’s no real industry crossover
The big difference is that the names of
periodicals are the brand; for books the
author is the brand
“Media and Entertainment” Defined
“Creators of products or providers of
services designed to inform or entertain
consumers including movies, music,
consumer electronics such as
TVs/stereos/games, sports facilities and
events, recreational products or services.
Online providers of consumer content
are also included in this category
(medical, news, education, legal)”
No book publishers here.
Judging Investment Value
Existing industry, in a period of growth
(such as new homes)
New industry, expanding rapidly (home
Existing industry with new opportunities
(Apple with tablets and smartphones)
Transformative technology addresses an
unmet need (Uber for catching cabs at
tough times in big cities)
Condemning an Investment
Mature and declining market
Not significantly profitable
Difficult to access internationally
At risk of structural fragmentation (no
Dominated by Amazon
The Proof is in the Pudding
All media markets have a “sex appeal”
that attracts investment
Yet book publishing has attracted less
than $350 million in the past five years
Three companies have had strong payouts, but most are failing even to get
Just one IPO (Chegg) – not promising
What About Those IPOs?
Forget it. According to the authors of the
2014 Tech IPO Pipeline Report:
“There are no publishers on our lists. The
closest thing would be VICE media, but
they're primarily online.”
Yes there are acquisitions
...but they aren’t startups
Mark Coker on Flattening Sales
“A fast-growing market causes players
to misinterpret their success... It’s when
things slow down that your business
model is tested. The market is slowing.
A normal cyclical shakeout is coming.”
— December 30, 2013
Can’t We all Just Sound the Same?
“Making ebooks easy”
“Building the future of ebook reading”
“iTunes for ebooks”
“A reading revolution”
“Reinventing non-fiction book publishing”
“A community within every ebook”
Collaborating with Startups
I don’t have a happy face to splash on
the challenge of attracting venture
dollars to the book publishing industry: I
don’t believe that it will happen in any
The one way that book publishing often
overlaps newspapers: it’s an excellent
way for the wealthy to indulge their egos
I think the investment confusion arose
because many thought that an industry
in the throes of digitization should be an
industry worth tossing VC dollars at
Just because publishing is going digital
doesn’t mean that there’s a new road to
publishing riches. It’s the same tough
• 8 years in bookselling & publishing
• 15 years in the U.S. studying the
intersection of technology & print
publishing @ Seybold
• 10 years at The Future of Publishing.com
• Co-author The Metadata Handbook
The Metadata Handbook:
A Book Publisher’s Guide to Creating &
Distributing Metadata for Print and Ebooks
Renee Register, DataCurate
Thad McIlroy, The Future of Publishing
Available both in print and ebook formats
Published December 2012
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credit to Thad McIlroy at The Future of Publishing.