Presentation Comments:
Good Morning and thank you
for inviting me to speak today.
Chart 1: In preparing for
this presentation this morning, I happened on an interesting article in Harvard
Magazine about how Harvard’s libraries are dealing with change.
Chart 2: In this article the
author addressed some interesting themes including the librarian’s role as
curator – which this quote addresses – but perhaps the most interesting theme
for me was the notion that neither publishers nor consumers are up to the task
of effectively managing the digital migration we find ourselves in at the
moment. As the sheer amount of data and
information increases exponentially, the gap in our collective ability to
manage the information and data is only going to get wider.
Perhaps though – finally some
good news for librarians?
Shaw suggests that librarians
retain specific skills that could bridge the gap between generic content where 'everything carries the same weight' and a 'consciously
curated and controlled artifact'
managed to the benefit of a librarian's
constituency. What that means is the
librarian could be around for a while and could be helpful. And isn’t that what we all want?
Curation is the hot topic of
the day. It is almost like we are all
discovering it for the first time – as though the idea of Curation is a new
one. Tech start-ups and private equity
investors have begun to lace their presentations with this buzz word but as we
are smugly aware Curation is not new and perhaps is something we might actually
be good at as the information and content business expands.
Chart 3: When I speak to groups about the ‘state of the
business’ I often present the industries digital sophistication on a
spectrum. My spectrum - which references
knowledge, business model and experience is quite wide. I don’t generally present the evolution of
publishing while referencing Curation but in effect Curation has played a
significant role in the progressive concentration of publishing segments and
content over the past 20 yrs. Having
said that, Curation as practiced in my examples is a bit like taking a mallet
to kill an ant and Curation in the next twenty years I expect will be far more
nuanced and who knows maybe librarians will play a role. I think Shaw hopes that is the case.
So, where are publishers in
terms of transitioning their businesses from print to online?
Information companies began their
migration 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 content, provides a mechanism for delivery and
the development of customer specific tools and solutions. By my estimate, 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 mid decade. This current rapid investment and
experimentation in Education supports the eBook forecast you will see in a
moment.
Trade is much further behind
the others even though they experimented with aborted eContent initiatives in
CDROM in the mid to late 1980s and early
eBooks in the mid-late 1990s. 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.
What the Harvard article
articulates quite well is that while information publishers in the medical and
legal segments are relatively sophisticated the wider digital ‘marketplace’
specifically for raw data is advancing so rapidly that even these established players
are having a tough time keeping up.
Chart 4: In my presentation
today I would like to give you a snap shot of the US market showing revenues and
growth trends. In the second section, I
will attempt to provide you with some perspective on what publishers are
thinking about as they manage through the transition to digital and in doing so
I will reference some research I did for OCLC in the latter part of last year
where I interviewed publishers across the business about what they saw as the
future of the book. Lastly, I will
briefly propose some predictions which is, of course, always dangerous.
Chart 5: By way of
introduction, from a macro perspective, I think we loose sight of the fact that
the publishing industry is really no different than any other old line business
segment – whether the auto industry, newspapers or broadcast media: Periodic seismic shifts occur.
In the case of publishing, our
industry tends to see changes at much wider intervals than others – stone
chisels, charcoal sticks, movable type, and eventually the Macintosh computer –
but my point is all industries face changes and publishing is no different.
Publishing is experiencing
changes in how and what is published, how content is delivered to customers, and
the speed by which content is updated, revised and re-edited – and this is no
less the case with respect to real-time updates that must occur for database and
directory content. Technology is now so fundamental to a publisher’s ability to
produce and compete that technologists sit at the top levels of many publishing
businesses helping to direct the company’s strategy.
Chart 6: 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. And that’s only to mention a
few of the challenges we face.
Publishers are also confused
about 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 and 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. If those are not
enough, I also think trade and education publishers have yet to wake up to the
‘problem’ that is library lending of e-Books and this to will become an
additional ‘confusing’ issue.
Chart 7: As I indicated
earlier, the US Publishing market is traditionally divided into three segments:
Information & Professional, Education and Trade. Business drivers across these segments can be
similar but each retains specific unique 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, 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.
I did want to show you some
numbers so, let’s spend a few minutes on some industry data collected by the
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.
Chart 8: Reported revenues
look healthy – so despite all the negativity 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.
Chart 9: 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. And you might argue that this is a more
interesting trend given the size of these numbers. Much of this volume is not monitored in the traditional
supply chain. 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. The expansion in self-published content supports
one of the themes of Shaw’s article of a rapidly increasing sea of content
which we are having trouble navigating.
Chart 10: 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 e-book sales by quarter for the past two years.
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. But this percentage
is volatile and eBooks absorb a disproportionate amount of attention and
management time. This is because the
sale of eBooks raises significant issues for publishers about the future of
their businesses. These issues include,
pricing, ownership – whether sale or license, distribution, their author
contracts, international rights, copyright 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. The importance of these issues dictates that
executive management be focused on them.
I mentioned volatility: In
the launch of the iPad some publishers were seeing a jump to 30% of a title’s
volume migrating to the eBook as a result of the new iPad platform. The recent sales of Larsson’s third book The
Girl Who Kicked the Hornet’s Nest released last week apparently sold over 30%
of its volume in ebook format. But we
shouldn’t get carried away as your typical Joe Blogs fiction or Prof Grutz
academic title is still likely to be below 5%.
Chart 11: The transition to
eContent in education is equally important as it is in trade but the transition
in education is running much faster.
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%.
Chart 12 & Chart 13: Despite
the near hysteria from the press over trade book electronic publishing which is
- overall - tiny, electronic publishing is old really old news to education and
information publishers. As if to confirm
this point and the forecast on the prior chart, Pearson in their recent
financial reports, highlighted the proportion of digital content sold at 31%. Other publishers such as John Wiley and Wolters
Kluwer have made similar pronouncements.
Chart 14: Those brief charts should give you a general
idea of the current publishing environment from a business perspective. As I mentioned earlier, at the end of last year
on behalf of OCLC I interviewed a number of senior publishing executives about
their thoughts and preparations for the future.
To clarify, I did not seek opinion from information and database
publishers for this particular study.
Chart 15: My observations were interesting from the
stand point that it appears that publishers are dependent on external forces
for their success as they transition.
For example, the trade and education success could have more to do with
a better e-reader than whether the content meets user expectations in
electronic form. This will not be the
case forever but places the publishers at the mercy of silicon valley.
It was clear to me from my
interviews that e-Books have not been a catalyst for revolution and reinvention
for the trade segment. Publishers are
attempting to apply the same logic for the creation and selling of print titles
to eBooks and you see this in pricing and release dates for example.
Piracy is a major issue –
real or imagined - and drives many conversations about eBooks, despite the fact
that it is becoming increasingly clear that the casual link between the
availability of an eBook and a pirated edition is tenuous and that it is the
non-availability of an eBook that may contribute more to piracy. Most publishers don’t see this.
Chart 16: Trade is problematic. What activity there is doesn’t go very deep
and is concentrated at the top of the pyramid.
The larger publishers admit to e-Books representing approximately 5% of
revenues on average and even this is segmented toward the highly popular
authors. By protecting the 95% of their
business that is not electronic they are almost by definition defensive in
outlook.
While senior executives may
be focused on eBooks and eContent there is much less attention paid to e-Books
by mid-level staffers. What tends to
happen – and there is some evidence for this in the reaction to the iPad – is that
publishers are bounced from one new idea and technology to the other and
operate without a coherent medium to long term strategy that seeks to leverage
the opportunity that e-Content and e-Books offers. I think it is speaks volumes that trade
publishers seem to be just as surprised at the eBook sales via the iPad as all
of us uninformed lay people.
Most medium and small
publishers are really no-where when it comes to understanding how to operate in
an e-Content world. This lack of
knowledge and experience has another more insidious impact in that these less
informed publishers are particularly reactionary on the negatives with respect
to e-Content and in particular to the issue of piracy.
I asked almost every
interviewee if they were treating their author contracts and relationships
differently today than they were three years ago and all said they were not. I admit to being baffled by that but they are
attempting to change their workflows that reduce the reliance on typewriters
and biros.
Chart 17: Trade & academic reference publishing may
offer significant opportunities from the integration of digital workflows and
e-publishing.
Just think of the active
links, full text searching, document libraries, etc that can be incorporated
into the academic book that can really bring the book alive. The future is close but hasn’t been invented
yet.
But tradition still plays a
significant role in the expansion of eBooks in trade reference. Scholarship is still dependent on a print
formula even though much of the research activities that contribute to the
reference work will have been conducted on line. Publishers do recognize the potential that
e-Books and digital content enable but there are only a few isolated examples
to date – Rice University, U/Tennessee, – for example,
and none within a major publishing house.
Chart 18: Which brings me to education which as a segment
has been rapidly digitizing content, building digital workflows and creating
‘born digital’ educational materials for the past five or six years. A major driver in this effort was the private
equity investments in Cengage and Houghton Mifflin Harcourt.
Education publishers find
themselves balancing both “born digital” and migrated print workflows. This will not last forever but does lead to
some inefficiency. As their markets
mature, College is potentially more accepting of the migration to electronic in
the short term whereas School will be much slower. The school content approvals process may also
limit some of the advantages that digital content enables such as content
updating; A negative if materials need to be approved for each ‘version’. Experiments with E-readers – particularly in
the college space - have largely failed
both because of functionality and because of content ownership. While e-Book content may be cheaper students
aren’t able to re-sell the content and depending on the model may loose the
content once the semester ends. They
don’t like this.
Education publishers are
beginning to think terms of databases and subscriptions rather than books and
retail price. This is a big change and as
this develops it could have a significant impact on the economics of
educational publishing.
Education publishers are also
following the path of information publishers in building content and service
platforms that broaden the publishers offering beyond simply content. Several of the larger publishers now own
course and school administration software companies, student assessment
products, schools and learning institutions and other similar companies that
expand their market. With a services
model for example, publishers are able to offer numerous options from ‘build
your own textbook’ functionality to testing and remediation tools.
I expect that within five
years educational publishers will have opened their content warehouses to
enable academics and students to interact with their content in ways we can
only guess at but which will radically change the relationship between
publishers, students and faculty.
Chart 19: Some of my interviewees did offer a
perspective on libraries. There’s a divergence of opinion on libraries and we
see that in these quotes.
Publishers think they are important.
Chart 20: There’s a perception libraries help
publishing but no one can ever cite empirical data. I think it would be helpful if this gap in
knowledge were filled. As more and more
content goes on line and is made available to more patrons via remote access,
publishers and librarians are going to need some real data to understand the
dynamics. Some publishers told me they
don’t want to sell their eBook content to libraries. For example, no one really knows the
characteristics of a library patron who is also a book buyer. How can we anticipate how the patron’s behavior
will change in an online world without research? How can we guarantee that a heavy book buyer
will not transfer their transactions from the bookseller to the library if
content is online and available on their iPad?
If they do that, then how should the publisher/library business model
change?
Chart 21: Trade publishers and to some degree education
publishers are interested in direct to consumer models. They have virtually no experience in this which
is not to say they can’t learn. Some
publishers even see the library as a potential gateway to the reader
community. Publishers want to build
online communities of book readers. The
notion of the solitary reader is not ‘natural’ given the history of story (and
advice) telling: Will or how will this relationship with the book change and
can libraries and publishers work together in cooperation?
Chart 22: 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.
Chart 23: Let us first remind
ourselves about the publishers’ view of their current environment.
Chart 24: Are things really that bad. By comparison with other media, book
publishing looks like it was a winner in 2009. Last year’s news about Newspapers, magazines
and television represented an almost never-ending news cascade of revenue loss,
closures and bankruptcies. Many
newspapers have forever lost over 1/3 of their revenues from classified
advertising: It will never come back and circulation and display advertising is
also on a decline. Some major magazine titles
were down 50% ad revenues during 2009.
What do you do when you lose 50% of your revenue all in one go? That also doesn’t come back and many brand
name magazine titles with long histories closed last year.
While nothing improved over
the balance of 2009 for book publishers and senior executives continue to be
hesitant to expect much improvement in 2010 the industry may be comparatively
resilient.
In the library and education
space lower tax collections means reduced spending generally but in the case of
education, the Obama administration is committed to funding new education
initiatives that should help publishers.
And we didn’t need a bail out.
Chart 25: While each segment
of the publishing industry is at a different stage in their evolution they will
all continue to deal with and manage significant change. How these changes manifest themselves is hard
to predict but my thoughts are as follows:
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.
Interestingly, the changes in
the amount of content to be curated, managed, organized etc may hit this
segment hardest and as I said earlier, while this segment is most sophisticated
of all publishing segments publishers they will still find it difficult to keep
on top of the data explosion. In order
to cope you will start to see publishers open up their platforms so that third
parties can build applications on top of the publisher owned data, the use of
taxonomies, and ontology’s will be increasingly important and probably the
employment of content curators – perhaps librarians – or more accurately one
part curator one part mentor who will curate and guide users in the use of the
technology available to them.
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. The education segment will rapidly catch up to
the level of sophistication that the information publishers continue to
exhibit.
Trade will generate the most
attention but change will be slow. 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 and changing their author contracts. How their activities evolve will be
interesting to watch. Trade publishers
will also continue to experiment with direct to consumer models and will develop
subscription products.
Chart 26: eBooks and eContent will naturally continue
to garner significant attention. I think in the future we will look on 2009 and
the time when eBooks really became a legitimate consumer product. And 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 and the Apple Bookstore. My expectation is that these products will
raise awareness of how “books in the cloud” will impact traditional ideas of
ownership, rights and copyright – perhaps this is more the case with Google
than Apple but this framework is coming to all e-tailers.
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.
It is my own personal belief
that print will never go away and by ‘never’ I mean somewhere between 100-1,000
yrs. The print option will become a far
more functional format for consumers than it is today. I think you will be able to have the print
design of your choice for any title ever published in short order.
Chart 27: 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.
Chart 28: Finally,
Curation maybe the buzz word
of the hour but as more and more data and information is produced we will want
some mechanism for deciphering and navigation.
Information overload is already a significant drain on the economy by
various studies. If the situation is
growing exponentially worse our information economy may not be a productive
one.
In closing, to return to one
of Shaw’s themes, the idea that current publishers are finding it difficult to
cope may bode well for libraries although change is needed there but that’s topic
for another time. In the meantime, if
you haven’t read Shaw’s article I recommend it.
Chart 29: Thank you for
having me.
1 comment:
I found this presentation very interesting to watch. Job well done.
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