Successfully moving into the age of digital books: an international

case study

Michael Bhaskar

Pan Macmillan

Background

• Two years ago things started changing

• Ebooks had been on the scene for ten years. But nothing much had happened

• In 2007 UK publishing houses started putting together the beginnings of their digital teams

• Digital publishing- beyond websites

Jeff Gomez (ironically) published this book. Made the case that the market had finally changed. This was it.

A small company called Sony decided to launch an e-ink device and ebook store in the US, supplied exclusively through Borders….

• The Web 2.0 boom was in full flow

• Investment piled in ($455.5 million into web 2.0 start ups in Q1-3 2006 alone) and the poster boys- Youtube, Facebook, Flickr etc, went from success to success

• Suddenly the web was the future. Again.

Meanwhile…

• We had watched while our sister industries in music, newspapers and film had been hit hard by digital:

• Piracy from peer to peer networks• Unsuitable business models to a culture of low ad dollars

and free delivery• The increased demands on frictionless delivery• New standards were set by web natives- Google for

online, Apple for download and Amazon for retail

• Despite working closely with a range of partners only 1 in 20 music downloads is paid for. The IFPI claims downloads have cost the record $3.7 billion by 2008!

It dawned on us….we were next.

Better get ready.

Macmillan’s Digital Response

• Pan Macmillan- UK’s fifth largest trade publisher• Part of the Macmillan Group, which includes businesses

like the Nature Publishing Group, Palgrave, Macmillan Education, Macmillan Publishing Services and Macmillan Distribution

• In the States we have a sister company Macmillan US which is one of the largest US trade publishers- and of course we have Pan Mac South Africa, as well as Australian and Asian companies

• Our imprints include: Pan, Picador, Macmillan, Boxtree, Tor, Sidgwick & Jackson, Macmillan Children’s Books and Young Picador

• We are owned by the Holtzbrinck Group, one of Germany’s largest media conglomerates.

Our owners had already decided that they liked digital…

In Germany Holtzbrinck had put itself at the forefront of the new web. Buy and build.

It’s HGV IT crack team were making new systems for publishers.

Mac US

• More advanced market• Converted thousands of

titles to ebooks• Totally revamped web

presence• Moved into web

development territory• Very proactive on the

Google settlement- 17,000 books in the program

What about us?

Pan Mac UK

• We started to experiment and think critically about how to engage with digital

• Small run of producing and publishing ebooks from our website- big learning experiment

• Started working with bookish social networks, Second Life, started blogging and proposing specific digital projects

• Began to think about the marketing potential. • But no real market up to the end of 07…

Then we heard this was coming.

Over night the landscape changed

• Sony had announced they were coming to the UK

• The device would be an improvement on the US model

• They would be using the open epub format for their ebooks

• Content was needed for preloading on the device- we had 4 out of 20 slots

• Waterstones, the UK largest dedicated book chain, would sell the device in store

• They would also produce an online store where people could buy ebooks

• There would be heavy promotion in the media and, crucially, physical stores

• Waterstones were hungry for titles

We would have to build a publishing process for hundreds of ebooks- and fast

This would involve sorting out contracts, all our business systems, assembling and keying in the metadata.

Not to mention scheduling all the titles, monitoring them, over seeing the production process, the transfer of files to the third party aggregator, liaising with the retailers, Q&A each title and then sending it back for adjustments.

In essence we had to build the whole publishing process in miniature.

X 600

In the end we launched with 300 titles- more than virtually any other trade publisher. We were the top selling publisher at launch, in volume and revenue, and in doing so had built a robust ebook publishing process.

Our ebooks

• 600 by the end of this year• Including all our best known names like Wilbur Smith,

Jeffrey Archer and Alice Sebold• Spread across all our imprints, frontlist and backlist- our

strategy is to focus on frontlist and cherry pick core stock backlist

• Secondary focus on genres that perform well as ebooks• We are now publishing frontlist titles in parallel with print • Strong growth in revenue• We sell some DRM free ebooks

And not just ebooks…

Enhanced ebooks- like DVDs

New models for content

New ways of marketing

And ways of talking to our peers.

International Markets:What’s Going On?

The biggest…

• US is the world leader in ebooks

This is driven by:

- The size of the market

- The availability, penetration and attitude to technology

- Ready finance

- Strong ecosystem of retail, publishing and technology creates virtuous circle

International Digital Publishing Forum figures suggest we are at the beginning of massive growth (upwards of $20 million per quarter in 09).

These figures are from just fifteen publishers and excludes the massive library and mobile reading markets- the real numbers are much higher.

Upwards of 15-20% of total sales are coming from the Kindle on ebook titles.

Kindle is a Big Factor

• Amazon Kindle offers wireless download

• All books priced at $9.99

• Endorsed by Oprah

• Retails at $359

• Hundreds of thousands of titles

• Sold over 500,000 units- although no one knows the exact figure

New Potential

• US market potentially worth billions

• Smartphones creating new reading models

• Google Book Search now a very major player, driving sales to publishers worth millions

How about us?

UK- small, but growing

• Drivers of growth have been the Waterstone’s/Sony partnership and library aggregators in academic- Waterstones currently have 14k titles

• Borders are also moving and have been selling the iLiad

• W.H. Smith now selling ebooks• All universities are hooked into ebook

aggregators

Some hard figures

• Publishers Association say total UK download market worth £85 million in 2008- 3% of the market

• Audio downloads very significant• This represented 27.4% growth on the 2007

figure, but 127% growth in the general consumer category

• Academic/professional the biggest element• Sales of the Sony Reader “exceeded

expectations”; under 100k (300k worldwide)

Some lessons:

• What sells in print also sells in digital

• Merchandising and positioning on the retailer front page is key

• It is worth getting in on small and niche channels early and building a system - they will grow, and when they do it will be fast

• Demographics are from across the age range, but many people reading ebooks are in their fifties. They have disposable incomes, lots of books and want something for travel

• Getting a title good publicity, and then hooking this into the ebook is a key part of selling them. They work in virtuous, and vicious, cycles

Are we here yet?

Not quite.

The iPod Moment Myth

• Not going to be one moment

• Kindle, Apple will make a big difference

• Mobile and gaming platforms coming in

• New colour, touch and flex technologies

The iPhone and DS matter• 37m iPhones and iPod touches have been sold, 22m of them

iPhones (in 21 months)• UK market is 5% of this; US is 45% with 18-44 males making

70% of the market• 51% of US smartphone web traffic and 18% globally is from

the iPhone• 70% of users have downloaded an app with over 1 billion

apps being downloaded in 10 months• There are 41, 556 apps in the App Store- 78% of them

(32,326) are paid for- games are the biggest category, books the fastest growing

• The DS has sold over 100m units in five years, while the Wii has sold 45m units in 3 years

• The new DSi has wireless web access and an application platform

These guys?

Sony Enters France and Germany

• As with Waterstones, Sony has partnered with leading retailers

• FNAC in France, Libre and Thalia in Germany

• Kindle- wireless hold up in UK and Europe, phone apps could be a way forward

• German publishers banding together for the Libreka project

While out here, it’s a very different story…

Japanese Keitai fiction

• New form of mobile fiction pioneered by teenagers

• Now a market worth hundreds of millions - has saved Japanese publishers

• Keitai writing template site Maho iLand gets 3.5 billion views per month

• Keitai novel “Love Sky” has been downloaded and bought over 12 million times. The young author-Mika- is now a millionaire

China has seen a similar phenomenon but with online novels.

Commercial publishing houses, as in Japan, are now repackaging these as print titles with huge sales volumes.

“Novel” is the seventh most searched for term on Chinese search engine baidu.cn.

Perhaps in Asian societies there is less attachment to the book as an object?

So…the world is changing.

And our models are changing with it.

Not So Fast

• At the minute ebooks replicate print

• Same publishers, agents and writers

• Same content

• Same retailers

• Same internal processes

• Same price

• Same sales pattern

But things are shifting nonetheless…

Some emerging models and trends we are thinking about:

Content is changing

• The model of DVDs is coming in to play- many publishers looking at adding value

• Bundling and chunking mean that text will not be tied to the length and format of a book

• Multimedia elements will start to come into play

• There will be new interactions between print and digital- like O’Reilly

Producers are changing

• Opens up new long tail, crowd sourced and networked opportunities for content creation

• Publishers have to redefine their intermediary role

• Retailer consolidation with the big players on one side

• Grass roots distribution on the other

Marketing is changing

• From broadcast to conversation

• Viral possibilities opens up a new frontier

• Social media tools are free

• But are “owned” by their users

• Allows consumers to kick back as well as appreciate

Readers are changing

• Want frictionless delivery

• Do not like industry measures like DRM software

• Are increasingly expecting things for free

• Are talking to each other online

• Expect digital to be cheap and easy

Platforms are changing

• Audio downloads are growing at a huge rate• Mobile is the new big platform for digital

publishing• Games platforms like the Nintendo DS have

huge promise• Many new websites allow for “social publishing”• Distribution could be either download or online

access

Pricing is…??

• Currently contentious• Generally pegged to print price• Retailers want to exert downward pressure

to drive sales• Publishers don’t want to fall off a cliff• Consumers of books are willing to pay• Although pricing experiments confirm

there is a strong correlation between lowering price and increasing sales

IP is…??

• Piracy danger only just emerging

• Books available on bit torrents

• Document hosting websites like Scribd and Wattpad already displaying many novels

• Takedown notices more frequent

• But we don’t want to alienate readers

The killer device is…??

The view from where we are:

There has been a lot of progress

Systems set up, programmes in place, revenues coming in

Experimenting and learning fast has been key

Having an open mind to new things helps

As does a rigorous approach to the details

Conclusion

+

= …?

The End. Thank you!

Michael Bhaskarhttp://thedigitalist.net / www.10membranes.com