E-books and the Australian Publishing Industry

It’s a widely held opinion that the printed book is a dying species. Journalist Hugh Rimmington, when guest hosting the 7 pm Project, jocularly asked the author of a new book of horror stories why on earth he took the trouble to write and promote his printed book with Kindle and e-books taking over the world.[1] Digital books are already here and have been with us for some time. They have replaced print versions completely in some areas of publishing. Those parts of publishing are largely invisible to general readers, whose view of publishing is framed by the books available through retail outlets, but have contributed significantly to the overall profitability and success of the Australian publishing industry. These days the publishing industry has hived off its digital segments into separate companies as print has ceased to be the most common delivery mechanism. For example, Thomson sold off education to concentrate on its professional and news companies and Reed Elsevier, the giant of science publishing, long ago dropped its trade companies, and it sold off its education arm to Pearson in 2007.

The downside of this is that economic synergies dissipate in specialised companies. A company focused solely on the trade market takes fewer risks when making publishing decisions.[2] Information gleaned from sales data systems such as Bookscan are pored over to discern trends and identify opportunities, bringing greater precision, but less variety, to publishing decisions. This began to happen in the general trade segment, even without e-books being yet a significant revenue line. It has happened because of the pressure brought to bear on the general trade market as those segments of the publishing industry where digital technology has already had an impact remove themselves from the paradigm of print production.

Scientific publishing has almost disappeared as printed matter, though many libraries and advertisers still prefer the paper-based product. While never highly profitable in Australia, this segment has been underwritten by institutions and learned societies. The CSIRO and Australasian Medical Publishing Company Ltd (AMPCo) are long-serving exemplars.

AMPCo has been responsible for the publication of numerous learned journals and books since the first issue of the Medical Journal of Australia (MJA) in July 1914.[3] AMPCo is a subsidiary of the Australian Medical Association (AMA). Its goal was to cover costs and not bleed revenue, but it did for a number of years in the 1970s and 1980s until all production was outsourced. When I took my first job as a subeditor at the MJA in 1977, typesetters still worked on hot-metal machines and the journal was printed in-house. Composition was computerised within six months of my arrival, and printing outsourced. Today, the MJA is published online as well as in print, in line with most leading international scientific publications, and it covers its costs through its subscription base of AMA members and advertising from pharmaceutical and similar companies. To survive in scientific publishing, a journal must have a significant Impact Factor, a measure that is calculated as citations in a given year of papers published in the previous two years divided by the total number of papers published in those same two years.[4] The MJA ranks eighteenth in terms of Impact Factor for General and Internal Medicine journals, a very respectable ranking given the positioning of major US and British medical journals.

The CSIRO’s twenty-six journals are also published in print and online, some only online. The agricultural titles rank tenth and fourteenth in the world in their categories. Australian Journal of Chemistry ranks thirty-fifth in the world in its category of 127 journals. Their water journal is sixth out of nineteen.[5] For some more highly cited publications, costs are recovered mainly through subscription fees, with open access methodology, where authors pay publication costs, also making a contribution. Pioneered by the online Public Library of Science and Springer Verlag,[6] this last practice is now becoming common in scientific publishing and ensures that content is not locked off in a user-pays subscription model, as can happen with journals published by Reed Elsevier and similar companies. As it is, Australian university libraries pay hefty subscription fees to such companies in order to access online the published scientific research of their own academics.

Another segment that has been subject to great change is scholarly publishing, an odd combination of commerce and intellectual elitism, with a rather mean heart. For example, while companies such as Oxford University Press and Cambridge University Press have become substantial income-earners, their publishing is largely based on the need for academics to have their research in print, in peer-reviewed form. As with scientific publishing, the primary aim of publication is not for authors to make a living from the written word but from their academic careers. Publishing agreements for scholarly books tend to be low on royalty rates, often require subsidies and even cede copyright.

In the 1980s and 1990s prominent imprints Sydney University Press and ANU Press were sold off. UWA Press, Melbourne University Publishing, UQP and UNSW Press continue to operate, none strictly scholarly these days, and all subsidised to some degree. But the digital age has provided alternative options for scholarly publishing. Sydney University Press has been resurrected as a digital and print-on-demand imprint, and Monash University now operates an e-press that produces a number of online books and journals (some produced as print on demand through Sydney’s facilities). RMIT’s publishing unit has morphed into Informit, a provider of online subscriber databases offering access to full-text articles.

By avoiding the costs of inventory and distribution, the process of publishing can be relatively inexpensive. For specialist, academic publications with small yet identifiable and contactable audiences, this may even be a better form of publication than print. Since the point of publication is not inherently commercial, when this form of publication is combined with open access or Creative Commons forms of licences, it is free, in more than one respect, to find the place it seeks within education.

Where information has a price, as in professional publishing, adaptation to a digital world has been very profitable. In the 1960s and 1970s Law Book Company, Butterworths and CCH were producing loose-leaf services for lawyers and accountants. Each firm employed industry specialists, editors, typesetters and printers who would write and produce information for professional audiences within hours or days of the passage of legislation or some judicial ruling. Subscribers to these services would receive a new folio in, say, criminal law or commercial law that later could be bound into a volume.

As well as removing considerable weight from practitioners’ shelves, digital delivery has served to enhance and improve these services, particularly their profitability. The direct descendants of the loose-leaf publishers are LexisNexis (Butterworths), Thomson Reuters Australia (Law Book Company) and Wolters Kluwer (CCH). LexisNexis is part of the Reed Elsevier publishing group. In 2008, this company had profits of 25.8 per cent on its revenues of £5344 million (A$9404 million, as at February 2010).[7] Even in the disastrous 2009 financial year, profit levels increased.[8] Professional publishing now operates entirely online, with greater profitability for the publishers and more functional products for their consumers.

Reference publishing has not had such a fortuitous transition. The Australian Encyclopaedia existed for six editions.[9] It was first published by Angus & Robertson in two volumes in 1925 and last published by the Australian Geographic Society in eight volumes in 1996. The CD-ROM version was also a disaster—the internet destroyed that market. No-one in their right mind would invest in the publication of a printed encyclopaedia today. Wikis and online databases have turned such reference sources into dinosaurs.

Research projects that once produced printed databases, such as the Australian Dictionary of National Biography, have now successfully moved into online versions.[10] For example, AustLit, which seeks to create an online bibliography of Australian literature, builds on the print resources of the past while creating a more flexible and accessible resource for the present and future.[11] These resources were already supported through research funding, and that funding had supported the acquisition of technology that assisted the compilation of complex databases, so the shift to digital output was essentially a simple add-on. There are advantages for users and compilers in digitally published databases—the research can be made available immediately, additions and changes can be instantaneous. With no investment in print inventory, more funds are available for research and the database, and search functions can be more complex.

Educational publishing, by which I mean publishing for schools and undergraduate higher education, has not suffered like reference publishing nor moved completely to digital delivery, but it is the area where publishing revenue is most immediately at threat. The 2007 Australian Publishers Association annual survey revealed sales of $385 million for a representative sample of educational publishers.[12] The full value of the sector is probably 40 per cent more than this, which accords with the ABS figures collected in 2000–04. Because this segment dovetails in places with the general market, and because many trade publishers such as Pearson (Penguin), Macmillan and Allen & Unwin also retain educational lists, it perhaps offers a model for how we may expect the general trade market to develop digital product lines.

The traditional model for educational publishing has been that teachers set a textbook and students then purchased it. Educational publishers have focused all their marketing on teachers, which has given the latter a degree of power. They ask for materials—tests, resources, lesson plans and so on—to assist them teach from the set textbook and such material is supplied free by publishers. Publishers now provide much of this material in digital form. This has required significant investment, with no direct return.

At the same time, educators have been moving away from reliance on one textbook or even one source of information on a topic. In universities, the rise of photocopied coursebooks of readings in the 1980s and 1990s eroded the traditional textbook market, thanks to Australia’s liberal Copyright Act and its provisions permitting educational use. This has a plus side. Licence fees for use of this material collected by Copyright Agency Limited (CAL) gave school publishers $13.36 million (6.5 per cent) and higher education publishers $4.9 million (2.7 per cent) towards 2007 revenues.[13] These days the readings are more likely to be accessed through ‘e-reserve’ and available to students direct on their computer screens, but licence fees are still collected for digital use.

In schools, increased investment in whiteboards and computers in schools has meant teachers are becoming less and less reliant on the use of textbooks. Publishers have scrambled to provide digital resources that can be networked or made available on DVDs in place of print resources, but there have been difficulties in generating revenues from the marketplace equal to those of book sales. This is the crux of the problem with e-books and digital products, as demonstrated by what has happened in the music industry, where the price-points and revenues from sales of digital files remain far lower than from sales of physical product. Consumers do not expect to pay the same or greater price for a digital book than for the print version. While educational publishers are making considerable investment in digital versions of their print product, neither the school nor higher education market yet reports significant revenues from online/digital products, as much of what they produce is given away or licensed. Revenue from indirect or direct licensing of content use (for example, signing a school or a university to an annual licence to use networked content) does not equal sales revenue from books, and there is a balancing act going on to build revenues from digital products as sales of print product decrease.

Many publishers now offer custom publishing options that, through a combination of digital production and print-on-demand technologies, will provide a textbook designed with input from a teacher. This may be a book of readings with notes from the teacher or a slimmed down text or some other combination. In 2007, custom titles were providing 2 per cent of sales for Australian higher education publishers; in contrast, sales of online/digital product declined from 4.4 per cent of sales in 2005 to 0.1 per cent in 2007. In Australia, demand for McGraw-Hill’s custom offerings has been growing steadily since 2003, and the company now offers its local textbooks in e-book form, with custom applications for these in development.[14]

I for one have predicted the demise of this publishing segment, but sales remain surprisingly buoyant. Educational publishers report healthy profits and strong sales. In 2007, school publishers reported a profit before income tax (PBIT) of 12.9 per cent, though this was a decline from the 16.3 per cent PBIT of 2005. Higher education publishers, too, reported 13.4 per cent PBIT in 2007, an increase on the 12.2 per cent PBIT of 2005.[15] US higher education publishers also reported a 13 per cent increase in sales in 2009.[16]

The Kindle has failed to capitalise on this. In a trial at Princeton University, students were provided with a free Kindle loaded with their textbooks and course materials then surveyed after completion of the course. While survey participants ‘cited the Kindle’s battery life, wireless connection, portability, search feature and ability to consolidate all course documents in one place as convenient features’, and users of the Kindle printed out less, ‘users said they often found its design ill-suited for class readings. Students and faculty participating in the program said it was difficult to highlight and annotate PDF files and to use the folder structure intended to organize documents … The inability to quickly navigate between documents and view two or more documents at the same time also frustrated users’.[17] About two-thirds of participants said they would not purchase a new e-reader if the one they were using broke.

The printed book is showing no signs even of a death rattle. Book sales in the trade market have not decreased appreciably in the face of digital competition—in fact they have increased. Bookseller and Publisher Magazine’s Weekly Book Newsletter reported trade sales of books in Australia in 2009, as recorded by Nielsen Bookscan (from 85 per cent of the trade market), increased 6 per cent over 2008 in both value and volume, totalling $1291 million in value and 64.8 million books.[18] The number of books being published is increasing. Leslyn Thompson reported in Australian Bookseller & Publisher in October 2009 that ‘Australian publishing output was up 12 per cent in 2008 (over calendar year 2007 levels)’, including a total of 15,961 titles published.[19] This is in large part because digital print-on-demand technology has meant that it is now easy for almost anyone to produce economically viable small print runs.

According to the Productivity Commission, the Australian book industry has annual sales of $2.5 billion, the general trade segment comprising 60 per cent of the Australian book market, with education (in a very broad sense) making up the remainder.[20] While not as large as the newspaper and magazine publishing industry, book publishing is arguably Australia’s most successful creative industry in that it has reached a point of self-sustainability well in advance of others such as the film industry, television or the performing arts. The printed book has changed little since first produced in the 1450s.At the same time, the processes of book production have undergone profound change. When I started work as an editor, some forty years ago, I worked at a typewriter. I didn’t even get an electric typewriter with a self-correcting function until 1980. I compiled a six-monthly index using a three-way, segmented wooden box and orange file cards. I would carry the box and cards down to the composition room where the index was typeset in hot metal.

While early desktop publishing systems were not up to handling the intricacies of indexing, they replaced almost all the separate functions of the production process. Yet publishing still follows an archaic business model whereby publishers send out books to booksellers, who try to sell or hold the inventory until they deem it unsaleable, then return it to the publishers at no cost to themselves—a process known as sale or return. Additionally, the system of rights that underlies agreements between authors and publishers is more than three hundred years old. It can be described, as copyright lawyer Lawrence Lessig does, as ‘among the least efficient property systems known to man’.[21]

There is no clear business model for e-books and other digital content. This is largely because without the right technology publishers have been resistant to the concept. But now that Apple has produced iPad and the Kindle has been released in Australia, the platforms for e-books have arrived. I suspect the Kindle will have a relatively short life despite the support given it by Amazon—it’s only a reader whereas both the iPad and iPhone are multifunction devices.

Are e-books having an impact on printed books? The evidence from the United States is equivocal. The Association of American Publishers reported in April 2010 that ‘U.S. publishers had net sales of $23.9 billion in 2009, down from $24.3 billion in 2008, representing a 1.8 per cent decrease’ (or US$40 million) while at the same time ‘e-books overtook audiobooks in 2009 with sales reaching $313 million in 2009, up 176.6 per cent’.[22] While that’s a massive increase in e-book sales, it is still only a small proportion of the total book market. It is unclear whether the small decline in US sales was due to ongoing economic uncertainty or the increasing availability of e-books. It is clear the e-book sales are booming. The International Digital Publishing Forum reports that US e-books sales for the first quarter of 2010 were almost three times the value of such sales in the first quarter of 2009. But nothing beyond this phenomenal growth is yet clear. Publisher Elizabeth Weiss of Allen & Unwin advises: ‘Reliable data on e-book sales is hard to come by, and it’s not unusual to see a variety of figures on the size of the US market. It’s possible from the figures I see that the current e-book market is some 5 per cent of the whole US general book trade, while over the whole of the 2009 calendar year, e-book sales represented some 3 per cent of the market.’[23] E-book sales figures for Australia are even more difficult to come by. Still, given that our market follows trends in the United States and the United Kingdom, e-books should have an impact on the general trade market in Australia very soon.

All publishers face the problem of licensing digital rights, which until recently have not been included in a standard book contract. Publishers have had to negotiate with their authors in an attempt to apply such rights to existing contracts. But what are such rights worth? Authors’ advocates have always argued they are worth more than the rights for print. They point out that the cost of providing digital files for download is miniscule compared with the costs of printing, then shipping copies of books across a continent. The proposed Google settlement established a benchmark of 67 per cent of revenues from digital exploitation of works to the rights-holders. In recent years, trade publishers have demanded that authors sign up for digital rights as a condition for print publishing and have sought to retain rights for CAL payments after a book has been declared out of print. I would not be surprised to see more of them offering a contract along the lines of those offered by educational publishers, which require an author to cede copyright (the publishers’ rationale is that they may have many editions and versions of an educational work and they require total control over the content). Only literary agents and strong-minded authors stand against that eventuality.

Booksellers currently buy printed trade books at an average discount of 40 per cent off the recommended retail price (terms differ in the different sectors of the educational market), most purchases being on a sale or return basis. To survive, booksellers need to be able cover the cost of wages, insurance, accounting software, information technology, inventory, marketing, premises and so on. Don Grover, CEO of Dymocks, has claimed his business provides a return of about 2 per cent.[24] The situation is somewhat better for publishers. In 2007, trade publishers reported a profit before tax of 10.4 per cent.[25] If we accept an author royalty of 10 per cent of recommended retail price and a publisher profit margin of 10 per cent as revenue measures, authors and publishers receive similar returns from printed books.

For e-books, royalties of 20–25 per cent of net receipts are being offered to authors, net receipts being the amount received by the publisher after selling the digital file to the e-book retailer. But the sale of e-books can be very good for booksellers. Amazon—which is currently setting a price point of $9.99 or lower—has been asking publishers for a 55–65 per cent discount on their retail price, which means the proportion of return for an author does not improve for e-books (25 per cent of 40 per cent: still only 10 per cent of the price of the book).[26] In this model, the bookseller does best, the publisher does okay and the author is robbed. Same as it ever was, some might say.

Nevertheless, the availability of e-books threatens publishers and booksellers, whether online or bricks-and-mortar outlets. For those booksellers that offer only printed books, there is the potential for their market to evaporate, though given the strength of the print market that is unlikely to happen overnight. It’s more likely to be a slow decline. Publishers can of course offer books directly from their own websites and cut out the e-bookseller. It’s more likely, though, that iTunes, Amazon and similar businesses will maintain the supply role they have carved out for themselves.

This may well make life tricky for publishers. Authors can expect greater returns if they deal directly with the ‘e-retailer’. US author J.A. Konrath, for example, has described how he makes far less from books licensed into Kindle by his publisher, Hyperion, than he does on titles he has licensed directly to Kindle.[27] However, the biggest threat to larger publishers comes not from e-books but from the pressure to achieve certain profit levels while their product line-up becomes increasingly homogenous. The market will rapidly tire, I suspect, of vampire books and fantasy trilogies. The trick is to identify the next big thing in time to meet the annual sales target—and the risk in that is great. Since the larger trade publishers generally are targeting older readers or upwardly mobile young female readers who have been shown to be readers and book-buyers, there is also an inherent problem in the market. [28] Readers are dying off or focused on limited subjects and topics. This environment will not encourage much inventiveness with e-books.

At present, e-book sales in the trade market mirror those of the print bestseller lists, but the form is still evolving. There is enormous scope for entrepreneurial small publishers or authors to develop e-books for other groups and markets and it is here the potential for e-books lies—and where publishers face the biggest challenge in retaining traditional readers and market share.

The lack of variety from major publishers opens an opportunity for smaller publishers, and authors, to provide alternatives and use digital technologies to expand their marketability and sales. US science fiction writer Cory Doctorow has documented his success with his books being ‘simultaneously released on the Internet under Creative Commons licenses that encourage their re-use and sharing’, a move that increases his sales by enlisting his readers to help promote his work. [29] Sleepers Publishing in Melbourne publishes the Sleepers Almanac, which, as of 2010, will be available on an iPhone application. Literary journals Meanjin and Overland have developed a combined website, Meanland, where essays considering reading in an age of change are published, alongside podcasts and videos. The Australian Society of Authors has improved delivery times and drastically reduced inventory costs by using a combination of print-on-demand and digital files to provide up-to-date information to its members and paying members of the public. These all represent small but effective changes in practice by authors or small publishers. The response to the digital challenge on the part of larger publishers has been more muted and has mainly focused on ensuring book files are suitable for e-reader platforms. Lonely Planet is the only significant publisher to have developed its content to work across a wide range of digital platforms (but perhaps this is because Lonely Planet, like most educational publishers, owns most rights to its content and is not constrained by its agreements with authors).

We are thirty years into the digital age: we have said good-bye to printed encyclopaedias and loose-leaf publications. Scholarly books tend more to be PDFs than bound volumes. Thanks to digital production processes the educational market consists of a combination of online material, software, custom publications and textbooks. The general trade market stands ready to supply e-books and digital content. Despite appearances, the Australian publishing industry has prepared itself well for digital delivery. The problem is that those calling the shots in e-book supply are not traditional publishers—it is retailers such as Amazon and new players such as Apple that are driving the market. In thirty years from now, traditional publishers may be irrelevant in the production of books, printed or digital. If the current patterns follow their long-term trajectory we will have more books available in short print runs, and more of these will be available in both print and e-book editions. Readers may well have more, not less, choice. That funny object consisting of bound sheets of paper may finally change its form, but I suspect we’ll still call whatever we are reading a ‘book’.

Notes

1. 7 pm Project, Channel 10/Southern Cross television, viewed 17 February 2010
2. Throughout this essay I use the terms ‘trade’, ‘trade market’ and ‘general trade market’ to refer to adult fiction, adult nonfiction and children’s fiction and nonfiction titles.
3. http://adbonline.anu.edu.au/biogs/A070096b.htm, viewed 15 February, 2010; Rod Home, ‘Case Study: Scientific Publishing’, in Martyn Lyons and John Arnold (eds), A History of the Book in Australia 1991–1945, UQP, Brisbane, 2001, p. 294
4. Impact Factor was developed by Eugene Garfield of ISI Press, a company specialising in citations and cross-referencing. ISI is now a subsidiary of Thomson Reuters.
5. Emails and conversations with Andrew Stammer, Journals Publishing Director, CSIRO Publishing, 16 February 2010
6. http://www.plos.org/
7. http://www.reedelsevier.com/annualreport08/Review/Pages/div-summary.aspx, viewed 15 February 2010
8. http://www.reed-elsevier.com/mediacentre/pressreleases/2009/Pages/ReedElsevierInterimResults2009.aspx viewed 15 February 2010
9. I created the index for the fourth.
10. http://adbonline.anu.edu.au/adbonline.htm
11. www.austlit.edu.au
12. Australian Publishers Association, 2007 Industry Study, APA, Sydney, pp. 20, 21, 28, 29
13. Australian Publishers Association, 2007 Industry Study, pp. 21, 29
14. Email from Ailsa Brackley-Dubois, Management Publisher, McGraw-Hill, 10 March 2010; email from Jared Dunn, Director, Marketing and Digital Product, McGraw-Hill, 12 March 2010
15. Australian Publishers Association, 2007 Industry Study, pp. 21, 29
16. Jim Milliot, ‘E-book sales jump 176 per cent in flat trade year’, Publishers Weekly, 22 February 2010, http://www.publishersweekly.com/article/450299-E_Book_Sales_Jump_176_in_Flat_Trade_Year.php?rssid=20796&q=e-book+sales.
17. http://www.dailyprincetonian.com/2010/02/22/25262, viewed 9 March 2010
18. Bookseller and Publisher Magazine’s Weekly Book Newsletter, no. 1913, 6 January 2010, http://www.booksellerandpublisher.com.au/articles/2010/01/14379/.
19. Leslyn Thompson, ‘Australian Book Publishing in 2008:00:00 Thriving in Uncertain Times’, Australian Bookseller & Publisher, October 2009, pp. 12–13.
20. Productivity Commission, Restrictions on the Parallel Importation of Books, Research report, Canberra, 2009, p. 2.1. The Australian Bureau of Statistics report Book Publishers, Australia 1363 compiled from 1994 to 2003–2004 reveals a similar market breakdown.
21. Lawrence Lessig, ‘Copyright deal is a cultural disaster’, Australian, 24 February 2010, p. 29
22. http://www.publishers.org/main/IndustryStats/indStats_02.htm, viewed 25 June 2010
23. Email from Elisabeth Weiss, 23 February 2010
24. Don Grover, speaking to Productivity Commission Panel in Sydney convened as part of the inquiry into parallel importation of books, 8 April 2009
25. Australian Publishers Association, 2007 Industry Study, APA, Sydney, pp. 4–5.
26. The Amazon executive in charge of Kindle telephoned me when I was executive director of the ASA to dispute my claim that Amazon was taking the majority of profits from Kindle sales: Amazon was taking only 55 per cent. Publishers I have spoken with report the figure is 60 per cent.
27. http://jakonrath.blogspot.com/2009/10/kindle-numbers-traditional-publishing.html
28. Australia Council for the Arts -2009 General Reading/Buying Research, prepared by Starcom for the Australia Council for the Arts, Sydney, http://www.australiacouncil.gov.au/_data/assets/pdf_file/0004/48658/Books_Alive_-_reader_research1.pdf.
29. Cory Doctorow, http://craphound.com/content/about-cory-doctorow/, viewed 22 March 2010