Publishers warm to e-books on their own terms
PARIS (Reuters) - Book publishers have survived the first stage of a digital revolution in better shape than the music industry and are now embracing the shift to e-books in their search for new revenue streams and lower costs.
The industry has been battered this year by a significant shift from physical books to e-books that has transferred power to Internet retailers led by Amazon and helped put some high-street chains like Borders out of business.
Publishers have fought and won for now a key battle to keep pricing control over their titles, unlike the music industry, which a decade ago allowed Apple to impose a flat rate of $0.99 on music tracks in its iTunes store.
Penguin and Hachette told Reuters this week they were quite optimistic that e-books would help them increase profitability and reach bigger audiences, although they had not yet figured out how to sell digital extras to readers.
"The consumer sort of slightly shrugs his shoulders and says: 'Well, that's marvelous but that's not something I'm going to pay for very much,'" Penguin Chief Executive John Makinson told the Reuters Global Media Summit.
As an example, he said Penguin had created an e-book of Jane Austen's Pride and Prejudice enhanced with clips from the Hollywood movie with Keira Knightley, as well as recipes and dance moves from the period, to no avail.
Children, he added, had taken more quickly to extra features, especially on touch screens like Apple's iPad. Many classic kids' books such as Alice in Wonderland and the Cat in the Hat have been rejuvenated in the digital form with added animation and games.
Hachette CEO Arnaud Nourry agreed that readers of e-books had proven conservative so far.
"Customers do not want these enriched things that we are talking about all day," he said. "I don't think we would have sold more Dan Brown books with recipes."
The shift to e-books, which is most advanced in the United States where Amazon catalyzed the market with its Kindle device and store four years ago, has already touched off changes to publishers' business models, distribution systems and costs.
While e-book prices are on average 20-30 percent lower than those of physical books, they save publishers the cost of storing and moving books around, and reduce the working capital tied up in inventory.
In markets where book prices are not regulated by law, including the United States and Britain, this has already made e-books more profitable for publishers than print books.
In regulated markets like France and Germany where laws prevent book stores and supermarkets from discounting in an effort to protect local culture and prevent the book from being a commodity like any other, print books are still more profitable.
In the United States, e-books account for about 25 percent of book sales by volume and 20 percent by revenue. In Britain, the figure is about 10 percent by volume, while the rest of Europe and Asia excluding Japan are just getting off the ground.
Germany, the world's second-biggest book market after the United States, was the first in continental Europe to get the Kindle and local language titles in April. Amazon launched the Kindle in France in October, and in Spain and Italy this week.
"We're just at the beginning of the curve," Nourry said.
Publishers have reached a kind of peace for now in their often stormy relationships with Internet giants like Amazon and Google, who were largely responsible for bringing the digital revolution to the world of books.
Google enraged publishers and authors in 2004 with a controversial book-scanning project it billed as an effort to make the content of the world's libraries available to all but was seen by opponents as intellectual property theft.
U.S. publishers and authors took Google to court over the matter in 2005. The parties have since tried to settle the case but the issue has meantime escalated and a U.S. judge rejected it in March.
Google has meanwhile scanned more than 13 million books and reached a pragmatic compromise with publishers and authors in many countries.
With Amazon, publishers fought an intense battle over how e-book prices would be set, opposing the Internet retailer's effort to impose $9.99 as a standard for new titles on the Kindle, Apple iTunes-style.
Ironically, it was only the emergence last year of Apple with its iPad as a counterweight to Amazon that allowed the so-called "Big Six" publishers to win back control of pricing.
In what was a major shift for the industry, the publishers, determined to avoid the mistakes made by the music industry, imposed an "agency model" in which they set their own prices.
In the traditional "wholesale model" prevalent in non-regulated book markets like the United States, publishers set a recommended retail price but the seller is then free to offer deep discounts.
With these fights behind them, Penguin and Hachette seemed to have mellowed in their attitude to their one-time foes.
"We had to bring Amazon into line and eventually we did," said Makinson. "The results have been good."
He said there was now a very competitive market in the U.S. with Google's eBookstore, Apple's iBookstore and Barnes & Noble's Nook -- to the advantage of publishers.
Hachette's Nourry, once one of Google's fiercest opponents during the book scanning row, is today rooting for the search engine company to sell more books: "I would love to see Google be a stronger animal," he said.
The evolution of the book market is still in its early days, however, and issues like piracy are re-emerging as digital booksellers try to replicate features popular with book-lovers, such as lending, in the digital world.
A new front has recently opened over Amazon's new Kindle lending library, which allows members of the website's loyalty program known as Prime to borrow a book every month for free.
The Big Six -- Hachette, HarperCollins, MacMillan, Penguin, Random House and Simon & Schuster -- have all refused to join the lending library, arguing that it devalues books in the eyes of customers.
Nourry said Hachette would not join the program even if Amazon offered it a slice of revenue from the lending.
"It's not that I am against libraries, or a book being sold and then read by 10 different people, but it's clearly a way invented by retailers to change the balance of power."
Makinson said Penguin would continue to talk with Amazon about the lending library concept, but that the issue was as much about the risk of piracy as pricing.
"Amazon is embarking on new initiatives that could put file security at risk and that would be not good for anyone."
Nourry said he would like to one day find a way for readers to lend each other e-books, but said copyright protection was currently more important as the industry's new business models were still fragile.
"My business consists of selling books," he said. "People who buy Kindles every 18 months and iPads for $600 -- they don't need our help."
(Reporting by Gwenaelle Barzic, Kate Holton, and Marie Mawad; Editing by Erica Billingham)