Authored by: Alexander McGlone & Ayaan Fazil
Edited by: Samuel Tan
Growth in the backdrop of disruption
The publishing industry continues to transform into the digital space as e-readers, audiobooks and other types of digital media encroach on the historically homogeneous print media type. This is best exemplified by the fact that the digital publishing sector is projected to grow at a CAGR 8.1% (Figure 1) higher than the publishing industry as a whole (8.4% vs 0.3%) . With this shift to digital media comes challenges and opportunities for incumbent businesses who face 3 key trends which they will need to overcome and adapt to.
The dual infrastructure model and the associated rise of plagiarism
The first of many challenges that businesses must overcome to thrive in this dynamic environment is the issues associated with maintaining a digital infrastructure for the distribution and publishing of books and media. Maintaining a dual infrastructure model - an infrastructure for physical print and virtual infrastructure for digital copies can incur a higher cost to the firm, especially with the simultaneous rise of final stage distributors such as Amazon who hold monopsony power and can drive down the price publishers receive on their books.
Furthermore, the ease of plagiarism in the digital environment, exemplified by the Nunes/Mullens dispute publicised by the Atlantic in 2016 , poses a risk in terms of revenue loss to publishing firms as their work is unlawfully infringed by self-publishers.
The rise of podcasting and audiobooks as a form of media
Whilst e-books grew at a more modest rate, podcasts and audiobooks have been the beneficiary of explosive growth in recent years. In 2019, podcast consumption in USA has grown by 37.5%, whilst audiobook sales increased by 16% . This was the eighth straight year of revenue growth over 10% for the latter. These powerful growth statistics highlight the increased consumer appetite for new forms of media. In this paper, we will present this as an opportunity to diversify their revenue streams beyond print media which currently accounts for 80% of publisher revenue at this stage .
...podcasts and audiobooks have been the beneficiary of explosive growth in recent years...
The emergence of self-publishing and associated market
Arguably the most disruptive change associated with the digital transformation of the industry is the advent of self-publishing capacity afforded by the development of e-books. What has once been a notoriously laborious and bureaucratic affair has now become democratised by digital publishing and marketing options. Now 92% of books published on Amazon are from authors who choose to self-publish as opposed to the mere 6% it comprised in 2007 .
Increased ease of self-publishing turns authors away from publishing companies
As explicated earlier, self-publishing has grown dramatically in the last 10-15 years, facilitated by the rise of the digital space in the publishing industry. The self-publishing industry is growing at a CAGR of 17%, much higher than the publishing industry as a whole . There has been a historic rise at the start of the digital media boom in the late 2000s and early 2010s where such books grew from a negligible market share to 30% of the US market according to publishing commentator Mike Shatzkin, author of ‘The Book Business: what you need to know’ . The reason why this was possible is clear, the relative ease of getting a book into an online marketplace compared to a bookshelf in a physical bookstore like Barnes and Noble. But to understand how publishers can adapt to benefit from this trend and not lose out on revenue as a result of self-published success stories such as Andy Weir's ‘The Martian’, we need to discuss why many are taking the decision to self-publish.
There are two key reasons why authors choose to self-publish. The first of which is increased profitability. Depending on the platform, self-published authors can earn approximately 70-96% on the face value of their book. This is a much more attractive margin than the 6% which traditionally published authors with agents tend to earn from the sales of their books. Over 1,600 indie authors in USA earn more than $25,000 compared to only 1,200 traditionally published authors . This is in spite of the fact that traditional publishers still dominate the industry. The second key reason is the immense effort which publishing a book through the established channels can take. J.K Rowling, author of arguably the most famous fiction series of all time, was rejected by publishers 12 times before Bloomsbury took her work onboard . This process of pitching followed by constant rejection would naturally be demoralising and, now that other alternatives are available, unappealing to aspiring authors. Now the question remains, what should publishers do?
Introduction of alternative services and publishing revenue for authors
In light of this, the onus is clearly on established publishers to adjust to the changing market. However, the way in which this has to be done must be innovative, as expanding the current publishing model, where publishers take a cut from books which they publish, will not work if they are attempting to capture this part of the market. The publishing houses must adapt whilst simultaneously retaining bestselling authors which generate the bulk of their revenue. Such a model will not work when the average book earns $300 compared to a profit margin over over $1000 through self-publishing.
Instead, we propose that publishers introduce offer services to assist authors in publishing and self-publishing. What this means in practice is that if books fail to meet publishing standards, publishers can pivot to offer self-publishing aid services in the same way self-publishing consultants such as Jane Friedman and Naomi Rose offer art, marketing, and editing services for an hourly fee. Publishers have experience in the area and should be able to offer these services with relative ease. This would prevent publishers from missing out on ‘diamonds’ due to the desire of authors to avoid publishers for the aforementioned reasons, whilst still profiting from books they help self-publish.
One could argue that if an author got an offer from a publisher, they would be sure of the quality of their book and choose to self-publish. However, this is financially risky, and; many authors may not be able to afford this. The might of the publishing industry would be able to market a hit book much more effectively than most authors can and this provides a huge incentive for the authors to accept the publisher's offer. Although more self-published authors earn over $25,000, relatively speaking, fewer are the beneficiary of movies, tv-series, interviews, and other alternative revenue streams.
The might of the publishing industry would be able to market a hit book much more effectively than most authors can
Problems and opportunities created by a digital publishing industry
Illegal downloading and distribution of eBooks
Throughout 2020, the focus of the publishing industry has undergone a drastic shift. The persistent lockdown measures and social distancing requirements hindered the ability of consumers from easily walking into a book shop as before. This encouraged readers to look towards eBooks as an alternative. Prior to the COVID-19 pandemic, it looked as though eBook usership was plateauing. However, as the pandemic has restricted the ability to browse and purchase physical books, we have observed an increased demand for eBooks.
With home learning becoming the new normal, eBooks have enabled school children across the world to access textbooks some of whom would otherwise be unable to obtain a copy. However, as publishing becomes more digitalised: an issue facing the industry is the counterfeiting of eBooks into downloadable PDFs and misused access through the sharing of passwords. In a recent study by McGraw-Hill, it was found that only 1 in 5 students who used their digital textbooks paid the publisher; other students had illegally acquired copies of these textbooks .
Only 1 in 5 students who used their digital textbooks paid the publisher
The solution to this could come from publishing houses issuing licences to institutions, rather than allowing their materials to be purchased outrightly. For example, when used in an academic setting, companies could look to offer the licencing to the institution rather than the individual. This would mean students who no longer require the materials would be unable to gain unauthorised access. This would help prevent illegal duplication and selling of copyrighted materials.
Testbedding eBook demand in established markets and reducing prices
As the publishing industry is amid a digital transformation, publishing companies find themselves in a difficult position. Whilst demand is still strong for physical copies, publishing companies are in the predicament of maintaining two separate infrastructures: a printing infrastructure and a digital infrastructure. The lack of clarity concerning the short-term growth of e-publishing is hindering possible developments in the sector, and it is, therefore, necessary that businesses start to explore possible ideas.
We recommend that the companies with a significant presence in the most technologically advanced countries with strong cash flows and financial ratios should look to expand their digital publishing operations, initially as a trial. China, USA, Canada, Sweden and the UK have eBook user penetration rates of 26.1%, 23.4%, 23.3%, 22.7% and 20.3% respectively . All of which are significantly higher than the average global user penetration rate for eBooks of 14.9%. Therefore, we recommend corporations conduct in-depth trials and tests in the aforementioned markets to gain a stronger understanding of consumer preferences and the unique opportunities presented by digital publishing.
On the other hand, in comparison to physical books, eBooks are often sold for higher prices, and the consumers do not actually benefit from the cost reduction that comes from low printing and distribution expenses. At this moment, this curbs the eBooks market’s growth potential heavily, although the general adoption among consumers is still consistently growing. In recent years, this is contributing to the relatively low user penetration rates in markets in general. If eBooks are to succeed in the developing economy, it is paramount that publishers reduce their prices to reflect the savings they are making over physical books.
The scope for development in audio recordings and their subscription-based services
Much like eBooks, audiobooks have had a large-scale impact on the traditional publishing industry over the last decade. Consumers have been more inclined to subscription-based services such as Netflix and Spotify which have given users greater flexibility and choice over purchasing individual movies and tracks. This has only been possible due to the ubiquity of the smartphone, demonstrated by the fact that 81% of Americans now own a smartphone .
From 2020 to 2027, the global audiobook market is expected to grow at a CAGR of 22.4% to reach a value of $15.3 billion. Additionally, over 43.9% of the revenue received in the market comes from users on smartphones. In comparison, the subscription-based distribution channel is expected to grow at a faster rate with a CAGR of 25.6% . The faster rate is not only due to the wider access of recordings a subscription-based service provides but also due to the price difference. Audible subscriptions on average cost $10 a month but purchasing a single recording can cost up to $20. Therefore, it is not surprising that majority of audiobook consumers do so through a subscription. North America accounts for the largest proportion of revenue in the sector at 45%, as the earliest adopter of the technology .
44% of Americans have at least one digital assistant in their households. Because of this, we believe AI could provide a great growth opportunity in the sector . This is a possibility through increased software optimisation between digital assistants and audiobook technology. Google smart speakers currently have a 31% market share out of all smart speakers used. However, it is not possible to listen to audiobooks directly through the Google device. Integrating audiobook platforms such as Audible with Google and other technology providers to optimise user interface and introduce AI would enable smart recommendations and increased user engagement, thereby, providing listeners with an increasingly immersive experience.
Interestingly, over the last few years, vocal interactions have been used increasingly when interacting with technology. It is likely the introduction of smart speakers such as Amazon’s Alexa into people’s homes has made the global population more relaxed and comfortable interacting with technology. In 2020, Google reported 27% of the global population used voice search on mobile, exploring new frontiers in interacting and consuming search engines. A confluence of audio consumption and audio engagement with technology further reinforces the familiarity and demand for podcasts and audiobooks.
This would unlock access to a significant portion of the market as over 50% of audiobook consumption is done at home . Furthermore, over the coming years, we can only expect that figure to rise due to the increased take-up of working from home behaviour. In addition, the podcast industry is expected to grow at a CAGR of 27.5% from 2020 to $64.8 billion in 2027 . Unlike books, podcasts have enabled one-to-many access from producer to consumer directly through media platforms and social media platforms and subscription-based services. This is in contrast to books that have to undergo processes of vetting, editing and publishing after lengthy delays.
The Asia Pacific region is anticipated to accumulate a significant revenue share in eBooks and podcasts over the next decade, with China and Japan expected to lead the growth in the region. The availability of media in international languages and, more specifically, regional dialects would increase awareness and user penetration rates. Moreover, a focus on regional dialects, would allow people from all walks of life to access realms of knowledge from books and ultimately help to increase integration between culturally different regional populations.
In this report, we have discussed 3 key trends and challenges faced by the publishing industry; self-publishing, digital transformation as well as audio and subscription-based services. Through the analysis of these 3 trends, we can conclude that for publishers to thrive and adapt to new consumption practices, they must expand their digital publishing operations, particularly in the nations highlighted where the digital transformation is happening most quickly. This will help consolidate market share, alongside the efforts outlined to change the way publishers engage with authors which will prevent business and revenue from being lost due to the rise of self-publishing. These changes to their business model, combined with diversification into the rising revenue streams available in the form of podcasts and audiobooks allows publishers to successfully ride the wave of the digital transformation sweeping through the global economy.
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