Submitted: The Two Sides Team September 24, 2013

Even though the physical book market is more unpredictable than ever, "print is here to stay," declares Stuart Applebaum, spokesman for Penguin Random House. But that doesn't mean it is business as usual at the country's largest trade publisher when it comes to its manufacturing strategy.

Publisher's Weekly – 20 September 2013

Even though the physical book market is more unpredictable than ever, "print is here to stay," declares Stuart Applebaum, spokesman for Penguin Random House. But that doesn't mean it is business as usual at the country's largest trade publisher when it comes to its manufacturing strategy. "Our accounts are more conservative in the amount of inventory risk they want to take on, and so are we," Applebaum adds. "Large print runs increasingly result in excess inventory. Fast turns and shorter, more frequent print runs are what we need now, and our partnerships with printers will need to reflect this new paradigm."

What Applebaum is describing is the reality of today's publishing marketplace, in which print books and e-books will coexist. Indeed, after the explosive, but unsustainable, growth of e-books between 2009 and 2012, e-book growth slowed noticeably in early 2013. After increasing 33% in the first quarter of 2012 over the same period in 2011, adult e-book sales rose 13% in the first period of 2013, according to the Association of American Publishers. Data from Bowker Market Research also shows slowing growth for e-books and a more stable market for print books. E-books accounted for 13% of spending on books in the first six months of 2012, with that share rising to 14% in the first half of 2013. While the share of spending on hardcovers fell by three percentage points in the same period, trade paperbacks rose from a 33% share in the first six months of 2012 to 34% in 2013.

The new figures point to the difficulty of predicting the future in an industry that is still evolving, but it has become clear that print books will remain a very important part of the book business, albeit with fewer sales than in the past. To meet the changing needs of publishers, digital printing is often the best option. The development of new digital equipment allows printers to produce print runs ranging from one copy to thousands.

Printing flexibility is important because evidence continues to mount showing that sales of e-books are much deeper in some categories than in others, with fiction categories experiencing the biggest e-book sales gains. According to Bowker's 2013 U.S. Book Consumer Demographics & Buying Behaviors Annual Review, e-books accounted for 25% of spending in the romance category, while penetration levels in nonfiction segments are much lower. In cooking, for example, e-books made up just 6% of spending and 18% of units in 2012. That fiction-nonfiction divide continued into 2013. Sales of illustrated books in digital formats have gained only a little traction in 2013. Quayside, which publishes a large number of illustrated books, reported that 5% of its sales were for e-books. "We've built the [digital] platforms, now we are waiting for the customers to come," says Quarto CEO Marcus Leaver.

So the book publishing industry appears to be headed toward a hybrid market, meaning that consumers will be buying a mix of e-books and print books. Financial reports from six major trade houses that have large North American operations show the demand for both print books and e-books. Penguin Group, for example, reported that worldwide print sales rose 13% in the first half of 2013 compared to the same period last year, while digital sales increased 28%. At Houghton Mifflin Harcourt's trade operation, print sales rose at a faster pace than e-book sales in the same period, with print up 30% and e-books ahead 13%. At Harlequin, whose total sales fell 5% in the first half of the year, CEO Donna Hayes notes that print retail sales in North America were stable in the second quarter and that e-book sales were up, but digital sales growth was much slower than in the same period last year.

The splitting of markets is also evident among printers. In its most recent quarterly report, Courier Corp. chairman Jim Conway discussed how the company is integrating new Hewlett-Packard digital printers with its offset equipment to meet the needs of publishers. "We head into our fourth quarter with a strong order flow for both our digital and offset manufacturing facilities," Conway says. In other parts of the supply chain, the impact of fewer print books being published has been felt. As part of their move to scale back their warehouse footprints, HarperCollins and Macmillan reached agreements with Donnelley and Ingram, respectively, for those companies to take over more of the publishers print-on-demand requirements, as they seek to keep as many books in print as long as possible, to take advantage of long-tail sales opportunities that exist today with the growth of online retailers. In May 2011, when Harper and Donnelley announced their partnership, Larry Nevins, executive v-p of operations and technology at Harper, said that the combination of declining demand for print copies and improving printing technology created the right opportunity to reengineer Harper's supply chain. That reasoning is even more sound in 2013, and to explore what solutions digital printing can provide to publishers, PW will release a series of articles covering the technology's role in everything from streamlining the supply chain to creating new revenue opportunities. Look for the next article in our October 21 issue.

This educational series is brought to you by Hewlett-Packard.

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