11 May 11 Online book stores_competition or co-opetition for publishers

The publishing industry has witnessed tremendous change in the last few years. While opportunities for non-linear revenue growth opened up for publishers, there were many challenges. The main challenges were around production, distribution and sales in the digital market.

ValueNotes’ recent research report titled “The Current State of Digital Content” found that 80% of publishers have already jumped onto the digital bandwagon. The transition to a digital inclusive model is impacting publishers – and the industry is still nascent. There is an inherent lack of clarity about various aspects of the publishing industry.

Distribution, in particular, is an area where publishers are still evaluating the optimum solution. Digital channels of distribution are vastly different from traditional ones. The economic returns are high, but channel management can be intimidating. The challenge, thus, is creating the right mix, that optimizes in-house channels and leverages third-party ones.

Our research findings indicate an overall preference for third-party bookstores/channels such as the ones provided by Amazon, Sony, Apple, and Google. Each of these content ecosystems service consumers in the millions. However, by the same token, publishers also fear getting ‘lost in the noise’. For example, Amazon’s Kindle bookstore now offers consumers over 630,000 Kindle titles – in addition to 1.8 million copyright-free titles. Understandably, ValueNotes research also revealed that an almost equal percentage of publishers favour in-house bookstores or distribution channels. The graph below illustrates these findings.

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The publishing segment that companies operate in also determines the kind of distribution channels that are used. For example, responses from the trade segment indicated a higher preference for third-party bookstores. This is on account a more consumer-centric approach – using third-party bookstores allows publishers to leverage the customer base and visibility that such bookstores have.

The magazine publishing segment is yet to form a strong preference for one particular type of distribution channel. However, given the rise in reading devices, there might be more magazine publishers evaluating and developing applications for such devices. Given the nature of content, this might seem a more feasible distribution channel.

For STM/Academic publishers, there is a uniform preference for distribution channels. Unlike the magazine segment, the STM/Academic segment has long since made a shift to online content, in keeping with the need of the target community – the need to access content that supports references and linkages to archived content. Consumers of STM/Academic content are now increasingly accessing online content in the form of databases, and distribution is often centered on websites that require a subscription. These websites are also the front for a digital bookstore that showcases any book/journal the publisher may have.

Educational publishers preferred in-house bookstores – particularly in the case of the college publishing segment. The dynamics of the college market allows educational publishers to provide students and faculty with access to content. A more direct approach to selling is the basis for educational publishers to rely more on a digital bookstore.

Are publishers creating online bookstores?
Our research findings indicated that almost 30% of the publishers already had an in-house digital bookstore, while 14% were developing their own bookstore. Over one-third (37%) of publishers, however, had no plans to create a digital bookstore of their own. This was perhaps because they planned to use other available distribution channels or rely on third-party bookstores. Moreover, these publishers fear that consumers may prefer bookstores that carry all publishers. Interestingly, the remaining 23% had plans to build a digital bookstore. This showed that while third-party bookstores are preferred, most publishers would rather use their own digital bookstores.

Across segments, educational publishers were aggressively creating digital bookstores – less than 1 in 5 respondents indicated that they had no intention of creating a digital bookstore.

As the digital market matures, publishers are likely to consolidate and optimize their digital distribution channels. The challenge is to identify the right mix of existing and in-house channels. This mix needs to not only ensure the best possible reach, but also the maximum returns.