EXECUTIVE SUMMARY

UK

September 2014

BOOKS AND E-BOOKS

SAMUEL GEESenior Technology and Media Analyst

Unusually for any market, the 2013 merger of two of the biggest market players in publishing caused less of a stir than the continuing

external impacts from new delivery and distribution platforms, and a user base with shifting habits of consumption. Publishers have been relatively adept at embracing the digital revolution, with some already investing in crowd-sourcing platforms to find new authors and manuscripts with a guaranteed reader appeal, whilst others experiment with subscription-style all-you-can-read services, similar to Netflix and Spotify. It’s the continuing dispute between Amazon and the publishing giants that will determine the industry mechanics over 2015 and beyond though, as the details of e-book pricing and control are finally resolved.

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BOOKS AND E-BOOKSExecutive Summary

September 2014

The market

The value of the total consumer books market has been relatively flat in the years leading up to 2014, thanks to a consistent annual marginal drop in print book retail sales almost but not quite offset by e-book increases. The value of print sales fell by 28% between 2009 and 2014, with 3.3% of that estimated to have taken place in the latter year. This is partly due to e-book migration, and partly as the market continues to suffer in the context of a wider decline in media buying by consumers. (See Figure 1)

Market factors

e-reader purchases are tailing off as Kindle competitors shut down

According to quarterly research carried out and reported in Mintel’s Digital Trends series of reports, e-reader penetration in the UK has plateaued since June 2013, at around a third of internet users. This activity has taken place within the context of consistently growing access to tablet computers, which were present in over 50% of UK households as of July 2014.

In 2014, the manufacturers of two of the largest Kindle competitors – the Sony eReader and the Nook – announced that they were shutting down and spinning off their respective businesses due to poor demand and high production costs.

e-book price dispute between Amazon and publishers may boost self-published author rates

In 2013 the US Department of Justice ruled against Hachette Book Group, HarperCollins Publishers, Penguin Group (USA) Inc, Macmillan, Apple and Simon & Schuster Inc for illegal collusion in price-fixing their e-books in order to compete more effectively against Amazon. Recently, tensions have again risen between Amazon and Hachette as the e-commerce giant has attempted to force the publisher to lower the price of its e-books. Whichever way the dispute is resolved will have a lasting impact on traditional publishers. Should Hachette manage to resist Amazon, the other Big Five publishers are likely to try to follow suit. Such a situation would undoubtedly spur Amazon into increasing the power and activity of its own digital imprints. It may also increase the proportion of authors choosing to self-publish for the first time.

UK and US retailers focus on delivery and indie feelThe market swing towards digital content appears to be stabilising, with only a 13% year-on-year value growth in e-book sales in 2014, according to Mintel’s estimates. However, Mintel’s e-commerce – UK – July 2014 report estimates that some 43% of all physical consumer books will be sold online in 2014; a 3 percentage-point increase on 2013. Even if digital migration stops entirely, this 43% still represents a significant chunk of possible physical book sales that bypass bricks and mortar stores.

FIGURE 1: VALUE OF THE CONSUMER BOOKS AND E-BOOKS MARKET, 2009 - 2019

SOURCE: MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

Waterstones is combating this by trialling a change of its in-store environment in order to renew interest. Many high street retailers across all categories are doing the same – from Waitrose’s experimental supermarket redesigns to Virgin’s “living room in a store” layout – to try and spur attendance through improvements to the experiential aspect of their retail environments. The knock-on impact that these store redesigns have on brand perception as well as sales rates mean they represent a likely better strategy for boosting purchases than a US-trialled alternative: costly same day delivery.

Companies and products

No publisher is close to approaching the share of the market taken by Penguin Random House after its 2013 merger. The company controlled some 24% of revenue in 2013, close to its 25% market share in 2011. The 2012 increase to 27% was no doubt due in part to Fifty Shades of Grey, which sold approximately 70 million copies worldwide over the course of the year. The book was published by Vintage Books, an imprint of Random House. (See Figure 2)

Many of the biggest publishers have steadfastly refused to examine all-you-can-read services as a new revenue stream. Scribd (worldwide) and Oyster (US only) are two examples of these; both are confined to smartphones, tablets and web-readers, and offer access to approximately half a million titles on a subscription basis.

Other retailers are trying to match the immediacy of digital delivery as closely as possible in the real world. In the second half of 2013, Google launched its same day delivery service across a small selection of test cities in the US. From August 2014, the internet giant partnered with US book retailer Barnes & Noble to offer free same day delivery service for books.

Some service providers are trying to appeal through customisation rather than immediacy of delivery. Zoobean (launched May 2013) allows parents to sign up to a series of personalised plans that, after the input of information about their children’s genre preference, reading ability and development level, produces expert-picked recommendations for which books the child may enjoy next.

FIGURE 2: PUBLISHER REVENUE FROM SALE OF CONSUMER PRINT BOOKS, 2013

SOURCE: NIELSEN BOOKSCAN/MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

Others are trying to increase the interactivity of storytelling and consumption. Poptropica launched in 2007 as a Pearson-owned online role-playing adventure for children aged 6-15. The players on the site can travel between different “islands”, compete against each other and complete puzzles or overcome obstacles that allow further progression through the game. The site is described as an environment in which children use gaming and literacy to explore narratives frequently rooted in factual history, and expanded onto the iPad in March 2014 in recognition of children’s changing reading habits.

The consumer

Book formats consumers buy

Some 68% of internet-using consumers have purchased a book in the last year, according to Mintel’s research. Paperback fiction books remained the most popular, with 38% of consumers having purchased one over the year. (See Figure 3)

Some 73% of e-reader owners have purchased some kind of e-book in the 12 months to April 2014, suggesting over a quarter of all device owners have decided that the technology is not to their liking.

Some 70% of e-book buyers have also purchased print books in the 12 months to April 2014. By comparison, only 30% of print book buyers have also purchased e-books.

How consumers read books

Some 68% of consumers have read a print book in the last 12 months. That this is slightly more than the proportion who have bought a print book over the same time period (60%) is to be expected, given that libraries, gifts from friends and family or legacy collections would normally provide the opportunity for consumers to read print books without needing to purchase them. (See Figure 4)

FIGURE 3: BOOK FORMATS CONSUMERS BUY, APRIL 2014 Which, if any, of the following have you done in the last 12 months? Please select all that apply.

Base: 2,000 internet users aged 16+

SOURCE: GMI/MINTEL

FIGURE 4: HOW CONSUMERS READ BOOKS, APRIL 2014“Which, if any, of the following have you done in the last 12 months? Please select all that apply”

Base: 2,000 internet users aged 16+

SOURCE: GMI/MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

Less than half of consumers (and less than half of all book buyers) have only read a print book in the 12 months to April 2014. Though a quarter of consumers have purchased e-books within the last year, only 12% (14% of any book buyers) have exclusively read a digital book in the same time period.

Nearly one fifth of consumers (18%) have read a book on a mobile device (ie a smartphone or a tablet) in the 12 months to April 2014. Over one in ten (11%) have read a book on a desktop or laptop computer.

Retailers used to buy books

Consumers have very little channel crossover when buying print books. Amazon remains the most popular retailer, with over half of consumers who bought print books visiting the store. For those bricks and mortar retailers used by consumers though, the majority shop

exclusively in-store, rather than using their websites. (See Figure 5)

The proportion of consumers shopping for books at the largest UK supermarket operator, Tesco, is only 6 percentage points higher than those visiting independent bookstores

There is little brand exclusivity – some 45% of consumers who have purchased a print book at WH Smith, 37% who have purchased a book at Asda and 43% who have purchased a book through Amazon, have also purchased one at Waterstones. (See Figure 6)

Attitudes towards buying books

Some 18% of consumers have purchased both a book and an e-book in the 12 months to April 2014, and almost half of them make their choice based entirely on price. (See Figure 7)

FIGURE 5: RETAILERS USED TO PURCHASE PRINT BOOKS, APRIL 2014“You’ve indicated that you have bought print books in the last 12 months. Where were these purchased from? Please select all that apply”

Base: 1,194 internet users aged 16+ who bought a hardback or paperback book within the last 12 months

SOURCE: GMI/MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

FIGURE 6: RETAILERS USED TO PURCHASE E-BOOKS, APRIL 2014Base: 508 internet users aged 16+ who have bought e-books within the last 12 months

Digital Only is a net of Amazon, Apple iBooks/iTunes, Google Play Store and Tesco (blinkbox)

Bricks and Mortar is a net of WH Smith, Sainsbury’s, Blackwell’s, “Independent bookshop”, Waterstones, and Foyles

SOURCE: GMI/MINTEL

FIGURE 7: HOW CONSUMERS CHOOSE WHICH FORMAT TO BUY, APRIL 2014“Thinking about how you choose which book format (ie print or e-book) to buy, which one of the following statements best applies to you? Please select one option only”

Base: 357 internet users aged 16+ who bought both print books and e-books within the last 12 months

SOURCE: GMI/MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

The 70% of e-book buyers who have also bought a print book over the 12 months to April 2014 are partially explained by the 36% of consumers who generally read print books, but who buy e-books for convenience when travelling or on holiday. (See Figure 8)

Crowd-funded special covers and sleeves could allow independent retailers without the financial clout to order in advance to attract the fifth of print and e-books buyers more likely to buy print books if the quality of materials is especially good.

Attitudes towards spending money on e-books

Some third of consumers who have purchased an

e-book in the last year prefer to read print books, but buy e-books as they’re less expensive. These consumers are more likely to be women than men, and more likely to be 16-24 than over 45. (See Figure 9)

Some 26% of consumers who have bought both books and e-books in the 12 months to April 2014 say that they read more than they used to because e-books cost less than paperbacks. This increase in readership is more in evidence with e-books than print books though.

Some 21% of consumers who read across both formats are buying e-books because they feel they need to make use of their e-reader.

FIGURE 8: ATTITUDES TOWARDS BUYING BOOKS AND E-BOOKS, APRIL 2014“You indicated that you have bought both print books and e-books in the last 12 months. Which of the following statements, if any, do you agree with? Please select all that apply.”

Base: 357 internet users aged 16+ who bought print books and e-books within the last 12 months

SOURCE: GMI/MINTEL

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BOOKS AND E-BOOKSExecutive Summary

September 2014

Reasons consumers have not purchased books

One third (34%) of consumers who have not purchased any form of book in the 12 months leading to April 2014 are simply not interested in reading books. Men are disproportionately more likely to hold this view, as well as to claim that they lack the time to read. (See Figure 9)

In contrast to men, who lack either the time or inclination

to buy books, women are more likely to have not purchased books because they either cannot afford to, or because they borrow them.

Consumers were asked to specify if there were any reasons that had prevented them buying books in the last year beyond those listed. A common theme was already having a large collection of purchased books that the individual had yet to read; a problem only likely to get worse with time. (See Figure 10)

FIGURE 9: ATTITUDES TOWARDS SPENDING MONEY ON E-BOOKS, APRIL 2014“Thinking about spending money on books and/or e-books, which of the following statements, if any, do you agree with? Please select all that apply”

Base: 508 internet users aged 16+ who have bought an e-book in the last year

SOURCE: GMI/MINTEL

FIGURE 10: REASONS FOR NOT HAVING PURCHASED BOOKS OR E-BOOKS, APRIL 2014“Which of the following reasons describe why you have not purchased any books or e-books in the last 12 months? Please select all that apply.”

Base: 641 internet users aged 16+ who have not purchased a book in the last 12 months

SOURCE: GMI/MINTEL

PUBLISHED BYMintel Group Ltdwww.mintel.comemail: info@mintel.com

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It’s true that, as many of the largest publishers seem to believe, the market is starting to stabilise and the digital migration of consumers

is slowing down. However, for any retailer bar Amazon – which dominates e-book distribution – this simply means that up to a third of all market value is locked away, essentially unreachable. The first possible response for traditional retailers to this is to try and convert these e-book reading consumers not only back to print, but to print delivered through a retailer other than Amazon. The second could be to invest in a competing e-reader platform that all other retailers can plug into, to deliver e-books to consumers with the ease and fluidity which Amazon delivers content onto the Kindle. Both are difficult paths to take, and costly. Strong measures are necessary now though, for any bookseller with a long-term view to succeeding in an environment that is no longer turbulently or potentially, but resolutely digital.

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