According to the Publishers Association, e-book sales in the UK have grew rapidly in 2011. Digital sales were up 54%, of which consumer e-book sales rose by 366% (I think these refer to revenues, not volume figures). On the other hand, the combined sales of digital and physical books decreased by 2% to £3.2bn, while average book prices fell by 1.3% (compared with a 2011 annual UK inflation rate of 4.47%). The release says: “All digital formats encompassing ebooks, audio book downloads and online subscriptions accounted for 8% of the total invoiced value of sales of books in 2011, up from 5% in 2010.”
It would be good to know how much of that average price decline is due to the change in the mix towards cheaper e-books – I suspect most, if not all. On the face of it, the decline in volume of sales is small, and not bad for a flat economy.
The e-book story becomes ever more interesting from a competition perspective. Who would have thought Microsoft would be welcomed as riding to the rescue to increase competition in the market for e-reading? That’s what its new deal with Barnes and Noble seems to offer. The DoJ has Apple’s ‘agency’ model in its sights, with the case it has brought against Apple and five publishers. These vigorously reject the accusation.This follows an EU probe launched in December.
The competition issues are fascinating; this is an industry with a small number of giant publishers and two retailers, not lacking in market power, with proprietary devices and control of the customer relationships. Even outside e-books, the publishers feel under pressure because of the market power of the supermarkets, one of the main outlets now for physical book sales.
When I sat on the Competition Commission panel that gave the go-ahead a few years ago for Waterstones to merge with Ottakars, publishers made the argument that they needed two high street, bricks and mortar chains to be able to bring new titles to the public. We felt then that Amazon would provide competition, as it did. But anyway, if the publishers were concerned about the decline of independent book stores, they could have opted to give bigger wholesale discounts to those stores, enabling them to compete with the supermarkets and online sellers. Or alternatively, they could have refused the deep discounts they were asked for by the supermarkets and Amazon; after all, readers would still want to get their hands on the next Harry Potter or Dan Brown. But instead, the publishers decided the current profit margin from sales through independents mattered more. It didn’t seem a sensible strategic decision, and the big publishers are reaping the whirlwind now they face a substantially concentrated retail market.
Actually, publishing seems to have responded much better than the music industry to the online challenge. They are innovating in terms of formats and enabling e-reading. If I were still a competition regulator, I’d be looking at e-reading standards and interoperability as well as the pricing model. And I’d have the Google Books Settlement questions, still on the FTC’s radar, at the back of my mind as well. The lesson of history is that when the titans of an industry, having been slugging things out among themselves, get mired in anti-trust cases, the coast is clear for a nippy start-up to enter the market in an unexpected way. It’s going to be fascinating to watch this one unfold.
There has been lots of interesting commentary on this case. This Ars Technica article has useful links. Here’s an analysis from The Verge. Here is Wired. This FT analysis has links to other stories on the issues. And a round-up from Indie Book Spot.