The transition to digital formats offers a once in a lifetime opportunity for trade publishers to re-energise customers, address structural issues with the current industry model, and emerge bigger, stronger and much more profitable. However, a number of publishers will not survive long enough to enjoy these benefits. An industry shakeout is on the horizon which will cull weaker, less digitally savvy players.
My conviction about how the market will play out is based on experience of digital transitions in the music, TV, games and video markets. The parallels with these industries are real, and it is not too late to learn their lessons.
The next 2-3 years will see trading conditions deteriorate for trade publishers. Growth in e-books and other digital formats will not make up for declines in the physical sales. It will also take time to learn how to reap economies of scale and experience in the development, marketing and distribution of digital products. However the temptation to retrench and to postpone digital initiatives should be resisted.
The choices for publishers during this testing period will be stark with three possible routes:
- either make major investments in the digital supply chain, with the expectation of a long pay back & the risk that poor execution will impact the financial health of the business
- joint venture or partner with digital specialists to share the financial risk of digital transition, but risk losing control of your digital destiny
- make small, piecemeal investments in digital based on current market size, with the risk of being unprepared when the market reaches its inevitable tipping point.
Publishers that make the wrong choices, or who execute their chosen strategy poorly will end up as casulaties in the industry shake out.
However, publishers that make the right digital investments have a credible plan to deal with the short term industry issues , and understand how to position themselves in a reshaped market, will emerge stronger & better able to benefit from a more attractive business fundamentals.
My confidence in the long-term future is also based on three things:
- firstly demand for authored content will, over time, increase materially. The convenience of digital consumption, coupled with improved customer insight & precision targeting will enable publishers to increase volumes (borne out by the experience of other digital transitions and by recent research conducted by Bain which found that 42% of E-Book readers buy more books than before, while only 7% buy less)
- secondly significant new opportunities for creating customer value will emerge. Whether by reimagining children’s, cooking and travel titles as interactive multimedia experiences, or seeding fan communities. These more valuable products will help publishers to maintain premium prices and protect margins.
- thirdly innovation in the packaging and windowing will help to squeeze more value from authored content. New digital windows that complement current hardback and paperback releases, and offer customers something new over and above a standard e-book will help to squeeze more value out of existing IP, and create excitement and noise around digital product launches. However to realise this upside the industry will need to find new ways of working together.
While new packaging models, such as subscription (think book clubs for digital customers) can complement current a la carte pricing. There is growing body of evidence from the music (e.g. Spotify) & video (e.g. Netflix) space that the subscription model resonates with digital customers, is supported by attractive economics and helps to expand the market.
To realise the digital pot of gold will be a very long & painful haul. It will require new thinking, new digital skills, and a new era of industry co-operation. Complex rights, technology and workflow issues will need to be aggressively managed. There will be many casualties along the way, but the battle is one well worth fighting.
A longer version of this article can be found at the blog winning-in-digital.blogspot.com.