Milan, February 2nd 2012 Presentation for the IfBookThen 2012 Conference

Do Readers Dream of Electronic Books?

Reading Digital: Where Are We? Where Are We Going?

Giovanni Bonfanti (A.T. Kearney), Edoardo Bottai (A.T. Kearney), Marco Ferrario (BookRepublic)

A.T. Kearney 2

Preface

■ Provide an overview of digital publishing in Europe, Asia, South America and North America, highlighting the primary differences and emerging trends

Objective

Approach

■ We’ve surveyed countries that cover 80% of the global book market ■ All the numbers presented for 2011 derive from:

•  40 interviews with key players (publishers, retailers…) from major markets1

•  Analysis of public data from public sources / press search ■ This is an ongoing research project that debuted at IfBookThen 2011 and was presented in Frankfurt (Publisher’s launch); London (Futurebook) and New York (DBW)

All the analysis presented in these pages are a summary of a larger research that was developed as a joint effort of A.T. Kearney and Bookrepublic

1.  EU: UK, France, Spain, Germany, Italy, Denmark, Sweden, Norway, Netherlands; North America: US, Canada; South America: Brazil, Mexico, Argentina; Asia: Japan, India, China, Australia, South Korea

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eBook market size is ~€2.4 Bn – Europe is third largest region

EU

170-180

Asia

250-270

South America

1

North America

1900-2000

eBook Trade Market Size (mln€; 2011E)

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney

17%-18% 1%-1.1% eBook penetration <0.1% 2.2%- 2.4%

Regional eBook Market Share by Country

• U.S.: 98% • Canada: 2%

• Brazil: 40% - 50%

• South Korea: 45% • Japan: 25% • China: 25% • Other: ~5%

• UK: 52% • Germany: 28% • France: 7% • Italy: 3% • Spain: <2% • Other: ~8%

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Key market drivers vary by country

U.S.

20%

Brazil

<0.1%

Australia

0.9%

Japan

<1.5%

China

<1%

UK

7%

Germany

0.9%

France

0.5%

Spain

<0.5%

Italy

0.5%

eBook Market Penetration (%; 2011E)

Drivers as of 2011 USA Brazil Australia Japan China UK Germany France Italy Spain Availability of titles in local language

2,700,000 8,000 400,000 50,000 270,000 400,000 80,000 60,000 15,000 15,000

Tablet Penetration (mln; %)

40 0.5 0.8 2 7 2.7 2.65 1.8 0.7 0.6

20% <0.5% 4% 1.6% 0.5% 4.4% 3.2% 2.9% 1.2% 1.8% eReader Penetration (mln; %)

40 n.a. n.a

7.8 3.0 0.5 0.1 0.14 0.4 20% <0.1% 0.6% 4.9% 0.6% 0.2% 0.25% 0.8%

South Korea

14-15%

Selection of countries analyzed

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Harris Interactive Poll, Pew Internet

In US about 33% of device owners have eReader +

tablet

Xx% E-book penetration

A.T. Kearney 5 1 Average eBook prices of new Hardcover releases Source: interviews with publishers / bookretailers; A.T. Kearney / Bookrepublic analysis

Average eBook price for new releases1 (€ - average from interviews with publishers / book retailers )

 Differences in eBook price derive from factors like: -  Taxation (VAT) -  Difference in pricing of

“correspondent” print book

-  Legislation (ex. max discount of print book)

-  Agency model -  Currency fluctuations

  In each country we identified several cases of eBook prices that differ significantly from average

New release eBook price is ~10€ with variation by country

1,7

2,52,1

2,41,9

2,2

7,5  

Av.  9.98  (net  VAT)  

Price  net  VAT  

VAT  

U.S.

7,5  9,3  

Italy Brazil

11,0  

9,1  

Sweden

12,0  

9,6  

Spain

14,0  

11,9  

France

15,0  

12,5  

Ger

10,9  

9,2  

UK

13,0  

10,8  

9,3  

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Ger. 2011

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5

1%-2%

6%-7%

16%-17%

0.3% 0.1% 0.1%

“Traditional” factors create growth patterns

Expected penetration of eBooks after 5 years from adoption (% of trade book sales)

Years of adoption

Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis

 eBook penetration grows with varying speeds depending on:

•  Technology “proficiency”:

–  Internet penetration –  Mobile penetration –  eReader/ tablet

penetration –  eCommerce

penetration

•  eBook market readiness:

–  eBook title availability –  eBook price strategy –  Taxation (VAT) –  Big player presence

• Germany •  France •  Italy • …

• UK • Canada • South Korea • …

•  India •  Latin America • …

20% U.S. 2011

Latecomers

Early Adopters

Second Wave

Pene

trat

ion

U.K. 2011

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“Non traditional” drivers accelerate growth

D.A.S.

D.M.D.

D.A.M.

Digital Marketing & Distribution

Digital Asset Management

Digital Asset Sourcing

The new “Digital Wheel” value chain of the Publishing Industry

Asset Value

Social reading and networking (Metadata sharing)

Ratings, reviews (Metadata)

Customer behavior profiling

Self publishing & digital publishing

programs

Technological drivers of change

4

33

5

1

1

5

2

4Customer

reading behavior

2

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How the drivers of change could impact the size and structure of the book market? – The U.S. case

Source:  AAP,  Analysis  A.T.  Kearney  

U.S. AAP trade book market ($mln)

-­‐5,4%  

jan - aug 2011

3012

1,695  (78%)  

649  (22%)  

jan - aug 2010    

3185

2,008  (92%)  

266  (8%)  

+158%

-19%

E-­‐book  

Paper  book  

U.S. AAP trade book market (#)

4,1%  

jan - aug 2011

222

150  (68%)  

72  (32%)  

jan - aug 2010

213

185  (87%)  

28  (13%)  

E-­‐book  

Paper  book  

+144%

-19%

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How the drivers of change could impact the size and structure of the book market? – The UK case

Source:  The  Publishers  AssociaDon  Ltd,  Analysis  A.T.  Kearney  

UK trade book market (£mln)

+5,2%  

jan - jun 2011    

411

384  (93%)  

28  (7%)  

jan - jun 2010    

391

383  (98%)  

8  (2%)  

+263%

+0,1%

E-­‐book  

Paper  book  

UK trade book market (#)

+0,5%  

jan - jun 2011    

145

139  (95%)  

7  (5%)  

jan - jun 2010    

144

143  (99%)  

1  (1%)   +560%

-3,4%

E-­‐book  

Paper  book  

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Self-published ebooks are experiencing success in the U.S. reducing publisher turnover by $ 70mln - $ 120mln

14%14%

18%

21%20%

26%

17%

13%

22%

26%

May  2011  

Apr  2011   gen  2012  dic  2011  nov  2011  Oct  2011  Sep  2011  Aug  2011  Jul  2011  Jun  2011  

% of selfpublished titles in Kindle Store top 100 paid ebooks in U.S.

Average price for self published books is 1,5$ -2 $ (range between 0,99$ and 4,99$)

1 Assuming 10$ per p-book as turnover for publishers Source: Kindle Store Bestsellers archive, A.T. Kearney - BookRepublic analysis

Self-publishing is an established trend driven by the growth of the ebook market: •  in 2010, there was almost no self-

published titles in Amazon top 100 paid ebooks

•  in 2011, in volume terms self-published books counts for 3%-5% of the total ebook market

• US self-publishing market size: $ 20mln - $ 30mln

• Resulting revenue loss for publishers is $ 70mln - $ 120mln in 20111

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Americas Atlanta Calgary

Chicago Dallas

Detroit Houston

Mexico City New York

San Francisco São Paolo

Toronto Washington, D.C.

Asia Pacific Bangkok Beijing

Hong Kong Jakarta

Kuala Lumpur Melbourne

Mumbai New Delhi

Seoul Shanghai

Singapore Sydney

Tokyo

Europe Amsterdam Berlin Brussels Bucharest

Budapest Copenhagen Düsseldorf Frankfurt

Helsinki Istanbul Kiev Lisbon

Ljubljana London Madrid Milan

Moscow Munich Oslo Paris

Prague Rome Stockholm Stuttgart

Vienna Warsaw Zurich

Middle East and Africa

Abu Dhabi Dubai

Johannesburg Manama

Riyadh

A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful results and long-term transformative advantage to clients.

Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across all major industries and sectors. A.T. Kearney’s offices are located in major business centers in 38 countries.

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About BookRepublic • BookRepublic is one of the leading Italian eBook

stores and the front end of a system including:

•  eBook distribution

•  Readers community

•  Metadata management

•  Customer behavior profiling.

• We organize IFBOOKTHEN, an international conference on digital publishing in Milan.

• 40K is a native digital imprint specialized in “novelettes” and “short essays” translated in 5 languages and sold worldwide (90% of our sales coming from US). 40K is also the digital partner of a leading national newspaper in a “long articles” program.

• http://www.bookrepublic.it

• http://www.ifbookthen.com

• http://www.zazie.it

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Contacts

Giovanni Bonfanti Principal A.T. Kearney giovanni.bonfanti@atkearney.com +39 02 76295 225

Marco Ferrario CEO / Cofounder Bookrepublic marco.ferrario@digitpub.it +39 335 604 6861

Marco Ghezzi COO / Cofounder Bookrepublic marcog@bookrepublic.it +39 348 22 44 836

Edoardo Bottai Manager A.T. Kearney

edoardo.bottai@atkearney.com +39 02 76295 476