This article was prepared for investors looking into a self-publishing deal – its a high level look, but interesting.
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For the purpose of this report, I will be dividing the publishing industry into “traditional” publishing, and self-publishing. While many businesses do work in both industries, I feel that they are distinct enough entities to warrant separate examinations. The traditional publishing business seeks to balance physical and digital books, for example, while the self-publishing industry relies heavily, if not exclusively, on digital content. Traditional publishing tends to be dominated by a few massive companies, though also expands into areas that self-publish does not have much of a foothold in, such as the massive educational subsector. However, it is not quite accurate to consider self-publishing as simply the realm of smaller companies, as many large companies have carved out a stake in the space, most notably Amazon.
However, while covering the book publishing market, I will not be including certain other major facets of the publishing industry, namely newspapers, periodicals and magazines, which are more singular in the challenges that they face and the model of their businesses.
Traditional Publishing
Technically, the publishing business is as old as the written word – as soon as people began inscribing cuneiform on clay tablets, there were likely those who wanted to sell and buy this new product. This industry would always be a niche one due to the issue of scale, until the printing press arrived to allow for mass production. However, this early stage would not resemble the shape of the industry today, having greater vertical integration.
Modern publishing can be said to have started around the 19th Century, as the advancement of industry led to greater production capacity and cheaper materials, particularly paper. The 19th and early 20th century also saw the emergence of the large publishing houses that dominate the industry today. The business also started to lose the vertical integration it previously had, as more complex global supply chains were established.
The advent of the World Wide Web would prove to be as disruptive an effect on the publishing industry as the advent of the printing press by Gutenberg. However, the death of paper did not come as swiftly or completely as some analysts predicted, with there being enough of a dedicated niche audience for physical books to keep both large and small bookstores operational.
Largest Competitors in the Traditional Publishing Space
The traditional publishing space is dominated by the “Big Five” publishers, companies that have long histories and often have merged into even larger entities. A brief summary of them will be given, as well as some other major players in the industry that may be more surprising.
It should be noted that all of these listed companies are in the habit of forming a wide variety of imprints to target specific sections of the market, creating elaborate brand families. Many of these companies have dabbled somewhat into the self publishing market, though that will be examined later.
“The Big Five”
It is common to hear talk in the publishing business of the “Big Five” – this invariably refers to the five largest companies in the space, who all have worldwide recognition, or at least are the owners of universally recognizable brands.
Penguin Random House – A merger of the Penguin and Random House brands, PRH is owned by the German conglomerate Bertelsmann. PRH puts out over 15,000 books a year, as well as recording sales of about 800 million copies of print, audio and ebooks. PRH has an annual revenue of somewhere close to 3.3 billion, making it the largest publishing house in terms of pure revenue.
Hachette Livre – Hachette Livre is a French publisher owned by the French Lagardere conglomerate, which owns major subsidiaries in the UK, Australia and US. Hachette Livre puts out more than 17,000 books annually, with more than 90,000 titles available in digital format. Annual revenue of Hachette Livre amounts to about $2.7 billion. Though the name Hachette may not be familiar to North American readers, many of its subsidiaries such as Grand Central Publishing (formerly Warner Books) and Orbit are well known.
HarperCollins HarperCollins is the product of a merger between publishing companies Harper & Row and William Collins, Sons, and is owned by the American mass media company NewsCorp. HarperCollins puts out more than 10,000 new books each year in 16 languages, and has a print and digital catalog of more than 200,00 titles. Annual revenue for the company is at about 1.5 billion.
MacMillan Publishers – MacMillan is under the umbrella of the German Holtzbrinck publishing company, recently being integrated into Holtzbrinck’s “Springer Nature” subsidiary. MacMillan has reported annual revenues of around $1.4 billion.
Simon and Schuster – Simon and Schuster is a publisher owned by National Amusements, through the well known Viacom CBC media corporation. Simon and Schuster publishes approximately 2500 titles annually and has an annual revenue of about $830 million, making it the smallest of the “Big Five”
Educational Publishers
When one thinks of major publishers, the “Big Five” of retail publishing are what come to mind, with their books, or books of their subsidiaries, making up much of what you would find within any major book retailer. However, nearly as massive an industry is that of educational publishing – historically, many have called Scholastic the “Big Sixth”, and many educational publishers match or outdo the revenue of retail publishers.
This makes sense when you realize that educational publishers have a captive audience in most cases, as students or schools cannot operate without textbooks – if one has ever had to buy textbooks for college, they know what a great racket the university textbook business can be. Beyond university textbooks, educational publishing can also target the school system or those looking to study for entrance exams for undergraduate and graduate programs.
While selling physical textbooks has always been a good deal, many education publishers are often heavily moving into digital models, often through their own websites and programs, or through affiliated systems set up by universities. While profitable, the educational market can be viewed as more controlled.
Listed are some example annual revenues of Educations. It should be noted that while Wiley does engage in some more traditional publishing, they are best known for their extensive test prep materials, as well as owning the company that produces the ubiquitous “for Dummies” manuals. Oxford University Press is also a unique case for being associated with a single institution.
Scholastic: $1.7 billion
McGraw-Hill: $1.7 billion
Wiley: $1.7 billion
Cengage: $1.5 billion
Houghton Mifflin Harcourt Annual: $1.4 billion
Oxford University Press: $1.1 billion
Pearson Education: $1.0 billion
Other Notes
Apart from education, there are some other areas that are surprisingly profitable for publishing houses. Related to education is the industry of academic journals. Most notably, Springer Nature, sister company to MacMillan, makes most of its $1.9 billion annual revenue from the academic journal business.
Kodansha and Shueisha are Japanese companies that make their billion dollar annual revenues not from traditional print, but from manga. These numbers are especially impressive when you compare them to a major comic publisher in America, Marvel, which only makes about $320 million annually. The market for Japanese comics has grown worldwide as American companies focus more on managing film and television rights for their existing creations. English translations of the works of these publishing companies are also a source of major revenue – for Japanese manga that do not see translations into other languages, there is a good deal of revenue loss as readers turn to unofficial fan translations within the digital space.
Another sector of the market to consider is the $2 billion children’s publishing business. Consumers are picking up the fact that children’s vocabularies increase significantly from exposure to books, comparative to television. Children’s literature should not be discounted as a source of revenue.
In general, translations of existing books is an often untapped source of additional revenue, creating an entirely new experience from a book and opening it up to an entirely new market. Many other large publishers can make their bread and butter by acquiring the rights to republish a highly successful book in one language into another.
Importance of Copyright
To fully understand the traditional publishing business, there are a few aspects of the industry that warrant some more examination. Perhaps the most key of these is the vital importance of Copyright, the bedrock of publishing, as it were. Being able to secure the sole right to publish a work is what generally gives that work its value. The emergence of variable sorts of medium for a single work (such as the rise of ebooks) have greatly complicated the concept of copyright, with copyright claims now often involving multiple sections for all possible reproductions.
Acquiring subsidiary rights can often be very profitable as well – as mentioned above, a new country or territory can serve to be like an entirely new release for the book in question. While generally a book sells best for the audience it was originally targeted for, one should not underestimate cross-cultural appeal – in some cases books sell better overseas than at home. Translation rights are therefore an important source of revenue generation.
The Market
Many pundits have proclaimed the death of reading, under the belief that consumption of media is heading more towards the audio-visual, as started by television and accelerated by internet streaming. So far this does not seem to be the case – rather than killing off books, the digital age has simply fragmented the methods and mediums through which readers consume literature.
Compounding this fragmentation is the fact that the global market is very different from region to region in how they prefer to engage with these various mediums. This suggests that it is worth being able to understand how different foriegn markets approach reading. Perhaps the only constant within the market is that education is a good barometer of interest in reading. On average worldwide, college graduates are more than five times more likely to pick up a book than those with only a highschool education or lower.
As far as age demographics, older readers are more likely to own a dedicated reading device such as a Kindle, particularly those over the age of 40. Meanwhile, younger purchasers, brought up in the era of resurgent “pseudo-radio” in the form of podcasts are much more likely to purchase audiobooks – 48% of audiobook listeners are under the age of 35.
Despite major publishing houses being based in North America and Europe, the most prolific readers in the world are actually in South East Asia, with countries like India and Thailand topping the list. Division of media is also very different – about a third of all reading done in China, for example, is done through eBooks. In the US and Japan, it is close to a fifth, while in France, it is only a fiftieth.
Self Publishing
The market for independent authors is a growing one – with 1.68 million self published books available in ebook format, these books form up to 30 – 40% of all ebook sales. This is part of the reason it is good to look at self publishing as its own entity, as it is so closely tied to a specific medium of publishing. Self published works can be spread through a retailer, like Kindle Direct Publishing or the iBookstore, or through an aggregator like Scribd. Aggregators will distribute books to various partner retailers and libraries in exchange for a 10-20% commission on sales.
The largest player in the Self Publishing business is, by far, Amazon’s Kindle Direct Publishing, which both retails and publishes ebooks that can be read on Kindle devices, or devices with the Kindle app. About 80% of all English-language ebook sales are done through the KDP – surprisingly, self-published titles account for about 40% of that figure. That means that roughly a third of all self published material in the world debuts on KDP. Not only does Amazon own the KDP, but it also operates CreateSpace, a “vanity press” that allows for people to produce print copies of their novels, using a print-on-demand model, allowing it to capture more of the self-publishing market. Royalties offered by Amazon are flexible, ranging from 35%-70%
The next largest competitor in the ebook market is Apple, with its iBooks subsidiary, which has captured roughly 10% of the market, much smaller than Amazon but still a significant amount. Apple offers flat 70% royalties.
The third major competitor would be Barnes and Noble, via their Barnes and Noble Press (formerly Nook), which offers both ebook and print on demand publishing. As far as ebook sales go, it controls about 3% of the market. Royalties tend to range from 40%-65%.
The last major player in the business would be the Canadian Kobo, a subsidiary of the Japanese online retail company Rakuten, with roughly 2% of the ebook market (though, notably, with about 25% of the ebook market in Canada). Kobo makes up with its small size by partnering directly with bookstores and ebook retailers across the globe. Its royalties range from 45% – 70%.
Other more niche companies involved in the ebook and self-publishing business include IngramSpark, Smashwords, Draft2Digital, Lulu, BookBaby and Scribd.
Platform
As has been demonstrated above, the ebook market is closely tied into the self-publishing market, due to the digital platform providing a less risky way for author and publisher to approach publication.
As a medium the Kindle does seem dominant, especially since it has the Kindle App to cover its usage on other platforms. However, as technology improves, there is nothing to say that the Kindle won’t go the way of the iPod – just as the iPod was made irrelevant by newer models of phone, the Kindle seems to be overtaken by newer models of tablets. The Kindle is also having its market chipped away by a resurgence in traditional books, which have adapted to sell higher quality products to be as much about style as the content itself. The older demographics for Kindle also will prove to be on the decrease as their older customer base is slowly replaced.
The ebook space will still be an important and profitable one, especially for the self-publishing industry. Where exactly those self-publishing authors will go to share their works with the world remains to be seen.
