UK Books and Publishing Industry Analysis

UK Books and Publishing Industry Analysis Table of Contents 1. Introduction5 1.1 Objective5 1.2 Reasons for Choosing the UK Books and Publishing Industry6 2. Industry Overview9 2.1 Market Size and Attraction10 2.2 Market Sectors10 2.2.2 Paperback11 2.2.3 Electronic11 2.2.4 Fiction11 2.2.5 Non-fiction11 2.3 Industry Target Markets12 2.4 Market Sales, Performance and Activities14 2.4.1 Domestic Market14 2.4.2 Export Sales15 2.4.3 Imports16 2.5 Publishing Companies17 2.6 Employment19 2.7 Distribution20 2.8 Major Trends and Developments21 2.8.1 Emerging Book Formats21 2.8.2 Emerging Distribution Channels and Markets22 2.8.3 Developments in Technology and Concerns in Copyright and Production23 3. Industry Analysis – PESTEL24 3.1 Using the PESTEL Analysis24 3.2 Political Factors24 3.2.1 Taxation24 3.2.2 Pricing24 3.3 Economic Factors25 3.3.1 Global Economic Factors25 3.3.2 UK Economic Trends25 3.4 Social Factors26 3.4.1 Consumer Preferences26 3.4.2 The Internet and Technology26 3.4.3 Reading Habits27 3.5 Technological Factors27 3.5.1 The Digital Age27 3.6 Legislative27 3.6.1 Copyright and Intellectual Property27 3.6.2 Market Regulations for New Entries28 3.7 Environmental 28 3.7.1 The Issue of Paper28 3.7.2 Other conservation measures29 4. Industry Analysis – Porter’s Five Forces Model29 4.1 About Porter’s Five Forces Model29 4.2 Rivalry29 4.3 Supplier Power29 4.4 Buyer Power30 4.5 Threats of Substitutes30 4.6 Barriers to Entry30 5. Conclusion31 References34 List of Tables Time Spent of Main Activities, by Sex, 20058 Total Book Sales 1998-200210 Projected Book Sales: 2002-200710 Unit Book Sales by Format: 1998-200211 Projected Book Sales by Format: 2002/200712 Value Book Sales by Target Market: 1998-200213 Projected Book Sales by Target Market: 2002/200713 Publishers’ Export Sales: 1998-200116 Book Imports: 1998-200117 Leading Publishers Ranked by Total Retail Sales 2001/200218 Total Employment in the Publishing Industry 1998-200220 Retail Distribution21 The UK Books and Publishing Industry Analysis 1. Introduction According to the Encyclopaedia of Global Industries (‘Book Publishing’, 2007), global spending on books increased from US$85.3 billion in 2000 to US$104.6 billion in 2005. This is despite the fact that the global demand for books had significantly dropped for a number of reasons. One of the major reasons cited for this drop was the September 11 terrorist attacks in the United States. In contrast, the United Kingdom (UK) is currently one of the world’s leading players in the world of publishing. However, it remains behind to major global producers the United States, Japan and Germany. UK is followed by another European major publisher, France In 2002, the UK book and publishing industry reached the value of à ¢Ã¢â‚¬Å¡Ã‚ ¤2.5 billion (‘Books and Publishing – United Kingdom’, 2003) and continues to be the major location of European publishing’s central operations and the U.S. publishing’s gateway across the Atlantic. 1.1 Objectives The UK books and publishing industry is one of the UK’s distinct industries. As stated above, UK ranks among the world’s major book and publication producers. Readers across the globe are familiar with the UK’s contribution to the publishing world . UK writers have long been one of the more famous sets of writers in the classic and modern histories. Ranging from William Shakespeare to J.K. Rowling’s Harry Potter franchise, the UK books and publishing industry continues to play a significant role, especially among the English-language readers across the globe. However, the new media forms that have been emerging lately such as electronic and online forms of publishing currently challenge the publication preferences of the consumers today and UK print media too has got impacted. The present study is an attempt to analyse the UK books and publishing industry. The objectives of this industry analysis are as follows: Provide an overview of the UK books and publishing industry, its current status and projected directions. Analyse the factors that influence the current and future operations of the industry by using the tool of PESTEL analyses. Assess the books and publishing industry and its impact and performance in the market by using market analysis tools of Porter’s Five Forces. Determine the critical factors that can determine the future of the UK books and publishing industry. 1.2 Reasons for Choosing the UK Books and Publishing Industry The UK remains to have a healthy and dynamic book and publishing market; not only does the UK contain one of the significant market shares in the global book market, it boasts of a number of in-demand authors. Books and publishing in the UK highlights the society’s inherent love for books . What is interesting in the UK book and publishing industry can be seen in the following factors: (1) UK has had a significant role in the publishing world especially among English-language readers across the globe; however, in terms of industry size, UK remains behind book producing giants the United States, Japan and Germany. These three countries have a competitive production advantage: the United States has strong media and entertainment industry which has also influenced its publishing sector; Japan is known for its graphic novel and books publication, as driven by the strong manga culture and demand; Germany’s media corporate giant, Bertelsmann, has managed to own and merge with large publishers, which makes this German company a significant player in the global industry (‘Book Publishing’, 2007). (2) New forms of media, electronic publishing and the Internet, have emerged which have challenged the conventional publishing forms. Electronic publishing and the Internet has become a challenge in a number of areas including the redefinition of publication format (electronic or published through the Internet) and publication access (self-publishing has become popular online). This also influences the amount of interest the public continues to have in books especially when more recreational forms have evolved which may be preferred over picking up a magazine or a book. Besides, recent times have also witnessed a rise of online / virtual schools and other forms of virtual reality which has now given way to emergence of digital versions of these books or e-books. (3) Emerging markets brought by globalisation also affect the expansion of UK publishers to other parts of the world. This is in addition to the increasing demand for English-language learning courses in non-English speaking nations can encourage the publication of books. Regional authors too can increase the interest of the global readers, and it is interesting to see how the UK publishing industry has responded to these new opportunities. In addition to this, it is interesting to evaluate the performance of this huge industry that reaches different global markets and at the same time, is serving a more particular sector of the people’s reading habits. Based on a survey on leisure activities in 2005 by the National Statistics Office’s, reading has been cited as constituting a negligible part of how people spend their time every day. Reading, on an average, only accounts for 23 minutes among men and 26 minutes among women. The following table illustrates how this industry has been catering to a fraction of people’s average daily activities: Time Spent of Main Activities, by Sex, 2005 (‘Time Use Survey’, 2006) As can be seen in the table, reading has taken a backseat as compared to the time people spend watching television or having a â€Å"social life†. A similar survey conducted in 2001 among full-time workers on how they spend their free time, reading emerged as the third highest activity whereas games/hobbies/computing came in close behind (‘Lifestyles’, 2004). Evidently, in the previously cited more recent survey, games/hobbies/computing activities have overtaken reading. However, this peculiar development holds true among males who spend an average of 37 minutes in playing games, indulging in hobbies or working on computers whereas women tend to be ardent readers, thereby spending more time reading than other hobbies. It should also be noted that reading does not only limit itself to the products of the book and publishing industry as the Internet has also become a significant source for information. 2. Industry Overview 2.1 Market Size and Attraction According to the Confederation of British Industry, the book sector has been one of the significant drivers in the overall UK retail sales growth, along with furniture and groceries (‘Books and Publishing – United Kingdom’, 2003). This shows that books are among the main purchases that people make in a combined demand in the leisure and educational sectors. The UK books and publishing industry reached the à ¢Ã¢â‚¬Å¡Ã‚ ¤2.5 billion mark in 2002, making this industry having a positive overall outlook. Volume and value gains were seen rising from 2001 to 2002 at 12.1% and 16.8% respectively. The 12.1% volume increase reflected the 323.8 million units sold by 2002, which contributed to the compounded annual growth rate (CAGR) of 2.9%. Positive developments were also experienced, which started from the late 1990s up to the beginning of the millennium, with strong value gains eventually contributing to the 4% CAGR since the surge in sales in 1999 (‘Books and Publishing – United Kingdom’, 2003). Total Book Sales 1998-2002 ( Euromonitor International: Country Market Insight) Projected Book Sales: 2002-2007 ( Euromonitor International: Country Market Insight) According to the Publishing Industry Market Review 2006, the total publishing market was worth 18.63bn in 2005, having increased by 7.6% across the review period (2001 to 2005). The Publishing Industry is defined by Newspapers, Magazines as well as Book publishing. Newspaper publishing accounts for the largest share of the markets total value, followed by magazine publishing and book publishing. Within the books and publishing industry in 2004, retail book sales were  £3.98bn which represents a 3.2% increase on 2003.( UK Publishing Industry 2005,) Since 1999, the market has grown by a total of 16% and around 67% of the markets value is consumer books. The UK Publishing Industry 2004 report indicates that the UK publishing market is expected to grow by 12.9% between 2004 and 2008. Magazine revenues are likely to rise by 17.3%, newspaper revenues by 15.2% and book publishing by 14.7%. (UK Publishing Industry 2004,). 2.2 Market Sectors The commercial publishing industry extends far beyond books and journals. Products are available in electronic as well as print form. The overall book and publishing industry (‘Books and Publishing – United Kingdom’, 2003) can be classified on the basis of format and category Format: 2.2.1 Hardbacks Hardback formats are hardbound books. This format can be commonly found among books for children, new releases, and non-fiction books. 2.2.2 Paperback Paperback or softback is the most common format . This dominantly makes up the books targeted for commercial and educational purposes. 2.2.3 Electronic The electronic formats are the non-paper based products available on CD-ROM, or as audio books, e-books etc. Category: 2.2.4 Fiction The fiction category includes children’s books, novels across genres (crime, Western, thriller), historical, romance, etc. 2.2.5 Non-fiction The non-fiction category includes educational, academic and professional books, reference books, travel guides, DIY, etc. The performances of these different sectors (by format) are illustrated in the following table (‘Books and Publishing – United Kingdom’, 2003): Unit Book Sales by Format: 1998-2002 (Euromonitor International: Country Market Insight) Projected Book Sales by Format: 2002/2007 (Euromonitor International: Country Market Insight) Based on the performance of the two main categories, fiction and non-fiction, the latter continues to dominate the book sales and continues to grow (‘Books and Publishing – United Kingdom’, 2003): 2.3 Industry Target Markets Books can also be classified on the basis of the target market: consumer and institutional (‘Books and Publishing – United Kingdom’, 2003). The consumer market is the mainstream book market which includes regular readers and individual buyers. The institutional market for books is defined by institutions or organisations that buy books for specific purposes such as libraries. It also includes the books bought by the education sector. There is a potential confusion as to the identification of the consumer and the institutional market as the consumer market also includes publications for academic and professional purposes. However, institutional books are mostly identified by means of prevailing theme and the market segment, such as in the case of libraries and field-specific institutions (i.e. law books collection) whereas the consumer market’s main source of distribution channel are bookshops, online stores, etc. In terms of performance, the consumer market has a significant market share over the institutional market. The total sales brought by he consumer market in 2002 was at à ¢Ã¢â‚¬Å¡Ã‚ ¤2.0 billion, thereby having 80.3% of the overall book market share. Average growth was cited at 17.4%, with the surge of sales throughout the year usually picking up during the last quarter (‘Books and Publishing – United Kingdom’, 2003). The institutional market has been also experiencing positive growth at 14.3%, with its sales reaching à ¢Ã¢â‚¬Å¡Ã‚ ¤490.6 million and comprising 19.7% of the overall market sales. Educational sales continue to dominate the institutional sales at 63.4% whereas contributions from the library sector continue to fluctuate. As can be observed from the table given below, there was a significant drop in library sales from à ¢Ã¢â‚¬Å¡Ã‚ ¤114 million to à ¢Ã¢â‚¬Å¡Ã‚ ¤101 million from 1998 to 1999, with this particular sector experiencing fluctuations until 2002 (‘Books and Publishing – United Kingdom’, 2003). Value Book Sales by Target Market: 1998-2002 (Euromonitor International: Country Market Insight) Projected Book Sales by Target Market: 2002/2007 (Euromonitor International: Country Market Insight) 2.4 Market Sales, Performance and Activities The UK books and publishing industry relies on various market forces in order to maintain its dynamism; this can be attributed to its performance mainly on domestic sales, and then through the export and import volume and sales. 2.4.1 Domestic Market As previously mentioned, the consumer market mainly comprise of the industry’s domestic sales. Strong performance has been seen across sectors and categories, with positive developments in fiction as well as non-fiction books. Sales in fiction category experienced an average increase of 56% from 1998 to 2001, although non-fiction remains to have the significant market share (‘Books and Publishing – United Kingdom’, 2003). A number of market strategies have emerged in order to have the publishers improve their performance. It has been noted that UK has even adopted an American market strategy framework which includes book tours and taking advantage of the different media channels to increase exposure and promotion such as online book ordering promotions and book superstores (‘Book Publishing’, 2007). It can be observed that this has been apparent in the franchising sector in which UK fictional giant, the Harry Potter franchise, have further ventured into film and consumer products. In a way, books have established a force to create a peripheral market sector which relates the books to other relevant industries. However, the opposite takes place when classic British books such as J.R.R. Tolkiens’ The Lord of the Rings and C.S. Lewis’ The Chronicles of Narnia were made into movies, and because of the success of this channel, book sales for these works have also experienced a significant increase as this has become a promotional means in order to sell more books. Such strategy is not only felt in the UK domestic sector but also in other global sales as well. 2.4.2 Export Sales UK books are exported throughout the world and a cited increase of 4.4% was seen from 1998 to 2002. As per a Department of Trade and Industry (DTI) report, the export market is worth approximately  £1.4bn a year. However, UK’s main export competition comes from the United States, which also produces English-language books. Some exporting strategy can be also seen through the industry (‘Books and Publishing – United Kingdom’, 2003, p. 19): Although the worldwide Harry Potter phenomenon had a strong impact on exports, particularly over the 1999/2000 period, non-consumer publishing book sales were also a mainstay of export performance. English is the world language for titles in the scientific/technical/medical category and as such, the UK dominates the field internationally in terms of sales. For publishers of these kinds of texts exports can account for up to 60.0% of sales, particularly to the US, and it can be of great advantage for a publisher to have an American arm or to be part of an American-controlled group in terms of securing US rights of publication. In this case, despite the stiff competition with the US titles, UK books have also been performing fairly well in the United States; the UK mainly exports to the United States. In fact, UK has been the largest exporter of books to the United States books market. The performance of the UK publishers’ export sales are as follows (‘Books and Publishing – United Kingdom’, 2003): Publishers’ Export Sales: 1998-2001 (Euromonitor International: Country Market Insight) 2.4.3 Imports The UK also imports books from overseas markets such as the United States. Interestingly, Asian markets have been contributing significantly to UK book imports. The second largest imports, after the United States, come from Hong Kong, and the fourth largest market is Singapore; China too is also among the top sources, gaining the eighth import source position in 2001 (‘Books and Publishing – United Kingdom’, 2003). Interestingly, UK imports increases industry competition, with its value rising at 16.6% within the period 1998-2001. The following table shows the import value during this time period (‘Books and Publishing – United Kingdom’, 2003): Book Imports: 1998-2001 (Euromonitor International: Country Market Insight) 2.5 Publishing Companies Each of the three sectors of publishing in UK-newspapers, magazines and books- is dominated by around a dozen companies. Only a few companies are active in more than one sector. In fact, only Pearson PLC is involved in all three markets in a significant way. News Corporation, which publishes newspapers and which owns the book publisher Harper Collins too has entered the magazine market early in 2006. The UK publishing industry is still primarily UK owned. However, in the magazine market, there are several foreign-owned companies. These include the following: The Conde Nast Publications Ltd Hachette Filipacchi (UK) Ltd IPC Media Ltd The National Magazine Company Ltd The Readers Digest Association Ltd and VNU Business Publications Ltd. As indicated in Books and Publishing – United Kingdom 2003 The UK is not the home base of any major media player, such as Bertelsmann, Vivendi or AOL Time Warner. The regulations on media ownership make it easier for new entrants from abroad to establish a presence in the UK than for UK companies to substantially enlarge market share. Most of the major players in the book industry are owned by international multimedia publishing concerns, and therefore the most helpful form of comparison is to analyse leading publishing houses, and the results of the consolidated groups which own them. (‘Books and Publishing – United Kingdom’, 2003, p. 23) Thus, the books and publishing industry in the UK is characterised by a handful of global conglomerates or international companies, such as Reed Elsevier Group PLC, Pearson PLC, The Random House Group Ltd and Harper Collins Publishers Ltd. The leading publisher in the UK, HarperCollins, is a merger of British publisher William Collins Sons and Co Ltd. and the American publisher Harper Row. Today, HarperCollins is owned by the American media conglomerate, News Corp., although HarperCollins UK is the UK’s leading publishing house (Books and Publishing – United Kingdom’, 2003; ‘Harper Collins’, 2007). In the recent years, many other companies have been acquired and merged. For instance, in 2004 a major development was the acquisition of Hodder Headline from WH Smith by the French publisher Hachette Filipacchi in 2004. This merely added to further internationalisation of UK publishing. Hachette already owned Orion which further owned Weidenfeld Nicholson. This has lead it to become the UKs second-largest consumer book publisher. Macmillan and Random House are both owned by German companies. These main drivers of these developments have been the business strategies applied by these corporations. These strategies can be observed to be influenced by forces such as globalisation and certain deregulations when it comes to foreign operations. Besides these, other major publishers are Blackwell and the university presses of Oxford and Cambridge. The following table shows the leading publishers in the UK according to sales (Books and Publishing – United Kingdom’, 2003): Leading Publishers Ranked by Total Retail Sales 2001/2002 (Euromonitor International: Country Market Insight) 2.6 Employment By 2002, the books and publishing workforce, which also include employees in the printing sectors, were recorded at 352,000; according to the National Statistics, this figure was at 366,000 in 2001 (Books and Publishing – United Kingdom’, 2003; ‘Harper Collins’, 2007). In 2004, approximately 280,000 people were employed nationally and about 15% work part time. It has been cited that the books and publishing industry has not offered a very promising development to its workforce in terms of pay and employment confidence (Books and Publishing – United Kingdom’, 2003, p. 22): †¦ In a recent survey by Bookcareers.com, 66% of employees in the industry said that they had lost colleagues to redundancy. There is widespread discontent in the industry, particularly over the issue of pay. Levels of pay, especially for starting salaries, are notoriously low, particularly bearing in mind the level of education required for publishing work, and starting salaries can be as little as  £15,000 a year. Pay is a factor in most employees’ lives, particularly because most of UK publishing centres around London and the South East, where house prices are simply unaffordable for people earning average salaries in the industry. In addition to this, professional development does not sound as promising in this industry due to the lack of training initiatives and specific professional skills. Professionals in this industry are mostly managerial in nature. Hence, in terms of skills development, the demand has not been as impressive in this sector. It is therefore not as surprising that the number of employees in the industry has been discouraging in terms of rate, and employment has been also bleak due to redundancies. Total Employment in the Publishing Industry 1998-2002 (Euromonitor International: Country Market Insight) 2.7 Distribution In the past consumers were buying books through a variety of distribution channels such as large chain bookstores book clubs and independent and small chain bookstores, mass merchandisers, mail order, food and drug stores, discount stores, used books etc. The traditional bookshops have been losing their influence and as a result such booksellers have been also starting to fold up. The Internet is becoming one of the most active distribution channels for books and publications. Although the Internet does not have as much distribution share at this point, it continues to contribute significantly in this area as it also continues to increase as a highly-used distribution channel. Book retailers continue to dominate the product distribution; these retailers include chained retailers and independent bookshops. As compared to independent bookshops, in recent times, , bookshop chains are starting to increase its market grasp and influence (Books and Publishing – United Kingdom’, 2003). Another distribution source is through book clubs. The UK’s leading book club, BCA, combines to book club concept and its mail-to-order scheme, in addition to smaller subdivision of smaller book clubs. The book retail distribution trends have been presented in the following table: (Books and Publishing – United Kingdom’, 2003): Retail Distribution (Euromonitor International: Country Market Insight) It can be observed that there has been significant increase in sale through Internet and multiple (chained) booksellers whereas there has been a decrease in distribution through independent booksellers and book clubs/mail-to-order. 2.8 Major Trends and Developments The dynamism of the books and publishing industry in the UK can be determined by the key trends and developments that can eventually affect how the industry operates and performs. 2.8.1 Emerging Book Formats As previously mentioned, new formats such as e-books, CD-ROMs and audio books have now entered the market. Among the three, e-books have been creating a stir due to a number of reasons: it is in digital format that can be easily downloaded. What also works well with the emergence of e-books is the emergence of technologies.. For example, PDAs have now developed into small, handheld computers that can carry a substantial amount of data; e-books, which are usually in the PDF can be easily downloaded in PDAs and accessed through PDF reader (Microsoft Reader and Adobe Acrobat). Hence, people do not have to carry large books around as they can easily access them through their devices. As per the statistics from an online download source for public domain books, manybooks.net, PDF downloads have reached almost 140,000, not including the other electronic book formats such as eReader and RTF, and downloadable text in HTML format (Nagle, 2007). In any case, the number of downloads can reach hundreds of thousands, and this only includes books from one website and works within the public domain. Another popular source of free e-books is Project Gutenberg (Project Gutenberg, http://www.gutenberg.org/wiki/Main_Page) which claims to have over 2 million downloads every month. 2.8.2 Emerging Distribution Channels and Markets As discussed in the distribution channel section, the Internet is becoming to impress its influence among UK consumers; book sales online experienced an 11% growth in 2001 and continues to be significant till date. Although some online start-ups wanted to take advantage of the UK market, most of them were adversely affected by the dotcom bubble in the 1990s. Expectedly, Amazon.co.uk is the top online seller of books in the UK (Books and Publishing – United Kingdom’, 2003). 2.8.3 Developments in Technology and Concerns in Copyright and Production Technological developments have largely affected the books and publishing industry. As previously mentioned, technolo