Chapter 2. Beyond ebooks: The ecosystem of digital books and reading

Many observers of the global book business spent much of 2011 marveling at the pace of ebook penetration in the United States and the United Kingdom. In 2012, a new digital buzzword was added: global. Never before has one book spread across not just a continent or two but around the globe, as did E.L. James’ Fifty Shades of Grey.

By 2013, we began to see the US and UK markets maturing, with growth in ebook penetration slowing down and ebooks transcending their initial niche in a number of countries in continental Europe. More importantly though ebooks are triggering a wave of structural innovation in an old industry, with ever-broadening experiments to explore new business models, such as subscriptions as drivers for reading communities (Nubico in Spain, Scoobe in Germany, Youboox in France, Oyster in the US), new models of cooperation between publishers and telecommunication giants and other partners in technology, and scores of startups, which include digital-only publishing ventures, social reading platforms, or service providers that adapt data mining to the requirements of publishing and book retail. In the meantime, global platforms such as Amazon or Apple’s iBookstore affect markets such as China and Brazil, invigorating the dynamics of globalization, but they also challenge traditional local players in publishing and in retail, while Kobo, as the newcomer, proposes its approach and partnership models with local players, from France (with Fnac) to Brazil (with Livraria Cultura), as an alternative to the predominance of just a few superpowers of the Internet. In the small and highly fragmented markets of Central Europe, and not just there, the unleashing of such new forces is met with serious concern, as it challenges the local book and reading cultures in a time of economic upheaval.

This report will therefore explore the manifold dimensions that the digital transformation is inducing.

A global book business versus national cultures, fairness and pride

Ebooks are only one part of this new ecosystem of writing, publishing, and reading, as are publishers and retailers, and in many continental European markets, they represent just a few percentage of the revenue of their national book industry. The digital distribution of books finds itself in the middle of a complex economic, political, and cultural battlefield where national governments, the European Commission, and the leading global digital actors such as Amazon, Apple, and Google fight over power and control in the digital economy of the next decade.

Globalization, therefore, inevitably spawns a second movement: regulation. In the US, the Department of Justice (DoJ) has stepped in, disagreeing with five major publishers and Apple (a distributor of ebooks) over who should control the pricing of digital books, bluntly calling the publishers’ agreement with Apple a “conspiracy”. The ultimate result of this lawsuit, say the critics —and not all of them are publishers— will be a “government-assisted monopoly” (Jenn Webb in a TOC blog post), as it would help Amazon to single-handedly dominate an industry, allowing it ultimately to define retail prices of ebooks instead of publishers and thus further expand its massive market share. The European Commission has a similar investigation underway.

The complex legal argument, though, is not the most relevant aspect for our perspective here. It is the political dimension instead, and the fact that Amazon —and a few other companies, mostly from the US, that are rolling out their ebook services on a truly global scale— are of an entirely different scale and scope from what used to reign over publishing in the old days.

Pearson, the leader in global book publishing, had annual revenues of $9.2 billion in 2012. NewsCorp, one of the leading global media companies and the parent of HarperCollins, recorded a turnover of $34 billion in 2012. This has NewsCorp playing in the same ballpark as Amazon (with $61 billion in 2012). By comparison, Apple has recorded revenues of $156 billion (Sept. 2012) and an operating income of over $55 billion. Google had revenues of $50 billion and an operating profit of over $13 billion.

The discrepancies in size fueled the biggest merger in the history of book publishing, when Random House and Penguin (a division of Pearson) decided to combine their activities in a new company, Penguin Random House, which became effective July 1, 2013. Together, they will generate revenues of ca. $3.9 billion from an output of ca. 15,000 new titles annually (see The Bookseller, 1 July 2013). However, even the now largest trade publisher is clearly centered on books.

In the current battle over emerging ebook and digital publishing markets, we must understand a variety of dynamics between players of not entirely different scales but also contrasting agendas. For Penguin Random House and for Hachette Livres (with revenues from publishing at $2.8 billion), turning front- and backlist titles into ebooks and expanding their access to international markets on a global scale is an imminent priority.

For companies such as Apple or Google, the digital transition and global outlook in book publishing will be only part of a much broader picture, as they distribute all kinds of digital media content, not just books.

Even though revenue from books is a central element at Amazon, retailing books is one among several of a broadening set of services, and this is similarly true for scores of domestic ventures in emerging markets where those global players are currently expanding with their book and publishing related offers. Obviously, this opens much room for friction and competition.

Only a few book markets are large enough -notably the United States, the United Kingdom, Germany, France, or the Spanish language market, as well as China- to form centers of gravity in their own right for distinct domestic developments. These markets reflect their own national cultural traditions and identities, resulting in strong national framing conditions. Such markets foster the emergence and, more importantly, sustenance of strong domestic players for both publishing and retail and for services and innovation.

Examples include the emphasis on the national book culture in Germany or France, with an almost unanimous consensus in the professional book communities there on the value of the book and reading and, as a result, calls for price regulation as well as strong defense of their book cultures against what is defined as external interference.

Google —via its digitization efforts with libraries and the scanning of copyrighted works— had become an early catalyst for such confrontations, getting local stakeholders out rallying in defense of the American company’s claim to “organize the knowledge of the world,” at least in Germany and France, and in the US, over the past several years. This communal action has resulted in the identification of the digitization of books most broadly as an assault on book culture and on fair compensation for intellectual property. After the downfall of the music industry and the impact of piracy on the music business, lobbying by professional organizations of the publishing industry could find broad support for its claims.

Digital has been broadly identified with illegal or at least unfair use of the cultural stock, first in Germany and France and then over time in many parts of continental Europe. In the context of an ever-broader concern about digital information technologies, surveillance, and the loss of privacy, ebooks hit continental Europe at a moment when digital or e reading is often considered a threat to citizens’ freedom and Europe’s difficult standing in a globalizing world.

In such a context, books are swiftly perceived as a strong symbol of resistance, rooted in a genuine European tradition of enlightenment (through books and universal reading and education). At least such is the current argument of the cultural establishment in most European countries, which must not, however, be confused with readers —the majority of whom are well-educated and media-savvy urbanites— who are largely open to the offerings of the Web, including ereaders and ebooks. It is the same cultural elite though that is preoccupied with losing local cultural identity.

Google’s digitization projects have been confronted by coordinated legal action in several European countries, which has had (particularly in France) strong political support from government institutions. Examples are the French-sponsored national and European digitization projects (e.g., Gallica and Europeana) and the German digital distribution platform Libreka, as well as legal charges against Google. Interestingly, in several of the largest continental European book markets (but not in the UK), the creation of a digital infrastructure has led to the forming of consortia, of which several have managed to take up a position as either the primary or the secondary leader in the digital service environment. Such is the case in France, Germany, Spain, Italy, and Sweden.

Although 2012 and 2013 have seen at least some of those flames put out in scores of settlements, in Europe, notably in France and in Germany, while Amazon is now perceived, at least by traditional representatives of the book business, as the main threat in a landscape shaped primarily by mid-sized or even small family-run businesses.

In particularly, smaller markets find themselves in a challenging situation. Many have rooted their cultural and national identity in a cultural singularity, which is usually anchored in literature and books. However, those same local elites who represent such a strong local identity, and who are strong readers also tend to be among the first to embrace reading in English, as they are fluent in foreign languages, open to other cultures, and travel widely. Slovenia, Sweden, and Denmark are examples of such markets.

New paradigms and new challenges

The conflicts triggered by the global actors are not limited to culture. In the late autumn of 2012, a new battle received publicity across Europe, and this time it was about money and power.

Global players versus local taxation

“It’s time to boycott Amazon, ethical consumer” was written in bold letters on a UK-based website. The activist call for action, however, is just one element in a broad debate on how Amazon, Google, and the global coffee brewer Starbucks use complexities and differences among European countries and their respective financial regulations to reduce their spending on local taxes on a grand scale.

“We’re not accusing you of being illegal, we’re accusing you of being immoral,” was the accusation uttered at a hearing of the British Parliament in November 2012, when it turned out that, for instance, Amazon’s European head office, Amazon EU S.a.r.l., based in Luxembourg, had declared a profit of €20 million after revenues of €9.1 billion, while its British arm, Amazon UK Ltd., had paid £1.8 million in corporate taxes on over £200 million in turnover in 2011. Google had reported £2.5 billion in UK sales in 2011 but tax of just £3.4 million (The Register, November 13, 2012).

Reports started to shed light on how Amazon, in “highly complex transaction(s),” since 2005 had rearranged their company structure in various European markets, notably through establishing its headquarters in tax-friendly Luxembourg, giving it a significant competitive advantage over companies that operated mostly out of and in one market. (For details, see a Reuters´ “Special Report: Amazon’s billion dollar tax shield”, December 6, 2012, and “How one word change lets Amazon pays less tax on its UK activities,” The Guardian, April 4, 2012).

The outrage over Amazon quickly spilled over the Channel to France, where the online retailer on the one hand had received significant financial public support for installing a distribution center in Burgundy and on the other hand framed its local operations as those of a mere “service providing society”, while transferring and accounting profits to its holdings in Luxembourg. As a result, not only did independent booksellers rally against Amazon (Livres Hebdo, January 3, 2013), but French financial authorities launched an inquiry (Livres Hebdo, November 14, 2012).

During the first half of 2013, the fiscal debate picked up momentum as well as massively extended its ambitions and goals, with the French government debating models to tax digital global actors better. A report has been commissioned to explore ideas ranging from taxing the collection of individual consumer data by firms such as Google to international actions to redefine how transnational companies and their revenues can be localized (“Fiscalité du numérique: vers une taxation des données,” Les Echos, January 18, 2013; “Un rapport envisage une taxe sur les données personnelles,” Le Monde, January 18, 2013).

The localization of ebooks however confronts much more mundane obstacles as well.

Oddities of contratictory tax regimes

One such hurdle —and a really tough one to overcome— is tax: sales tax in the US and value-added tax (VAT) in Europe. The tax issue has already been raised in many American states with regard to a genuinely American brand: Amazon.com (for a detailed account, see this Wikipedia page). In Europe, VAT is redrawing the map of retail, placing the tiny state of Luxembourg at the center. Luxembourg is the European headquarters for Amazon, Apple, Kobo, and Barnes & Noble. (Of the major European ebook sellers, only Google is based elsewhere —in Ireland— for historic reasons.) Having already created an attractive business environment, notably with regard to corporate taxes, Luxembourg decided in late 2011 to unilaterally lower VAT on ebooks to 3% (from 15%), which obviously gives it a significant edge over many other European markets, including the UK (where VAT on ebooks is 20%). The resulting tax advantages for transnationals have triggered heated debates, notably in the UK and France in fall 2012.

European trade authorities consider ebooks to be software that is licensed to consumers rather than a product that can be purchased, like a print book. As a result, preferential VAT rates for books (0% in the UK, 7% in Germany) do not apply for a title’s digital edition. Despite such views in the European Commission, France and Spain have recently passed national laws (or simply tolerate practices) that consider ebooks to be books. (See The Bookseller, December 18, 2011.)

The complexities of localization

So paradoxically, the global expansion of ebook platforms such as Amazon, Apple, Barnes & Noble, Google, and Kobo at first resulted in fragmentation within a basically integrated economic space such as the EU. Although this fragmentation may lessen over time, it highlights a deeper problem that results from contradictory policies between member states of the EU and the European Commission, which is calling on publishers, retail platforms, and national governments to embrace digital change more boldly and create a single market for ebooks (see this blog entry by Commissioner Neelie Kroes and launching an ebook round table from June 2012).

In Sweden, there is no Amazon.se website, probably because a local Swedish platform run by a local company, Bonnier, has a strong presence; in addition, the Swedish market is too small to fight over, at least for such a global behemoth as Amazon. Furthermore, many Swedish consumers are also readers of English-language books and can easily purchase them online, even from Amazon, if they wish. But how long will such exceptions be sustainable?

Legal battles are not limited to Europe, as also in several emerging economies, policies - or at least local specifics - aim at preserving local markets from bein overrun by global players. In India (one of the most attractive emerging economies), Amazon could not get a license for opening a local enterprise; this situation allowed two local Indian equivalents, Flipkart and Indiaplaza, to build relevant market positions. Only in August 2012 could Amazon open a dedicated site with a huge catalog of more than a million titles priced in rupees.

The politics of piracy

Piracy is obviously another challenge in the new mix of digital and global elements.

In Germany, and to a certain degree all over Europe, the debate on piracy has evolved in the first half of 2012 into mainstream headline news. What started as a battle at the margins, with lobbyists for the content industries opposing free speech advocates and digital nerds, has now been split into two strictly opposed camps, with the majority of authors ironically siding with the industry and arguing for strong government action against online sources of illegally distributed copyrighted content. The “pirates,” on the other side —who have formed political parties across the continent to run for election to national parliaments— occasionally find common ground with government authorities or the European Commission, for instance in derailing the internationally supported Anti-Counterfeiting Trade Agreement, which was strongly supported by the German publishers’ and booksellers’ association Börsenverein. The European Parliament voted against the agreement, with 478 negative votes, 39 positive, and 165 abstentions (for a detailed account, read this Wikipedia page).

Many authors who do not have regular income other than from their writing have good reason to be worried. In Germany, more than 1,500 such authors protested, shouting “We are the creators! Against stealing intellectual property” (“Wir sind die Urheber! Gegen den Diebstahl geistigen Eigentums!”), and found many more who followed their call.

In Russia, the government released official statistics showing that at least 90% of available Russian ebooks come from pirates; under such circumstances, a solid ebook market can hardly take shape. In December 2012, Russia and the US agreed on an “action plan” to jointly fight for improved intellectual property protection (United States and Russian Federation Agree on Action Plan to Improve Intellectual Property Rights Protection, press release, December 21, 2012). Not just ebooks, but all kinds of digital content are targeted, and this high-level initiative illustrates well how seriously the matter is being taken.

In China, the commercialization of digital content, including online reading and ebooks, is severely suffering from competition through pirate sites that offer their most popular content free of charge. Can Google’s recent compromise to offer the black-listing of websites with illegal content become a model for China? Or would this instead be just another incentive for governments to ban access to unwanted content altogether? Or, more broadly, can anyone argue in favor of China blocking websites for such a reason and at the same time defend free speech and free access to information in other countries such as the US or Europe?

Is policing the Web enough? Is it conceivable to outsmart piracy, legally or practically?

For a more in depth discussion of anti-piracy efforts, see eBook piracy in Europe: The example and debate in Germany, and related findings.

Global contexts: How books become embedded in the digital universe

Apple, whose iTunes store is already popular with consumers in many markets for downloading music, movies, and TV shows, continues to add ebooks in new languages to the closely integrated Apple iBookstore. Some languages have been initially excluded, notably those running from right to left, such as Arabic. Did this build a barrier of access to global knowledge and learning for Arabs? Certainly. But technological innovation can solve these issues. Connecting an entire culture to the ebook market is another hurdle altogether. Will an already shaky Arab publishing industry be able to evolve to meet the standards of the leading global players, or will Arab readers have to read international fiction in English or as a quickly pirated copy?

For some time, the book business, as an industry of a certain scale, was largely occupied by actors from a few home markets in North America, Europe, and Asia—notably Japan and Korea as well as, more recently, China and India. In most other parts of the world, disregarding the cultural aspirations of large populations, strict limits existed from the simple lack of a professional infrastructure to make all the newest books available, to disseminate basic information about new titles, and to ship a title across much of the Arab world, sub-Saharan Africa (perhaps with the exception of South Africa), and even large parts of Latin America.

When a simple and affordable hookup to the Internet turns billions of phones, laptops, and now tablet computers into reading and book-retrieval devices, something fundamental is about to happen. In a very similar pattern, communication was forever changed a decade and a half ago by the advent of mobile phones, as they bypassed the ailing infrastructure of land lines in so many parts of the globe.

In 2011, 86.7% of the world’s population had a mobile cellular subscription; 17%, or 1.2 billion people, owned a mobile broadband subscription, which is slightly more than the 16.6% with a fixed land line (International Telecommunication Union, November 2011, quoted here).

For books and reading, several factors coincide:

  • In a significantly growing number of emerging economies —which goes a long way beyond the usually quoted Brazil, Russia, India, and China, and includes countries such as South Africa, Argentina, Mexico, the Gulf countries, Indonesia, Thailand, Vietnam, and many others— a significant part of the population can afford and is in fact using mobile networks of digital content, have growing educational aspirations as well as an interest in both local and global entertainment, and have access to all this via the Internet and their mobile devices.
  • A relatively small number of leading publishing companies, specializing in trade and education —groups such as Pearson, the newly formed Penguin Random House, Hachette, HarperCollins (backed up by their parent NewsCorp), plus a few learning companies (Oxford, Cambridge, Wiley, Cengage) and publishers of science and professional information (Thomson Reuters, Reed Elsevier)— have woven truly global networks over the past few years, with local offices (not just for sales) exploring those (notably digitally connected) routes opened by the finance industry in the 1980s, global cities in the 1990s, and global tourism in the 2000s.
  • Apple’s iPod and iTunes have shown consumers around the globe how easily content can flow, while text messages, Facebook, and Twitter have connected consumers as individuals, not just as target groups.
  • Amazon and the Kindle allowed books —first in English, then in more languages— to flow through these virtual tubes, and the iPad seamlessly embeds those digital books in an integrated digital content universe, with movies, music, games, other reading, education, and other media.
  • Numerous local companies springing up in the various target markets enroot and diversify that web and extend it into a three-dimensional grid, by adding to the globalizing dimension local specifics, with local language, credibility, and logistics adding the last mile or last inch.

The last factor —adding localization to the global read— must not be brushed aside as just a level for collecting the consumer’s money for the global players. Quite the opposite: it is a critical part in stabilizing a process of exploration and expansion that has, even with tremendous momentum, only started.

The global ebook market will not be a level playing field for some time to come, and we can be fairly certain that it will not become the open digital space that many across the globe wish for. Exclusions and inclusions will remain a governing pattern for a long time, often enough in not planned, but accidental ways.

For instance, US headquartered Amazon launched a localized platform and Kindle shop in neighboring Canada only in January 2013 (!), over five years after its introduction in the US in November 2007. Google Play varies the media it offers to consumers widely, according to territory. Another example had two deeply intertwined, neighboring markets such as Germany and Austria at first separated by a gap, as books were initially available in Germany, yet not in Austria. Only since spring 2013, books can be purchased in Austria as well through Google Play. Also an ebook edition of a given (English language) title may be available internationally on Amazon for the Kindle, yet not through other major international platforms in ePub, despite the fact that an ePub version has been made available by the publisher.

Sometimes, the result of all these contradictory developments are simply funny: My wish, in late 2011, to acquire a digital copy of, ironically, a book on the global spread of English (Nicholas Ostler’s fabulous The Last Lingua Franca, published by Penguin in the UK) led to an unexpected odyssey. Buying an EPUB version (as opposed to one for Mobipocket/Kindle) of the book from online retailers in the UK (Waterstones or WHSmith) from a computer in Vienna, Austria turned out to be impossible. British retailers would not accept an overseas customer. They would, of course, have shipped a paper copy anywhere in the world without hesitation (with a few extra pounds charged for shipping). The same applied to the publisher, Penguin, despite that house being at the forefront of both the globalization and digitization of books. In the end, the purchase was possible through Kobo, a (then) new Canadian venture, which had started to become an international player exactly by venturing into this odd mix of challenges and opportunities.

Two years later, in fall 2013, such surprises are far from overcome, as many author contracts are not clear enough when it comes to global distribution rights, and not all involved in the new dimensions of the trade, from publishers to -global or local- distributors to retailers have been able to intetgrate all their catalogues and the complex metadata involved.

These are times of transition, with huge turbulences that often enough make it hard to be sure what in this new world of digital books and reading introduces a new opportunity, and what is instead a cumbersome, or even threatening challenge.

Global mapping initiatives

With respect to the ongoing globalization of the book publishing industry, few surveys have been published with a broad international approach.

While professional and STM (science, technical, and medical) publishing has seen both systematic digitization of its value chain and global expansion for a decade, general trade houses have followed behind at a much slower pace. A few British houses (notably Penguin, but also Oxford and Cambridge University Presses and Harper Collins) have a longstanding tradition of significant operations across several continents.

After the acquisition of Random House, the largest US trade publisher, by German Bertelsmann in 1998 and similar moves by French Hachette and, on a smaller scale, Spanish Planeta, the new “emerging markets,” led by Brazil, Russia, India, and China (the so-called BRIC countries), have seen offices opened by Western publishers in recent years. The merger between two of the largest trade publishing houses, Penguin and Random House, in 2013 is expected to impact on global publishing with similar far reaching consequences, even if, at this point, details are only taking shape. Little of this evolution has been the subject of systematic market research.

The most prominent exception has been the PriceWaterhouseCooper annual Global Entertainment and Media Outlook, which includes an analysis of and projection for the book sector, among other forms of media. The current edition of this outlook refers to the years 2013 to 2017. Already the previous edition, for 2012 to 2016, had built on a theme that couldn’t be truer for the book sector: The “end of the digital beginning”, portraying in depth how “E&M companies reshape and retool for life in the new normal.” Digital, so the report put it, is now “embedded in business-as-usual and moving to the heart of media companies worldwide.”

The expanding role of emerging economies as some of the most dynamic publishing markets has also been documented with data on global market developments by the International Publishers Association (IPA) and in the Global Ranking of the Publishing Industry. Both ongoing surveys are researched by the author of this report. (For details and links see www.wischenbart.com/publishing).

A broad selection of emerging markets and developing countries has been covered in the report “Digital publishing in developing countries”, authored by Octavio Kulesz and released in October 2010. The research, which is freely available for download in several formats and languages, focuses on Latin America, Sub-Saharan Africa, the Arab world, Russia, India, and China, and documents relevant local actors and initiatives across those continents, with detailed references, providing a valuable resource even as market details evolve quickly. A continuous debate on the topics raised by the report is documented in the Digital Minds Network.

A detailed account on how select ebook markets evolve was started by Bowker in May 2012 (see this press release with key findings). The Global eBook Monitor (GeM) is based on consumer surveys in ten countries: Australia, Brazil, France, Germany, India, Japan, South Korea, Spain, the UK, and the US. It tracks ebook adoption and consumer attitudes. India and Australia, together with the UK and the US, are seen as leaders in ebook adoption, while consumers in France and Japan were the least likely to have purchased an ebook, at 5 and 8%, respectively. GeM has been widely presented and discussed at major trade events and book fairs and is expected to be updated and extended to additional markets on a regular basis.