e-books are not pushing printed editions out of the market, these sectors do not cannibalize each other and this will not change anytime soon, says Paweł Waszczyk, head of Biblioteka Analiz, a market research company specializing in the book market.
CE Financial Observer: Does a traditional book have a chance to survive?
Paweł Waszczyk: I don’t see the point in the question of what the final form of the book will be. What is important for the industry is that e-books and print publications function on separate markets which are subject to certain temporary trends. It is estimated that in Poland there are several hundred thousand e-book readers, phones and tablets onto which people download files containing books. The value of print books in retail prices is approx. EUR1.04bn. The value of the Polish e-book market at net prices is EUR14.4m. We could therefore say that e-books have a small market share.
Does it mean that these two segments do not compete with each other?
The e-book segment is developing dynamically – we observe double-digit growth in the value of sales y/y. Its future depends on the level of education, financial ability to buy the devices and whether a group of readers develops a will want to use it. In Poland, there are two available models for acquiring e-books: transactional, in which individual books are purchased, and the subscription model. In the latter model, one can get an e-book reader for as little as EUR0.23
The segment of e-books has its challenges, such as increasing a number of readers. It faces certain difficulties, e.g. very high costs of purchasing foreign licenses, completely incompatible with the size of the market in Poland. Its advantages include the production costs of a book, lower than the paper publications. These two markets are not cannibalizing each other. And there is no danger that they will start to do so sometime in the future.
Audio books are an interesting element in the development of new forms of books in Poland. Their sales are growing at a steady rate, although the growth in the sales of files is much higher than in the case of CDs. This could drive the development of this segment, because expenditure on the production of files is lower than on the production of CDs with the same content. We observe an increase in the sales of audio books y/y. In addition to Audioteka, which is the market leader, companies such as Empik and the Swedish corporation Storytel, which is looking for interesting content on the Polish market, are now beginning to invest in the development of this form of book distribution.
In March2016, the National Library of Poland presented a report according to which 4.7 million Poles have not read any long text in 2015. Are the publishers going too far with the prices of books?
In Poland there is a prevailing belief that books are relatively expensive compared to basic goods. However, if we compare the price of a fiction book which is several hundred pages long (approx. EUR8) and the price of a half-litre bottle of vodka of medium quality (EUR4-5), I wouldn’t dare to say that books are too expensive. Polish publishers do not get preferential prices for paper and incur similar costs as the companies in many other countries. The costs that can be negotiated include printing or the design of the book, but no one will work for free. Therefore books are not overvalued in relation to the costs of their publication.
Research also shows that 37 per cent of Poles declare, that they read “at least one book a year”. This is a very poor result, and we are far behind other countries in the CSE. Since it’s not about the book prices, what is the reason?
In Germany, the Czech Republic and Slovakia the bourgeois mentality dominates, as these are largely Protestant or strongly influenced by Protestantism countries. Protestantism puts emphasis on reading the Bible at home. This created a habit of reading and respect for books.
In Poland, reading and buying books never became fashionable. This has long been overlooked, because Poles would not admit that they didn’t read. Until 2008, there was a divergence between the studies and the market reality. The studies indicated that Poles were reading books, and Poland could not see these hidden non-readers. Meanwhile, the studies from recent years increasingly correspond to reality. Poles no longer embarrassed and openly admit that don’t read books.
On the other hand, the number of published books is constantly growing. According to the estimates prepared by the Biblioteka Analiz, in 2015 over 34,000 titles were published, which means a 7 per cent increase compared to 2014. Out of this, 21,000 titles are new books – 12 per cent more than in the previous year.
In that case, is there anyone still making money on books? The writer? The publisher? The bookstore, or maybe the printing house? What does the structure of this market look like?
There are over 30,000 economic agents who included book publishing in the description of their business activity. Realistically speaking, in Poland, there are up to 500 entities responsible for more than 96 per cent of the publishing production. The next group consists of about one thousand companies that regularly publish one book per year. The rest are either companies that publish something only incidentally, or simply entered the possibility of such activity during registration.
The number of distributors is increasing. Even though the number of brick and mortar bookstores is falling, there is a steady increase in the number of booksellers on the internet. In the country there are over a dozen large wholesalers or distribution centres.
Is such a book production structure good for the market?
I would ask a different question: does such a structure by any chance result from the way the market operates? The number of new titles is also due to the nature of the market. The average lifespan of a book in Poland is 12 weeks. During this time the publisher tries to keep the cover price, although it is increasingly common that a new book can be bought much cheaper already at the time of its release.
Moreover, the estimates concerning these 12 weeks may soon turn out to be outdated. A few weeks ago at one of the industry meetings, Michał Tomaniak, the head of the book department at Empik (the largest books retail store in Poland), stated that in reality the first stage of the book’s life has shrunk to just 8 weeks. This is because the publishers don’t have enough patience; they are afraid of competition and decide to lower the price. As a result the book ends up in the bargain bin. The large number of new titles results from the fact that customers are constantly looking for new titles. And publishers are constantly producing new books to satisfy the needs of the market. At the same time, they are aware that for their business it would be safer to limit the number of published titles by up to 20 per cent.
This is especially so since the average print run continues to drop – it was 2,798 copies in 2015 compared to 3,236 copies a year earlier. This means that the fixed costs of book production (its graphic design, author’s fees and promotion) are becoming increasingly higher for publishers, because the costs are spread over a smaller number of copies. And it is not possible to raise prices. The book market in Poland is not able to absorb the twenty odd thousand new titles published each year. According to the Central Statistical Office (GUS) the average expenditure on books (excluding the expenditures on textbooks) is PLN23 per year. That is less than the average price of a book, which is PLN35-39. This amount barely comes close to the average price of an e-book, and e-books are significantly cheaper than paper editions.
Has the education reform from 2014, i.e. the so-called free textbooks for children, changed the market?
Due to the free textbook, the segment of educational publishers will lose about PLN400m (approx. EUR100m) in value over the next 3-4 years. In 2014, the textbooks for the 1st grade pupils disappeared. This means the loss of PLN70m (EUR16.2m) because the government subsidies were 30 per cent lower than the previous value of sales in this segment. The government also reduced the sales chain. Today, it is the following: publisher – school or publisher – distributor – school. Independent bookstores which base their existence on textbooks were eliminated. In addition, with each passing year there are fewer grades buying the textbooks. Small bookstores obtained from 40 to 70 per cent of their annual revenues from textbooks.
There are opinions that education will lose as well. The same with culture.
We could say that the development of culture and education will suffer along with the educational publishers. For years the publishers of textbooks were seen as privileged entities on the book market. They were sometimes treated as enemies who make a living by exploiting parents and schools. No one took into account their cultural and educational role: the fact that they supplemented the textbooks with extensive teaching materials for teachers.
Have the bookstores and distributors suffered the most?
Starting from 2014, the distribution companies specializing in the sales of educational books, which generated 70-80 per cent of their revenues, began to lose from a dozen to several dozen percent of their revenues per year. They had to work hard to survive. In addition to launching the sales of stationery items, educational games and toys, they began to compete fiercely on the market with the prices of other books. They did this not by gaining new customers or creating new distribution channels, but by taking over the market share of other players. A price war began.
We can now buy books on the internet with a discount of 27-35 per cent, even one week after the release. And these are not offers on single copies, but a large number of copies of new titles. E-sellers often operate on minimum margins. In theory, they can cope with that, because they don’t bear the costs of premises and employees. A brick-and-mortar bookstore won’t survive that.
If that wasn’t enough, some publishers and distributors cooperate with discount stores, giving them access to books – including bestsellers – at incredibly low wholesale prices. In October, the latest Harry Potter book was sold at the Biedronka discount stores at the lowest price. Independent booksellers didn’t even put this book on their shelves, because they had no chance to compete with the discount chain, which was selling it only slightly cheaper than their purchase price.
The closures of independent bookstores and their protracted agony – based on the hope of selling more stationery items, waiting for a bestseller, or renegotiating the lease fee – led to a deteriorating situation of payments to suppliers and publishers.
On the other hand, the disappearance of small bookstores is a blow to the development of local culture. After all, bookstores very often play such role in local communities. They import new titles, educational books, the classics, music records, as well as organize meetings with authors, etc.
It is no secret that over the last two years even large book sales networks in Poland have been struggling with liquidity problems.
If the market was stable, then the temporary problems of even larger players would not constitute such a challenge. Problems are accumulating because of the lack of proper communication. Right now they are largely a result of a bad communication between the vendors and the distributors. At some point the publishers begin to speak out – also in the media – about their problems, in the hope that in this way they can influence the bookstores. As a result, the banks sense trouble and withdraw their credit. Companies do not have the resources to finance the purchase of new titles and to make settlements for the copies sold, so their debts grow. Unfortunately, such situations are nothing new on the Polish book market.
Generally speaking, however, the extended payment deadlines, followed by late payment, constitute a constant problem in the market. Historical situations cannot be changed, but should be treated as a warning and an example showing what has to be changed.
For the past 2-3 years the industry has been intensely advocating in favor of a legislation that would introduce a uniform price of new books for one year from their release. The draft legislation is still waiting in the parliament. Why is it so important for the development of the book market?
The draft legislation provides for the possibility of price reduction by the publisher, if he determines that the title was priced too highly and can demonstrate the reason why that happened. He would be able to do that after six months, at the earliest.
This bill would therefore end the current situation where a book goes on the market and can soon be purchased on the internet with a huge discount?
We will know whether this is beneficial only after such a regulation is introduced. The theoretical assumption is that the new legal situation will equate all entities operating on the market and will organize its functioning so as not to restrict the existence of small, independent bookstores. The law is supposed to protect bookstores, especially in small towns.
According to supporters of the new bill, for a certain period of time books should be available at the same price on all possible sales platforms. This would mean that the economic entities are equal. Free market enthusiasts claim, however, that this would limit economic freedom. According to the representatives of the bookstore industry, this bill would end the current price war.
So, these provisions would help small, independent bookshops. But what about the publishers and the authors?
This bill would increase the security of their business operations. A fixed price for one year would ensure that the publisher would receive his part of the revenues. He would not have to cut the margins under the pressure of the distributors. It would also be beneficial for the authors, because the publishers would no longer have an excuse to delay the payment of royalties, which is a common practice today.