Globally publishing is going through a churn

Jaya Bhattacharji Rose (JBR): The present state of the publishing industry in India.

Deepak Kapoor (DK): The Indian publishing industry is attractive and has high growth potential due to population size and increasing literacy. India’s literacy rate improved from 52% to 68% between 1991 and 2008. It is an aggregation of different vernacular language publishing. Each language has its own unique character. There are 24 different languages with 80,000 titles being published every year. Half the population is under 30, leading to a growth in readership. The government social sector programmes (Right to Education) will result in an explosion in literacy lever driving high growth in education books. It will also add to increased sales in other print publications. The downside is the lack of skilled manpower to take the industry to the digital revolution. There is fragment-ation in the publishing eco-system in terms of distribution, publishers and retailers. The industry has ostensibly low entry barriers with the lack of  power advantages with buyer or supplier and no economies of scale. Publishing in India displays all these characteristics.

JBR: What are main problems in this space?

DK: One of the key problems in publishing is the presence of large number of publishers (small in size) across states. No single publisher is able to control sales. This results in “uneconomic activity”. The publisher is not able to negotiate raw material as he has no buying power, he cannot get rights to good authors as his ability to market book is limited.  If one were to analyse the ownership structure in Indian publishing, over 90% of them are owned by families. Different parts of the business are handled by family members ;“mom and pop”. Currently, India is in similar situation what US was in 50s/60s. Thereafter, consolidation took place which resulted in small publishers being wiped out. There is a distorted margin structure. Economics teaches us the higher the risk, higher are the returns. Unfortunately, this does not work in publishing. In publishing, the risk takers are the authors (works for a considerable period of time) and the publisher who invests the money. The end retailer had minimal risk as the stock is on SOR (sale or return). A typical distribution value split of Rs 100 for a book is: author: 5-7.5%; print/paper: 30-35%; publisher profit/overheads: 10-15%; distributor: 5% and retailer: 40-50%.

JBR: What about entry barriers?

DK: Yes, one of the key factors influencing this industry are that it has no entry barrier. The retailer (online and bricks-and-mortar) plays a key role in success of a title. Publishers view digital publishing as a threat and not as  an additional revenue model not realising the margins are significantly higher. “Green shoots” are visible in e-Books. At the last Delhi Book Fair in 2012 conference there was a separate section on e-Books and it was receiving good enquires. At Manupatra too a number of legal publishers have sought our assistance in bringing out digital books. Subscriptions to legal journals are falling dramatically due to information being available online. This is true for legal and science journals. In science, digital has overgrown print and the subscription levels have dropped dramatically. Even at Manupatra the number of subscribers to print products has dropped. I suggest, Industry bodies should organise seminars/ conferences to educate the publishers about the advantage of digital. Due to higher margins, industry would be attractive to PE investors. This may result in consolidation. The industry is fragmented with good margins, a PE who invests in one publishing house, can use that as a vehicle to acquire other publishers, thus achieving economies of scale and further improving the margins. Industry consolidation provides for cost savings because larger companies have more buying power to purchase goods in bulk. Market research and strategy is also readily available to be shared across the larger entities.PE will bring in funds, resulting in improved bargaining power with buyers/sellers and synergies in warehousing, distribution, printing and pooling of creative talent. All this individually or collectively will result in improved margins. As per market information, PE firm Everstone Capital has recently invested in publishing company S Chand. It is most likely they will use this as their vehicle to acquire other publishers.

JBR: Going forward ...

DK: India will see increased participation from international companies, growth of regional language publishing will outstrip growth in English language publishing. Readers are willing to pay for premium content. Growth rates in publishing in US/Europe are near zero. India is perceived to have high growth market due to its population size. With the advent of International publishing houses, new authors will be attracted to get their books published, who otherwise would not have published their works. If we count the number of new authors who have mushroomed during the last ten years, there is a direct correlation, with the number of foreign publishers who have set up shop in the country. New authors, will not be afraid to try new themes, take risks, thus quality of content will improve.

JBR: And the global scene?

DK: Globally publishing is going through a churn. Some of the noticeable changes are a declining readership, staff layouts at publishing firms and closures of publishing houses and of brick-and-mortar bookshops; a massive shift from print to digital; and consolidation among publishers (with the recent one between Random House and Penguin Books). A fascinating trend that is emerging is due to technological advances an author is able to get his work to the reader much faster than before. It is survival of the fittest. For me the true test is the market and not an individual publisher/ editor who decides what is to be printed and what is not to be printed. A curious outcome of this is  that more people are discussing /writing/blogging the future of books, print, publishing than before. Book review spaces in mainstream media may be  on the decline but reviewing, recommending and analysing books on social media platforms are increasing. Due to social networking sites authors/publishers are increasingly interacting with readers directly and discussing their works. It has become easy for a reader to read the book, share their thoughts and communicate with the author to obtain feedback. It is also becoming easier to find a new release and out-of-print books due to online sites.

JBR: Where do you think this industry “churn” is headed?

DK: I think this industry is moving towards consolidation and streamlining of processes; digital publishing; new channels of distribution; Growth in self-publishing and the emergence of a new generation of authors.

JBR: What are the volume of sales in print and digital? What has been Manupatra’s experience. Many of your publications are available online, but some via print, isn’t it?

DK: Digital publishing in India is still at a nascent stage (around 99% is print). Even in the case of Manupatra, we have digital editions of all our print editions but print still comprises 90%. However, for our online database we are witnessing volume growth. It is not only the volume growth which is encouraging  but more searches and higher number of documents are being opened daily. Our peak time QPS (query per second) is close to 55.

JBR: Do you think we are on the brink of a digital boom in India?

DK: I do not subscribe to the view that we are on the brink of digital boom in India. Defying predictions, reading has seen a revival with a flood of new titles, proliferation of publishers, an explosion of young readers, bustling bhasha markets and electronic reading aids. Digital will compliment print and one must not see this as competing for the same space. As we live in large metros and interact with our English-speaking peer group who are tech savvy, and have the latest e-readers and are thus talking about digital boom. What we forget is that in India English is not the only language. The publishing in bhasha languages is what  dominates publishing. The volume market for publishing is not limited to a few metros. I have not heard about any Indian language publisher venturing into digital. However, to be fair, children who have access to latest  e-readers are now reading more and more due to peer pressure  and this will result in increased digital publication.

JBR: How will it affect the eco-system in India?

DK: Digital publishing can mushroom when we have an eco-system wherein payments are made by credit card and books are downloaded. As all of us know, credit card penetration is very low in the country and people still prefer buying in cash. In an ideal e-world this will not work till credit cards penetration improves.

JBR: It is believed that there are over 90 kinds of e-readers available in India? Do you think this variety will affect the kind of content creation being generated by publishers?

DK: This is a classic case of “chicken and egg”. People will buy readers if the content is available. As on date hardly any content is available as publishers are not venturing large scale into digital. According to me till such time, content is not available, readers will not sell. The other problem with readers is there is no common format. Most of the large e-readers have their own proprietor’s format. For a publisher this means he has to have a digital edition ready for downloads from Apple, Amazon, Sony, Blackberry amazon, nook, etc. Till such time we do not have a common platform, reader sales will not take off. The market dynamics may change dramatically, if education material (k10 and college) is made available to students digitally. But it will take 5-10 years more and who knows what shape it will be in. This will see an exponential growth in e-readers and due to thes increased e-readers population, content of other types would automatically become available. I have my reservations on Aakash and google e-readers being the turning points in India.   

JBR: Given the growing ease with which people are able to publish, do you think the route of self-publishing will play a more significant role?

DK: Yes. Self-publishing will grow (due to its current low or negligible base ) the percentage increase may look good, but the problem that plagues Indian publishing will still haunt. However, the quality of Indian publications we have at present has to improve. We need more than one Chetan Bhagat.  The yardstick to measure success of any product is to have “repeat demand”. As more and more POD equipment is made available, self-publishing will become attractive. Publishers should offer this as an option. Not all books will have a print run of 500 and more. For small print runs (niche books) POD is a viable option.

JBR: What are the implications of a mixed form of publishing (digital and print), particularly in terms of distribution?

DK: Current distributors do not have the bandwidth to get into digital publishing. Either new channels will evolve or publishers will get into digital distribution (at the risk of annoying their existing channel). This may result in lower cost of digital edition to the end consumer.

JBR: Do you have any figures for the Indian market of publishing? There are all sorts of statistics being bandied about. Any reliable statistics? Any at all? For instance what is the volume of books being printed today?

DK: Key feature of Indian publishing is a fragmented market and mom and pop stores. No reliable figures are available (even where available they cannot be taken as correct). More than 90% retail market is “cash-based”, publishers/retailers are not willing to give any correct figures. As per Nielsen, a global information and measurement company, in India, the volume of book sales grew by 45% during the first half of 2011. For the entire year, documented English-language book sales of 3.28 billion rupees from more than 12 million books sold. This is probably only a fraction of true total sales, since Nielsen only measures about 35%  of the total market. Nielsen adds fiction as a whole was up 49% in value terms over the first half of the year, with adult non-fiction growing by 36% in value terms and 41% in volume. At the same time children’s literature, Young Adult and Educational sector has also shown growth, up 27% in volume and 38% in value over the first half of 2011.

JBR: Today there is talk of the market being heavily fragmented but there is tremendous growth. What is your opinion based upon Manupatra’s experience in legal publishing?

DK: Any fragmented market kindles hopes of consolidation resulting in growth of revenue and profits. As the Indian publishing consists mostly of  mom and pop firms, I don’t see them selling out as they have no other alternative businesses. We had tried consolidating the fragmented legal publishing industry by buying titles/publishers but had to abandon the plan as the publishers were not willing to sell because of lack of alternative employment, financial figures provided by them were suspect or in some cases not available.

Manupatra is not a correct example as we are more into database than publishing. We are in a very niche market where people use our services for doing research on case laws. Due to the success of people doing research online, the legal journal circulation in India   has come down and the sale of “back volumes” has totally disappeared. As English is the language of law, we operate totally in English language.

JBR: What are the business models in publishing that are going to survive? What are the changes in traditional business models that are perceptible?

DK: The pain points are lack of proper accounting; over 90% sales on cash; lack of  reliable market data; unethical trade practise; high discounts; inverted margin structure; no relation between risk and reward; unusually high payment and receivable cycle; problems of unsold inventory and low and uneconomic print runs. Consolidation of the industry would help resolve most of the pains being felt in the industry.

JBR: What are the pros-cons of FDI in publishing? Any comments?

DK: Flipkart is not  in publishing. They are online e-tailers. FDI in publishing is allowed 100% with a few exceptions like newspapers and current affairs. According to me, this is what is required as they have the money power to consolidate the fragmented industry, improve distribution and supply chain and infuse professionalism in the industry. We can see how banking and insurance sectors have improved after FDI was implemented. The negatives are the low price point at which print material is available, the same material price will go up. We have witnessed this after Lexis acquired an Indian publisher, the price of the acquired book was increased by 25%-30%.

JBR: Do you think publishers are moving towards an integrated workflow?

DK: It would be a complete necessity to have an integrated workflow.  According to me only 10-15 big publishers would have the capability to “push” both digital and print simultaneously. As the industry is fragmented with mom and pop stores, the publishers lack technology, trained manpower, financial resources, low volumes and management bandwidth.

Feedback about printers

JBR: How can printers address the pain points in the book supply chain? In fact if you can help define these pain points it would be helpful.

DK: Printers need to professionalise their workplace. Some suggestions are buying paper in bulk or entering into forward contracts with suppliers of raw material, training manpower, installing state of the art print kit which are energy efficient, get ready for POD and shifting to automatic binding machines to improve productivity.

JBR: What are the soft costs in this industry that need to be addressed? For instance, wastage (pilferage, damage, obsolescence), returns, cost of capital, real estate cost of storage, cost of lost opportunity, due to resources being occupied in other activities. How can soft costs be measured, quantified and valued by manufacturers?

DK: The soft costs are trained manpower; inefficient planning; not delivering on schedule; lack of storage facility resulting in buying papers at current rates; no proper book keeping; huge unsold inventory resulting in working capital being tied; unduly large receivable cycle and energy guzzling equipment like the current printing presses which are over 10-years-old and are generally bought second hand. They are refurbished and then sold. Any equipment which is old is energy inefficient.