E-Books Have Higher Margins Than Print Editions

E-Books = Higher Margins

Many people understand that e-books provide higher margins (not revenues, but margins) than their print cousins on a very simplistic level (which happens to be my level) --- but, we are going to try to examine a little deeper tonight why this is, indeed, a fact of life using some industry financial numbers; while at the same time discussing some numbers involved in the Random House/Penguin merger that support the proposition.

Have I bitten off more than I can chew? Probably --- but, what the hell.

Basically (simplistically), the profit margin can increase when you cut or eliminate costs associated with the production of the product (books in our case - and costs such as printing, binding, warehousing and shipping, etc.). The lower cost to produce the product results in a lower unit price and therefore overall revenues --- but, the profit margin made on each lower unit cost can rise due to these same eliminated production costs. 

Matthew Flamm, writes this for Crain's New York Business :

In last hurrah, Random House books record profits

Thanks to bestsellers like Dan Brown's Inferno and Sheryl Sandberg's Lean In, Random House Inc. boasted record profits for the first half of 2013, parent company Bertelsmann reported Friday in what will be the last earnings announcement for the publisher as a stand-alone unit. Sales, however, dipped slightly.

Random House merged with Penguin on July 1 to become the Manhattan-based global publishing giant Penguin Random House.

Compared to the same period a year ago, Random House revenue fell 3% to 915 million euros or $1.2 billion. Operating income rose 4% to 117 million euros or $155 million. A Penguin Random spokesman credited the increase in profits to "cost discipline" and strong sales growth overseas in e-books, which have higher margins than print editions.

The dip in sales revenue reflected the comparison with the unusually strong first half of 2012, when the Fifty Shades trilogy was topping bestseller lists. The "mommy porn" novels padded this year's sales as well, however, selling an additional 5 million copies in both print and digital editions.

As a portion of worldwide sales, e-books fell to 20% of the total from 22% a year ago, largely due to the drop-off from Fifty Shades, according to the spokesman.

Penguin also recently reported solid results, with a 6% jump in sales and a 14% spike in profits for the first half. Penguin's parent company Pearson owns 47% of the merged company, with Bertelsmann owning the rest.

"We can all take pride in what we have accomplished—both culturally and commercially—in the last eight months pre-merger, and in the last eight weeks as a new company," Penguin Random CEO Markus Dohle wrote in a letter Friday to the company's more than 10,000 employees. "As we begin this ever-important fall and holiday publishing and selling season, let's further deepen our collaboration and shared sense of purpose as we make the most of our fantastic lineup of books worldwide."

Read original article here

Now, more on why e-books have higher margins by Jim Milliot in Publishers Weekly:

E-book Sales Bolster Publishers' Bottom Lines

Higher e-book sales bolster the bottom-line at the big five while curtailing revenue growth

Although costs associated with reaching e-book settlements with the Department of Justice and state attorneys general cut into some houses’ profits, none of the big-five trade publishers posted a margin of less than 9% in 2012. And more than one publisher (or parent company) said higher sales of e-books is boosting its bottom-line—even if e-books are curtailing revenue growth—and should lead to higher margins in the future.

In its 10-K filing with the Securities & Exchange Commission, Simon & Schuster parent company CBS observed that “underlying publishing results reflect margin growth associated with an increase in the mix of revenues from digital book sales, which have lower production and distribution costs than print books. As the publishing business continues to transition to an increasing mix of digital book sales compared to print book sales, profit margins are expected to continue to grow.” S&S was one of the companies whose profits were hurt by legal and settlement costs. In both 2011 and 2012, S&S’s earnings also reflected restructuring charges—$3 million last year, primarily reflecting costs associated with combining several of S&S’s adult imprints, and charges of $2 million the year before due to severance costs.

Continued

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Monetizing the Slush Pile

"Self-publishing has moved into the mainstream of our industry" --- Penguin CEO John Makinson.

Just a couple of my previous posts on the new uses and newly-earned professional status of self-publishing:

'Medium' A New Lightweight Publishing Platform and Democratized Distribution


Self-Published Books Are Dynamic ‘Business Cards’

For those who haven't read these posts, they provide excellent insight and info RE self-publishing today :)

Yes indeed, the old slush pile has always been ripe with relevant and talented work. And now the big publishing houses want to monetize this beautiful source (you know, the 'screw you' source the old traditional publishers kept on the back burner or ignored because they had too much control over writers and just did not have the manning or talent to handle the workload --- so, they made the actual writers feel inferior with rejections to cover their own ineptness).

Further proof of self-publishing legitimacy is evident by the traditional publishing houses seeking out self-publishing or publishing services firms to purchase --- to possess this capability in-house.

This insight from John Makinson, Penguin CEO:

Why self-publishing is no longer a vanity project

The rise of self-publishing marks a radical change for publishers, readers and writers


A few years ago, HarperCollins launched Authonomy.com, a website dedicated to "flushing out the brightest, freshest new literature around". Site members share their works in progress – and HarperCollins and others publish the best. Last year, Penguin US launched a similar site, Bookcountry.com.

There's another term for what Authonomy and Book Country do: "monetising the slush pile". It's a pretty cruel one, as the "slush pile" of unsolicited manuscripts has long been a fine source for publishers, and publishing lore abounds with stories of much-rejected classics finally being picked up. But the addition of "publishing services" (self-publishing, essentially) to both sites suggests that publishers intend to profit from all of this work, even if it doesn't reach their house standards.

This summer, Penguin acquired Author Solutions Inc, one of the world's largest providers of publishing services, or what might have once been called "vanity publishing"...

Read and learn more

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Penguin - And More E-Lending Library Intrigue

I have been posting lately on the intrigue developing among some major players in the digital book selling and publishing industry since libraries have begun lending digital books (e-books).

And there have been varying and interesting points of view RE rather digital book retailers such as Apple and Amazon (now also a digital publisher with it's Kindle Fire) are positioning themselves in the best interests of the consumers, writers, publishers or gadget sellers :))) ... And at whose expense.

Here is a reaction by one major publishing house detailed in this article by Laura Hazard Owen for mocoNews.net (Mobile News):

Why Might A Publisher Pull Its E-Books From Libraries?

Following yesterday’s news that Penguin, citing security concerns, is pulling its new e-books from libraries—and making none of them available for library lending through Kindle—many are wondering why the publisher would do such a thing. (Penguin and Random House had been the only two “big six” publishers to offer unfettered access to e-books through libraries; now Random House is alone in doing so.)

Here are some possible reasons, none of which are “Penguin is stupid and is trying to make itself obsolete”—but all of which are a response to high demand for e-books in libraries, and I might argue that attempts to curtail or impede that demand are, at a minimum, counterproductive.
» Penguin is mad about Amazon’s deal with OverDrive and is retaliating. If you have a Kindle and have checked out a library book on it, you will notice that clicking “Get for Kindle” sends you to straight to Amazon’s website instead of having you check out the book from within the library’s site. Here’s how it looks:


When I click “Get for Kindle,” I’m directed to this page on Amazon’s site (click to enlarge):



Notice anything? Yeah, it looks an awful lot like an Amazon (NSDQ: AMZN) shopping page and I have to be logged into my Amazon account to get the book. Publishers Lunch notes, “Though OverDrive had promised in April that patrons’ ‘confidential information will be protected,’ in implementation their program is an engine for turning library users into Amazon customers.” (Publishers Lunch also notes that, since libraries had already bought the e-books from Penguin, it’s surprising that Penguin is simply allowed to withdraw access to them.)

Read and learn more

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An 'Old-Fashioned' Publishing Story!

Lately, stories about eBooks and digital publishing models and platforms have been rampant...So, it was a little refreshing to read a story about the firing of a top executive from a large traditional publishing house (Simon & Schuster, to be exact), his mulling over and re-thinking of publishing career directions AND his eventual hiring by ANOTHER large traditional publisher (Penguin, to be exact) as a top executive in a newly created department.

David Rosenthal (pictured) is the publishing exec who fell from the sky but landed on his feet.

Leon Neyfakh of The New York Observer writes this account:

David Rosenthal Puts on His Penguin Suit

The problem with losing your job when you're a high-level executive in contemporary book publishing is that your options are basically to become a literary agent or do something vague and most likely super-boring involving e-books. So one could have forgiven David Rosenthal for feeling a little gloomy this past summer after being fired abruptly from Simon & Schuster and being replaced by Jonathan Karp, a guy 10 years his junior, at the head of the CBS-owned publisher's flagship imprint.

This week Mr. Rosenthal is celebrating a happy landing. On Tuesday morning, it was announced that come January he will be running his own boutique imprint at Penguin Group USA, arguably the healthiest of the big New York houses as well as home to a number of the 56-year-old's former colleagues. Once he gets going, Mr. Rosenthal—whose roster at Simon & Schuster included Bob Woodward, David McCullough, Bob Dylan and Jim Cramer—will be on charge of a small but full-fledged operation at Penguin, with dedicated publicity and marketing muscle and a list totaling somewhere between 24 and 36 books per year.

Over lunch on Tuesday at the Half King in Chelsea, Mr. Rosenthal said Penguin president Susan Petersen Kennedy reached out to him shortly after his firing, and had been "aggressive and enthusiastic" in their talks. He is stoked to go work for her, he said: "People at Penguin don't bitch about their place of employ nearly as much as people elsewhere. Everybody says, 'The only person you ever want to work for in publishing anymore is Susan.'"

Read and enjoy more

British Publishers Ink Deals with Apple

More intrigue in publishing with the iPad's coming-out party in England...Some previously committed publishers to Apple delayed final acceptance until the last minute! Talk about a last minute prom date...

Four big English publishers finally signed with the iPad agency pricing model and had ebooks in the Apple iBookStore today at the iPad overseas launch...

This report from TheBookSeller.com by Catherine Neilan:

Hachette UK, Penguin, HarperCollins and Pan Macmillan are the only British publishers to have inked deals with Apple, with e-books produced by all companies appearing on the iBookStore this morning (28th) and available to UK book buyers.

The four represent five of the original global publishers who signed with Apple before its US launch in April—only Simon & Schuster is currently missing. Between them, they account for roughly 36% of the UK books market.

Man Booker-winner Wolf Hall (Fourth Estate), David Mitchell's number one The Thousand Autumns of Jacob de Zoet (Sceptre) and Stephen Gately's The Tree of Seasons are available to buy with prices ranging from £11.99 to £9.99 for hardbacks and £6.99 to £3.99 for paperbacks.

Prices are in the main more expensive than the equivalent print versions available on Amazon.co.u. For example, the paperback of Wolf Hall is £3.60 on Amazon, but £6.99 on the iBookStore. Thousand Autumns... is £11.99 via Apple, but Amazon is charging £9.41 for the hardback.

However, readers can download more than 100 pages of Wolf Hall for free, with an option to buy it while reading the sample. Nearly 100 pages of Mitchell's novel can also be downloaded for free.

Tony Parsons, Jeremy Clarkson, Chris Evans and Frankie Boyle are all among other authors appearing on the virtual bookshelf. Currently, Evans' memoir It's Not What You Think is number one.

Freelance writer Ben Johncock, who already owns an iPad, said: "There is a huge selection on here, with titles from all the genres - there is a really good sample of work available." He added: "I was a bit worred there would be nothing on here but there is actually quite a bit."

Read more at http://alturl.com/uomc

Penguin Publishers Make Innovations Again

I did a post about Penguin Books a week ago titled "Penguin's U.S. Publishing Unit Is Profitable!...Bucks Industry Trend." Penguin Publishing is indeed a unique company...so much so, I'm doing another post today that reveals a little more history and future of Penguin:

This from Adam Richardson on a blog from Frog Design called Matter/Anti-Matter:



Penguin, the fabled English publisher, is plunging head first into the world of iPad content. Not iPad books, exactly, as these things are not recognizable as books in the normal sense--they are closer to games and full-fledged apps. Even in the case where they are adapting existing print books, there is enough new stuff going on where it diverges significantly from what we normally think of as "book". A Kindle e-book, these are not. Check out the video above for an intriguing peep into what they have planned.

Dan Nosowitz at Fast Company observes:

[P]enguin doesn't even think these things are books. I know that because Penguin intends to sell this digital content in the app store, as individual apps, not in the iBooks bookstore. There's nothing wrong with that--these apps look great, and the prospect of enriching the definition of "book" is exciting--but as companies take advantage of the iPad, the publishing industry is going to have to expand in ways we don't quite understand yet.

This is actually not the first time that Penguin has taken such a radical view of books. In fact, the company was founded 75 years ago on an innovative approach to book publishing and distribution. I talk about it in my own book, as it is a terrific early example of disruptive innovation.

Penguin Books came into existence because of a realization on a train platform. Penguin’s founder, Allen Lane, was returning from a weekend with the famous mystery writer Agatha Christie, and looked in the train station’s book stall for something to read on his journey back to London. Finding only popular magazines and poor-quality, luridly written novels, he wondered why there was not anything for the reader who wanted some good-quality fiction at a low price.

Penguin Books began with a range of biography, crime-writing, and novels, all by contemporary authors and selling for a fifteenth of what hardback books usually sold for. Within a year, Penguin sold three million paperbacks by satisfying a need that traditional book publishers saw as off-limits. They were focused on a more upscale category, and assumed readers were warmly ensconced in a drawing room with plenty of time to spare.

Penguin even experimented with a purpose-built dispensing machine for train stations, wonderfully named the Penguincubator (since penguins lay eggs), which, sadly, seems lost to the mists of time.

Adam Richardson is the director of product strategy at Frog Design, where he guides strategy engagements for Frog's international roster of clients, envisioning and creating new products, consumer electronics, and digital experiences. Adam combines a background in industrial design, interaction design, and sociology, and he spends most of his time on convergent designs that combine hardware, software, service, brand, and retail. He writes and speaks extensively on design, business, culture, and technology, and he runs his own Richardsona blog. Adam is a member of the CNET Blog Network and is not an employee of CNET.