Milan, March 2013

e-book market

Do Readers Dream of Electronic Books?

Reading Digital: Where Are We? Where Are We Going?

Giovanni Bonfanti (A.T. Kearney), Edoardo Bottai (A.T. Kearney), Marco Ferrario (BookRepublic)

A.T. Kearney 2

Preface

■ Provide an overview of digital publishing in Europe, Asia, South America and North America, highlighting the primary differences and emerging trends

Objective

Approach

■We surveyed countries that cover 80% of the global book market

■All numbers presented for 2013 derive from:

• 40 interviews with key players (publishers, retailers…) from major markets1

• Analysis of public data from public sources / press search

■This is an ongoing research project that debuted at IfBookThen 2011 and was presented in Frankfurt, London and New York

1. EU: UK, France, Spain, Germany, Italy, Denmark, Sweden, Norway, Netherlands; North America: US, Canada; South America: Brazil, Mexico, Argentina; Asia: Japan, India, China, Australia, South Korea

All the analysis presented in these pages are a summary of a larger research that was developed as a joint effort of A.T. Kearney and Bookrepublic

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eBook market size is ~€3.5 Bn – Europe is second largest region, driven by UK impressive growth eBook Trade Market Size (mln€; 2011; 2012E)

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis

23-24% 3.4%-3.6% eBook

penetration <0.1% 3.6%-3.9%

Regional eBook Market Share by Country

• U.S.: 95%

• Canada: 5%

• Brazil: 40% - 50%

180260

1

1900

540440

5

2500

+69%

+200%

Asia

+32%

Europe South America North America

2012

2011

• South Korea: 32%

• Japan: 32%

• China: 23%

• India: 9%

• Other: ~4%

• UK: 64%

• Germany: 22%

• France: 4%

• Italy: 3%

• Spain: 3%

• Other: ~4%

A.T. Kearney 4

Key market figures by country in 2012 - value

U.S.

23.9%

Brazil

<1%

Australia

1.7%

Japan

2.8%

China

2.6%

UK

14.0%

Germany

3.5%

France

1.2%

Spain

1.5%

Italy

1.5%

eBook Market Penetration (%; 2012E, value)

2012 USA Brazil Australia Japan China India UK Germany France Italy Spain

Availability of titles

in local language

2,000,000 (100.000 self

published)

11,000 600,000 70,000 300,000 n.a. 1,750,000 120,000 100,000 25,000 28,000

Tablet Penetration

(mln; %)

60 - 3.8 5.0 12 5.9 3.2 5.4 2.7 1.6

25% <0.5% 16.8% 4.0% 0.9% <1% 9.5% 3.9% 8.7% 4.5% 3.4%

eReader

penetration

(mln; %)

48 n.a. n.a

1.0 9.0 3.8 1.5 0.45 0.4 0.9

20% 0.8% 0.7% n.a 4.9% 1.8% 0.7% 0.6% 1.9%

eBook buyer

(mln) 58 15 4 8 n.a 25 10 8 2 n.a. 4

Selection of countries analyzed

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Bowker, Harris Interactive Poll, Pew Internet

E-book penetration on total book market

India

<1%

A.T. Kearney 5

Key market figures by country in 2012 - volume

U.S.

34,0%

Japan

5,5%

UK

20.0%

Germany

4.9%

1.7%

France

Spain

2.5%

eBook Market Penetration (trade) (%; 2012E, volume)

Selection of countries analyzed

Source: interview with a panel of publishers / bookretailers, press search, EUROSTA, PWC, U.S. Bureau, AAP, A.T. Kearney / Bookrepublic analysis., Harris Interactive Poll, Pew Internet

Xx% E-book penetration (volume)

2.5%

Italy

Sweden

1.0%

2012 USA Japan Sweden UK Germany France Italy Spain

Trade 34% 5.5% 1.0% 20% 4.9% 1.7% 2.5% 2.1%

Self Publishing 2% <0.1% <0.1% n.a <0.1% n.a <0.1% <0.1%

A.T. Kearney 6

So far, the main European markets’ growth has outpaced forecasted ones…

20.4%

10.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

1 2 3 4 5

14.0%

8.1%

3.5%

2.7%0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

6.0%

1.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

3 1.0%

7.2%

1.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

3 0.6%

Expected penetration of eBooks after 5 years from adoption (% of trade book sales)

This year Forecast

Last year Forecast

+0.9 p.p.

+0.5 p.p.

+4.0 p.p.

+0.8 p.p.

Pe

ne

tra

tio

n

Pe

ne

tra

tio

n

2012 2011

2012 2011 2012 2011

2012 2011

A.T. Kearney 7

…and in volume terms the relevance of ebook will be even higher in the coming years

Source: interview with a panel of European publishers, press research; A.T. Kearney / BookRepublic analysis

Comments

• In 2014, U.S. market will experienced the overtake of the digital quantities: books will sold more digital than paper

• UK market will continue to be the “best proxy” of the U.S. market, and the countries to be analyzed to capture “what’s next” in the European market

• In 2015, In Europe, 1 book out of 5 will be digital

US

53%

46%

59%

35%

29%

41%

13%

8%

4%

20%

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015

20%

36%

UK

Average main European countries • Germany • France • Italy • Spain • Sweden

Expected penetration of eBooks volume (% of trade book sales)

A.T. Kearney 8

European average price has declined over the last three years, this in fact will erode margins in the future

0

2

4

6

8

10

12

2010 2012

10 – 12 €

6-7€

European Average Price (€ - average from interviews with publishers / book retailers )

7-8€

0,2-1€

Price drivers

• Drivers that could raise the price: – Consumer perception: - Price of “correspondent” print book

– Law: - Fixed price law - Commissionaire Model adoption

• Drivers that could push down the price: – Consumer perception

- Special deals (i.e. Amazon) - Price of other “mobile

entertainments” (apps, MP3…) - Self publishing - Revenue model (subscription

model; pay per read…) – Law:

- VAT reduction - Retail model adoption

A.T. Kearney 9

The challenge is to look beyond the trade ebook market

Source: A.T. Kearney / BookRepublic

Collaborate with other media players to maximize return of investments in technology and better seize content

Enhance content and service leveraging on new technologies and opportunities driven by data

Address and seize the power of a larger customer base: readers are in fact much more than only trade (self publishing, free and piracy)

Paid ebook

• Growing in quantities but eroding margins

• Should be seen as a stepping stone to opening up new opportunities

• …is not just content

Where we are…

How to capture opportunities from these new areas?

…New areas to be explored

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To catch these business opportunities publishing players should be able to “play” with three pillars of digital

Technology

Data

Content

Publishing is going to be…

• Enable further readers’ engagement

• Evolve the reading experience in a social experience

• Enable multi-level reading paths

• Enable new ways to get the content

• Become “retailers“: know and profile your own customer

• Track market reactions in real time

• Treat literature and stories as big-data

• Measure any kind of interaction between content and user

• “Publish stuff that matters” (Tim O'Reilly)

A.T. Kearney 11

Americas Atlanta

Calgary

Chicago

Dallas

Detroit

Houston

Mexico City

New York

San Francisco

São Paolo

Toronto

Washington, D.C.

Asia Pacific Bangkok

Beijing

Hong Kong

Jakarta

Kuala Lumpur

Melbourne

Mumbai

New Delhi

Seoul

Shanghai

Singapore

Sydney

Tokyo

Europe Amsterdam

Berlin

Brussels

Bucharest

Budapest

Copenhagen

Düsseldorf

Frankfurt

Helsinki

Istanbul

Kiev

Lisbon

Ljubljana

London

Madrid

Milan

Moscow

Munich

Oslo

Paris

Prague

Rome

Stockholm

Stuttgart

Vienna

Warsaw

Zurich

Middle East

and Africa

Abu Dhabi

Dubai

Johannesburg

Manama Riyadh

A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers immediate, meaningful

results and long-term transformative advantage to clients.

Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading organizations across

all major industries and sectors. A.T. Kearney’s offices are located in major business centers in 38 countries.

A.T. Kearney 12

Bookrepublic is a leading Italian player within the digital publishing industry with an integrated system including:

The first Italian Independent ebookstore with a growing customer base who appreciates high quality editorial contents. The ongoing interaction with the reader and the creation of a partecipatory meeting place for readers, publishers, booksellers and authors enhanced by original reading paths, contribute to his distinctive positioning in the Italian market.

An advanced ebook distribution platform for small and medium sized publishing houses with the most advanced online tools and services.

Our positioning:

Original Contents

Unique Care for Partners

Ongoing Interaction

with Readers

http://www.bookrepublic.it

http://www.ifbookthen.com

Visit us:

https://exlibris.bookrepublic.it/

IFBOOKTHEN is an international network of local events taking place in Milan, Stockholm, Madrid and Barcelona, providing trends and top highlights about the digital publishing business.

The local formats grant the upcome of specific issues related to any single market; the discussion inside the network allows a great exchange of different experiences.

A.T. Kearney 13

Contacts

Giovanni Bonfanti Principal

A.T. Kearney

giovanni.bonfanti@atkearney.com

+39 02 76295 225

Marco Ferrario CEO / Cofounder

Bookrepublic

marco.ferrario@digitpub.it

+39 335 604 6861

Marco Ghezzi COO / Cofounder

Bookrepublic

marcog@bookrepublic.it

+39 348 22 44 836

Edoardo Bottai Manager

A.T. Kearney

edoardo.bottai@atkearney.com

+39 02 76295 476