Book industry faces its next chapter

Settling in with a good book is still an inviting option, but the industry that supplies us with them is facing less comfortable times. By JASON BAKER of IBISWorld.

By Jason Baker

True, there is so much competition for readers’ attention from other media these days, but books are far from being in danger of disappearing.

For many in the book publishing industry, the release of the final book in the Harry Potter series is bittersweet. Harry Potter has been a huge money-spinner for its author, publishers and book retailers. Some argue that it has encouraged a whole generation of children to read.

But it is a bright spot in a tough industry. The $1.8 billion book publishing industry in Australia is looking forward to slow growth over the next five years. IBISWorld predicts the industry will grow at an average annual rate of 2.8% in the five years to 2011-12 to reach $2.2 billion.

Over the past five years, revenue has grown at an average 3.3%. The profitability of the telephone directory market segment was strong; but profitability of the book publishing segment was mixed at best, thanks to falling prices in real terms.

Books now compete with a plethora of media for consumer attention. More publications became available via internet downloads, particularly non-fiction and government publications. And strong economic conditions saw some people divert their leisure time away from book reading to other pursuits. There has been significant growth in the number of magazine titles, covering more niche interests.

Although there are a large number of book publishing houses in Australia, most activity in the book publishing segment of this industry is accounted for by a handful of large-scale, foreign-owned publishers. Only about 10% of the book publishing segment’s revenue is generated by locally owned firms.

Publishers and distributors supply retailers directly with titles for which they have exclusive distribution rights, limiting competition and preventing efficiency gains.

New competition is coming from the sale of online books, with the first major operator being Amazon.com. Several booksellers and publishers followed online and now many authors sell directly from their own websites.

Australian general publishing is characterised by small print runs, typically between 1500 and 3000 copies.

Most of the small-scale publishing firms survive by concentrating on supplying specialised niche markets, such as educational, do-it-yourself, cooking/recipe and travel books. Lonely Planet, which has its head office and 320 employees located in Melbourne, has managed to remain independent and export most of its publications by concentrating on travel books and developing in-house editing and design facilities.

Most other specialists are associated with major publishers. Omnibus Books in Adelaide is an example; it co-publishes children’s books with Penguin. Penguin also distributes for other Australian-owned companies, such as University of Queensland Press and the Fremantle Arts Centre Press.

Some of the more adventurous small publishers also satisfy the demand for works from new authors. In general, the large publishing houses have had an advantage in acquiring the Australian copyright on new books, and have a choice between publishing locally or importing a book published overseas.

Telephone directory publishing, which represents 31% of the industry, relies on advertising revenue; in particular, from small and medium sized businesses. Their spending on advertisements can be volatile.

Over the next five years, IBISWorld predicts demand for books will be adversely affected by slower growth in consumer spending; however the average value of the Australian dollar is expected to be high, thus dampening the effects of input costs, and therefore book prices, which could have a positive effect on book demand volumes.

Online access of books could potentially grow the book market. It could increase the ability of authors to self-publish, reduce distribution costs and keep a larger proportion of the value chain for themselves.

Consolidation in the book publishing market may improve overseas distribution of Australian books. Some domestic publishers will concentrate more on the South-East Asian markets, where economic growth is fast and incomes are rising.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au