Book industry strategy group




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Source: ABS, Book retailers, 2000–04, cat. no. 1371.0, p. 13.

Unfortunately, no subsequent ABS surveys have specifically looked at book retailing; the 2009 report Arts and culture in Australia: A statistical overview reiterates the 2003–04 figures, and the industrial classifications used in the census combine book retailers with newsagencies and do not distinguish the book-retailing activities of supermarkets and department stores.

During the past decade, the bricks-and-mortar firms have been joined by a number of Australian online-only book retailers, some of which have enjoyed rapid growth. Booktopia, for example, was among the 100 fastest-growing Australian companies in 2009, and CEO Tony Nash is confident it will retain its position in 2010.1 Other online-only retailers include TheNile and Boomerang Books, which has a particular (but not exclusive) emphasis on Australian titles. While all these firms operate online, their main focus is on the sale of print books.

A competitive environment

Authors and other content creators

Exploring the competitiveness of Australian content creators presents challenges. Though commonly used to ascertain ‘relative cost’, ‘competitiveness’ is a concept of limited efficacy when applied to authorship.

An individual author’s inputs and productivity may of necessity vary widely from one project to another, making measures of output – other than the delivery of an acceptable manuscript to a publisher to a deadline – hard to establish.

Within a given book genre, one author may be deemed to produce more ‘efficiently’ in cost or output terms than another, perhaps on the basis that one writes more books more quickly than the other. However, depending on the genre and a host of other factors, a ‘slow’ writer may not be an ‘efficient’ practitioner, but may still be an effective creator who enjoys a greater commercial success than a ‘fast’ writer.

Although many authors operate as small economic units and producers, their place within the broader economy is blurred by the nature of their practice and the often poor fit between effort and return. Authors’ output retains a twin character – being commerce and art/craft – so that their economic contribution must be weighed alongside the delivery of cultural and other benefits.

In the context of the book industry’s overall costs, authors influence general industry competitiveness in only limited ways. While authors’ direct cost to publishers takes the form of advance and royalty payments, roughly ten per cent of the total publishing ‘pie’, there is no evidence that author-driven excessive or publisher misjudged advances and royalty payments are cumulatively sufficient to have influenced retail prices and made local products less competitive than imports.

Taking the total Australian book market over time as being open and fluid, the creation of a greater volume of quality, local author–generated intellectual property is an economic input with at least the potential to enhance revenues through increased book sales. On this measure, an indication of the competitiveness of Australian
authors lies in the number of local titles produced and published annually.

Publishers

The conversion of content into books in Australia is primarily the responsibility of the country’s publishers. However, the competitiveness of Australian publishing industry is difficult to assess because of the protection afforded it under the Copyright Act and also because many publishing houses are subsidiaries of larger international publishers. Notwithstanding these issues, the Australian publishing industry is competitive relative to international competitors. The following observations help to support this conclusion:

  • The export market for Australian books has grown over the past decade (an annual average increase of 3.6 per cent), while the export markets in the United Kingdom and United States have stagnated. The value of Australia’s book exports grew from $162 million in 2001 to $225 million in 2010 – an annual average increase of 3.6 per cent.

  • The share of Australian publishing revenue accounted for by Australian books has grown over the past decade from 44 per cent in 2001 to 48 per cent in 2010 (see Figure 21). This suggests that Australian publishers have become more effective in linking Australian content creators with the Australian market.

  • Australian book publishers have improved the management of inventory over the past decade as inventory levels as a proportion of sales have been trending downwards for both trade book publishers and educational book publishers.

Australian book publishers have embraced the digitisation of production.

Figure 21: Book publisher revenue, by type of publisher, 2001–10




Source: Cover to cover, Figure 14, p. 24.

Lastly, Australian publishers have made some progress in addressing the problem of returns. Confidential data provided by the Australian Publishers’ Association show a 5 per cent decline in trade returns as a proportion of sales over the past decade.

Labour productivity is an issue as this has stagnated over the past decade. This has increased by an annual average of 0.6 per cent for trade publishers and declined by an annual average of 2.5 per cent for educational publishers. However, this trend may reflect the overall slowdown in productivity growth throughout the economy.

Printers

The Australian book printing industry has been involved in the production of books since the early 19th century. The past two decades, however, have witnessed a gradual decline in the revenue generated by the book printing industry, from $250 million in 2001, to $220 million in 2010. The decline in book printing revenue may be attributed to the increasing use of overseas printers by Australian-based publishers, driven by cost differential between Australia and Asia. Asian-based printers have a price advantage of between 12 and 27 per cent; the biggest differential is for four-colour casebound books.

The cost differentials result from higher labour costs in Australia; higher paper costs; the small market; under-utilisation; economies of scale; higher regulatory standards; and the high Australia dollar, which provides
a price advantage for overseas-based printers. Other factors include:

  • The average print run for a book in Australia (excluding trade paperbacks) is between 7,000 and 10,000, in contrast to 1.2 million in China. Compounding the print run problem is the significant under-utilisation of capacity.

  • At the extreme, 2011 International Labour Organization data show that manufacturing labour costs are 1,900 per cent higher in Australia than those in China and 600 per cent higher than those in Malaysia.

  • Australia imports coated and uncoated paper at a higher price than printers in the United Kingdom. PricewaterhouseCoopers believes this is because Australia buys lower volumes of paper.

The industry has sought to adjust to these changes through investment in new technology. The industry has embraced digital file plate technology, and wages in the broader printing industry fell as a percentage of revenue between 2005 and 2010 due to efficiency and productivity gains. As a result of these adjustments, the average price of trade paperback fell by 9 per cent at Griffin Press and McPherson’s Printing Group over the past decade.

Distributors

Distribution is widely seen as a factor impeding the competitiveness of the Australian book industry. Inefficiencies in the distribution system in Australia could account for 6 to 16 per cent of the price differential of the average total price charged by Australian and overseas online booksellers. Factors that affect distribution are the geographically large and dispersed market, a fragmented distribution system, lack of agreed standards underpinning book distribution and lack of access to the distribution system for smaller publishers. As a result of these difficulties:

  • The fragmentation limits the ability of publishers to achieve economies of scale in distribution, which drives up the cost of each unit distributed.

  • The lack of agreed standards results in the multiple handling of books, thus increasing costs. The use of radio frequency identification could help to track the seamless movement of books across the supply chain and reduce costs.

  • Up to 40 per cent of publishers, mostly small, feel that they are locked out of the national distribution system.

Distribution in Australia is also affected by the absence of an Australian digital asset distributor, which acts as an intermediary between publisher and bookseller. These specialist companies play an important role in the ebook supply chain in the United States and the United Kingdom through providing publishers with technical capacity in managing their ebook portfolios. This includes managing metadata and digital rights for the publisher and providing ebook formats that match the ecommerce systems of booksellers.

Retailers

With fast internet connection speeds and reliable online payment systems, consumers are increasingly willing to purchase print books through online platforms. PayPal Australia estimated that Australian online retail sales would reach $33.8 billion in 2012, a 40 per cent increase over 2009 levels. Local online retailers are struggling to establish a presence in the market, and overseas firms account for about 40 per cent of total Australian online retail sales.

Australian booksellers have been pitted directly against their overseas competitors in the ebook and online sales of print book market. The use of specialist wholesalers in the United Kingdom and the United States helps to improve efficiency, because such wholesalers are able to offer more consolidated ordering services to booksellers. Speed of access and the range of available titles are major issues for booksellers’ competitiveness. Books that are out of stock locally can take between three and 12 weeks to be supplied, while major US book distributor Ingram can supply any Australian bookshop in four to five business days. However, books that are in stock can usually be supplied in Sydney or Melbourne within three to five days. Lengthy delivery times can encourage inefficient ordering behaviour, such as ordering on the basis of predicted future demand. As a result, booksellers may be less likely to have the titles to meet consumer needs. An inefficient distribution system is blamed for slow delivery times.

Another key issue for competitiveness of Australian retailers is price. Overseas online booksellers such as Amazon are able to sell print books published overseas to Australian consumers at a price (including delivery) that is more competitive than the price charged by Australian online booksellers for the same book. The available evidence suggests that Australian online booksellers are able to sell print books published in Australia more competitively (see Table 3).

Table 3: Summary of comparison of total prices charged by Australian-based and overseas-based online booksellers (as at 27 March 2011)

Sales rank

Title

Average total price

Median total price

Australia

Overseas

Differential (%)

Australia

Overseas

Differential (%)

18

Letters and Numbers *

$20.14

n/a

n/a

$20.41

n/a

n/a

21

The Plantation *

$35.39

n/a

n/a

$36.31

n/a

n/a

24

Ben Cousins: My Life Story *

$39.97

n/a

n/a

$39.34

n/a

n/a

13

Last Sacrifice: Vampire Academy *

$23.39

$30.14

22.4%

$23.45

$30.14

22.2%

7

Losing the Last Five Kilos *

$32.11

$38.33

16.2%

$33.61

$38.33

12.3%

22

MasterChef Australia (Volume 2) *

$40.43

$46.54

13.1%

$42.15

$46.54

9.4%

14

Dog Days: Diary of a Wimpy Kid *

$19.30

$21.89

11.8%

$20.26

$21.89

7.4%

3

Ugly Truth: Diary of a Wimpy Kid *

$19.48

$21.89

11.0%

$20.41

$21.89

6.8%

8

Diary of a Wimpy Kid *

$19.46

$21.56

9.7%

$20.11

$21.56

6.7%

6

Lake of Dreams

$33.18

$36.48

9.0%

$33.61

$36.48

7.9%

11

Before I Fall

$15.80

$17.31

8.7%

$15.95

$15.99

0.2%

12

Rodrick Rules: Diary of a Wimpy Kid*

$19.71

$21.56

8.6%

$20.34

$21.56

5.7%

15

Last Straw: Diary of a Wimpy Kid *

$20.05

$21.89

8.4%

$20.41

$21.89

6.8%

10

Fast Fresh Simple *

$43.68

$42.34

-3.2%

$44.47

$43.47

-2.3%

16

Clean & Lean Flat Tummy Fast!

$31.32

$29.39

-6.6%

$32.14

$27.89

-15.2%

20

You Belong to Me

$29.11

$25.88

-12.5%

$29.44

$25.88

-13.8%

19

The King’s Speech

$32.80

$27.49

-19.3%

$33.91

$22.37

-51.6%

1

Tick, Tock

$33.88

$26.57

-27.5%

$35.97

$19.48

-84.6%

23

Jamie’s 30-minute Meals

$52.38

$39.40

-33.0%

$51.91

$35.96

-44.4%

17

Secrets to the Grave

$36.02

$26.27

-37.1%

$36.64

$26.27

-39.5%

2

Awakened: House of Night

$33.08

$24.12

-37.1%

$33.79

$17.57

-92.3%

4

The Girl Who Kicked the Hornets’ Nest

$27.43

$18.20

-50.7%

$29.16

$20.55

-41.9%

25

Eat, Pray, Love

$27.07

$17.67

-53.2%

$29.29

$16.25

-80.3%

5

The Girl with the Dragon Tattoo

$26.95

$16.65

-61.8%

$29.06

$13.12

-121.5%

9

The Girl Who Played with Fire

$26.01

$15.94

-63.2%

$26.46

$14.85

-78.2%

Average for books published in Australia







10.7%







8.3%

Average for books published overseas







-26.0%







-42.6%

Average for all books







-9.4%







-18.3%

* Titles published in Australia.

Note: Prices include sales price and postage.

Source: Cover to cover, Table 7, p. 69.


Factors affecting the price competitiveness of Australian booksellers include:

  • The wholesale price of books. The prices paid for wholesale books published overseas by Australian booksellers are, on average, greater than those paid by booksellers overseas.

  • GST on books sold in Australia PricewaterhouseCoopers found that if the GST on books sold in Australia were removed, the price advantage enjoyed by overseas online booksellers would be reduced for all books by approximately 87 per cent and would increase the price advantage for Australian booksellers for books published in Australia by approximately 60 per cent.

  • The differential cost of postage between Australia and other destinations. Australian businesses suffer a significant disadvantage in postal rates to the United Kingdom compared to postal rates from the United Kingdom. Rates from Australia can be up to 89 per cent higher for posting parcels of similar volume and weight (see Table 4).

  • The appreciation of the Australian dollar against the US dollar and the British pound has made purchasing books in those markets much more attractive to Australian book buyers. The exchange rate, in real terms, is at its highest level since the mid 1970s. Driving the appreciation in the Australian dollar has been our high terms of trade, relatively strong economy and the expansionary monetary policy settings of major world economies including the United States and the United Kingdom. Over the year to September 2011, the Australian dollar has appreciated by 15.4 per cent against the US dollar; by 8.3 per cent against the trade-weighted index of currencies; and by 5.2 per cent against the euro. The strong dollar is a challenge for Australian manufacturing industries, particularly those that are trade exposed. It has raised the price of the goods that Australian manufacturers sell in overseas markets and intensified competition from cheaper imported goods; thus putting pressure on income, sales levels, margins and ultimately profits. This is the current scenario for the book retailing segment of the book industry – Australian consumers are able to buy books more cheaply offshore due in part to the stronger Australian currency.

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