The publishing industry could be transformed by the Internet in the same way that the music business was revitalised by the compact disc in the Eighties, according to Michael Lynton, president and CEOof Penguin.
Sales of books through the Internet have been growing rapidly. Amazon.com, which created the market when it launched in 1995, is the third-largest bookseller in the United States, with sales of $148- million last year, up nearly tenfold on 1996.
At Penguin, the world’s largest consumer publisher, sales through Amazon rose from $1-million in 1996 to $10-million last year and continue to grow at 40% a quarter. Within two years, the publisher expects Amazon to be its largest customer.
Conventional wisdom says that is at the expense of the high street, but Penguin’s research suggests it is generating extra sales. A recent survey found that 74% of online buyers had increased their purchases since they discovered Internet publishing and 54% of online buyers bought two or more books, compared to 36% of store buyers.
That is partly because Amazon and other online bookstores offer attractive discounts on bestsellers and new titles. But what excites Lynton most about the Net is the effect on sales of books published years ago, the backlist, and the ability to sell new books in more creative ways.
Compared with the sedate atmosphere of a conventional bookshop, an online store is full of pushy salespeople. Log on and they will immediately produce a list of bestsellers and recommendations. Then they will try to find out what interests you and produce books to satisfy that need.
They will offer reviews of the selected books - often by other customers - as well as extracts and interviews with the authors. And they make lots of suggestions. You like Anne Tyler? Try the new Carol Shields. Interested in palaeontology? Try this treatise. Regular customers will even be e-mailed when something interesting arrives.
You can, of course, browse in a bookshop, but even the biggest stores only stock 200 000 books, compared to 1,5-million in the files of Amazon. And try reading an entire chapter of a book in a store, even one of those new-style ones with cafs and comfy chairs.
“Amazon and Barnes & Noble [a US bookseller with an Internet service] are fantastic promotional vehicles for books,” said Lynton. “Just as we rediscovered music when we went back into record shops to replace our vinyl collections with CDs, so we are rediscovering our backlists through the Internet.”
If the Internet proves even a fifth as successful for books as CDs were for music, it could transform the industry’s fortunes.
As can be seen from the bestseller lists for June, Internet buyers choose rather different titles from those bought by high street shoppers. In the US, Amazon sells at least one copy of nearly all the books in Penguin’s 25 000-strong catalogue every 30 days.
Because the costs of publishing and promoting these books have already been incurred, sales of backlists are more profitable than new titles. And because an Internet bookstore only takes the stock when a customer asks for it, there are almost no returned copies. Compare that with the 14% returns from British bookshops and 28% returns in the US, where booksellers return just the cover, and the benefits to publishers’ profits become obvious.
The economics could tilt even further in the publishers’ favour. The industry already has the technology to print in low quantities economically - which means that printing on demand, in lots of 20 or so, could become a reality within the next year. It is not far from that to printing a copy as it is ordered online, although Penguin expects this to be some years away.
So far, publishers are taking the benefits of Internet retailing for themselves, but eventually the Web retailers will start demanding a cut of the additional profits. Penguin, like many other large publishers, deals direct with Amazon and Barnes & Noble, bypassing the distributors. But the terms of trade are generally the same as with any other distributor.
The price discounts offered to customers reflect the fact that Web retailers do not have to pay for stores or staff to run them. As sales rise, they will be able to demand better terms, although the impact on publishers should still be beneficial.
Internet booksellers could do with a boost to their profits. Amazon may be the third- largest US book retailer but it still sells only half Waterstones’s annual turnover - although Amazon is on track to overtake it this year.
Last year Amazon lost $28,6-million and it does not expect to get into profit quickly. But investors have driven up its market value more than tenfold since it floated on Nasdaq last May. At $5,6-billion, Amazon is now valued at more than twice Barnes & Noble’s annual sales.
Overseas and international sales account for a quarter of Amazon’s sales. In April it bought the British Internet bookseller Bookpages which will soon be renamed Amazon. But it does not expect to get more than 10% or 15% of the market, matching United Kingdom high-street chain WH Smith.
Publishers may generally welcome the Internet but that has not stopped them fighting its operators, too. British books tend to be more expensive and appear later than they do in the US. But the arcane issue of different publishers being granted copyright in different territories has stopped British online retailers, such as the Internet Bookshop, which has just been acquired by WH Smith, competing effectively with the Americans.
Its strategy has been to import books from the US and sell them for less than British editions until forced to stop by the UK publisher. So far, one major retailer has objected and another is expected to follow shortly.
Internet retailers are in discussion with the British Publishers’ Association over territorial rights. As an interim step, the association will publish a list of territorial rights for every book to help retailers establish which editions can be sold where.
Eventually the Internet is likely to live up to its name as the global marketplace by creating a truly global publishing market, without individual territorial rights.