Print on demand, on demand For “Another Country: Creative Borders, Globalism and the Age of Collaboration”

1. Print on demand, on demandFor “Another Country: Creative Borders, Globalism and the Age of Collaboration” Brian O’Leary, Principal Magellan Media Consulting Partners BookExpo Canada Toronto, Ontario June 13, 2008

2. Overview of this afternoon’s presentation • Explaining the print-on-demand “universe” • Print on demand vendors • Author services • Onsite (“kiosk”) services • How to think about print on demand • Representative print-on-demand economics • Variations on a theme: Canadian use cases

3. Structure of this afternoon’s presentation • Presentation (taking questions as we go) • Break, if time allows (which I hope it does!) • Group application: creating and modeling representative print-on-demand scenarios • Summary and resources The program organizing staff appealed to us to make our work “interactive” – you can play a part in helping me do that!

4. Understanding the perspective you bring… • How you look at POD as an option varies based on your position and perspective within publishing • Publisher? • Author? • Supplier (paper, printing, POD vendor…)? • Other (consultant, association, government representative, conference staff…)? • Questions you would like to see answered today?

5. A brief history of this study • We began collecting information on author-services firms in 2005, around the time that several were becoming known as more than “vanity presses” • In 2006 and early 2007, BookNet Canada sponsored additional research on the potential benefits of greater use of POD in the Canadian market • Created models to help analyze the cost of inventory on slow-moving titles • Identified opportunities to maintain or return Canadian content to print using POD technologies • In 2007, Michael Tamblyn and the BNC staff extended our analysis in a POD presentation that provides an important example we excerpt here • More recently, we developed innovation case studies for the Book Industry Study Group, one of which is the on-site POD installation at the University of Alberta’s bookstore

6. It’s useful to first confirm the overlapping models

7. Print on demand and ultra-short run suppliers • Lightning Source (Ingram) • BookSurge (Amazon) • Colorcentric • Edwards Brothers • Quebecor-World • R.R. Donnelley • Friesens • Transcontinental The firms shown are representative; list is not exhaustive

8. Even within POD vendors, there is overlap… Lightning Source Quebecor-World (Eusey Press) Transcontinental Various Vendor examples are representative only (not a complete or preferred list)

9. POD vendors serve more than just publishers • Lightning Source, the largest supplier, gets about 60% of its business from publishers • Most of the balance is ordered through author-services firms • A small portion is given over to content aggregators (course packs, etc.) • LSI noted (2006) that 81% of its titles were priced between $9 and $24.95 Source: J. Kirby Best, “Inventory Availability and Rapid Turnaround Increase Sales”, Publishing Research Quarterly, Fall 2006

10. Print on demand set-up requirements • All look for PDFs; most will (try to) process properly structured documents in XML or native-application formats (InDesign, Quark, sometimes Word) • All offer direct or third-party conversion (scanning) of material not available digitally • Digital conversions cost less and take less time than scanning • Conversion costs occur once; if you work with a digital asset distributor, they may provide it as part of their service (i.e., don’t pay twice!) • Separate, lower set-up costs for cover and text/body copy are typical

11. How do you typically work with these vendors? • Most maintain relationships with traditional royalty publishers • Most offer conversion services • Some offer warehousing and/or fulfillment services • Options can include: “no” inventory (print only when ordered); limited inventory (order 1, print “n”); and minimum inventory (fill-in)

12. Author-services firms come in many shapes • Author House (Indiana)* • iUniverse (Nebraska)* • Trafford (British Columbia) • Lulu (North Carolina) • xLibris (Pennsylvania) • Bookends (New Jersey) • Blurb (California) • Picaboo (California) • Picturia Press (California) *While both are now part of Author Solutions, these two firms offer different types of author services The firms shown are representative; list is not exhaustive

13. How do these firms typically work? • Compete for authors as customers; may make some money selling books • Authors invest in editing and POD services (basic services generally under US$1,000) • Clear agreements on what each service provides (and does not provide) • Services can obtain ISBNs and arrange for listings • Typically, the services do not promote (unless you buy that) • Usually do not handle fulfillment

14. The menu of available services can be extensive • Editing (copy, line, content, developmental, research, proofreading, indexing, cover copy polishing) • Design and layouts (formatting options by type and complexity; cover design; illustration and photo selection) • Conversion (from digital file, from printed materials, e-book conversions, PDF generation) • Marketing and promotion (bookmarks, postcards, reviews, press kits, co-op advertising, clipping services, publicity support) • Digital marketing (newswire, e-mail marketing, web design and hosting) • Sales (distribution, online sales, retail sales)

15. On-site services (POD “kiosks”) are more limited • Instabook (Bookends) • Espresso (U of Alberta) • Limited market penetration at this point • Promising uses: local demand for OOP titles; customized content (special editions, course packs, etc.); high-traffic sites with limited inventory (e.g. airports)

16. A case study: the University of Alberta project • $30 million store ($20 million in book sales) installed an Espresso: $144K investment plus one staff person • Justified the investment with: course-packs ($450K annual sales); professor-created materials ($200K); public domain reprints (Frankenstein at $28 before POD); rare editions; and for-hire jobs • Opened in fall 2007; plans to work two shifts starting this month • Provides students with both print and the originating file (PDF) • Cost-effective to about 400 copies; for bigger orders, fill-in 50 and contract out the balance • Marginal cost about $0.015 per page (includes spoilage and waste), comparable to what Ingram charges The full case study is contained in BISG’s recent publication, “From Experimentation to Innovation in the Digital Age: Case Studies from the North American Book Industry”, available at BISG.org (in print or as a PDF) for $49.

17. Maybe kiosks are a ways off, but they aren’t wacky

18. Maybe kiosks are a ways off, but they aren’t wacky

19. Maybe kiosks are a ways off, but they aren’t wacky

20. Maybe kiosks are a ways off, but they aren’t wacky

21. Maybe kiosks are a ways off, but they aren’t wacky

22. The newer options do shift ownership to authors Over time, these shifts in the content value chain may also force publishers to reconsider their own roles. Adapted from Ann Haugland, “Opening the Gates: Print-on-Demand Publishing as Cultural Production”, Publishing Research Quarterly, Fall 2006

23. POD can help lower the unit cost of books sold

24. POD manufacturing costs are typically higher • Unit costs per POD book printed are typically 78% to 120% higher than seen with conventional technologies (books with page counts between 80 and 320 pages) • Unit costs per POD book sold can be lower, depending on sell-through for a title • POD can be set up to produce a single copy of one or more consistently formatted titles When POD is dismissed by publishers, it is typically based on manufacturing costs alone.

25. POD can help reduce or eliminate returns/unsold copies • POD technology allows publishers to choose their inventory objectives • Supports zero inventory (order, then print) as well as structured maintenance of low volumes of ordered titles • Titles printed POD can be sold as non-returnable • Titles printed POD can also be fulfilled directly, through contracted services Our research shows that the share of unsold copies is often much higher on small press runs (smaller base, greater uncertainty).

26. POD can also reduce inventory spoilage/shrinkage • Shrinkage (loss or theft) and spoilage (from handling) can consume as much as 10% of a print run • Little or no inventory also means significantly reduced spoilage/shrinkage • Coupled with fewer returns or unsold copies, lower spoilage also improves POD’s cost per book sold While spoilage and shrinkage vary significantly across titles, the longer a book is held, the greater the loss becomes…

27. Reducing inventory cuts carrying costs • Warehouse costs can range from $0.12 to $1.80 per copy, per year • Costs of capital (paying for printing well ahead of when the books are sold) • For slow-moving titles (demand below 50 per year), carrying costs can exceed manufacturing expense Because warehouse and financial expenses are usually not part of a departmental or title budget, the costs are often not factored into POD analyses.

28. However, this analysis compares just “books in print” But there is another, important consideration unique to POD…

29. POD also helps keep niche content in print Higher manufacturing costs for POD Lower expenses for returns/unsold, spoilage and carrying costs “Order, then print” model supports more timely inventory decisions OOP/OSI is no longer a forced (economic) decision Editorial value can be protected without incurring significant upfront costs Lowers risk (“Why not stay in print?”) Prices based on POD expense and full understanding of costs Predictable expenses Search and filter helps drive demand

30. To those familiar, this is part of the “long tail” argument • In virtually all markets, there are far more niche titles than blockbusters or best-sellers • The costs of reaching those specialty markets are falling dramatically • “Search, filter and find” are all improving, driving demand down the tail • As that happens, the demand curve is flattening (“hits” become less popular and niche titles become relatively more so) • The number of niche-title sales can grow to rival the market size of hits • With fewer constraints (distribution bottlenecks, scarce information, limited shelf space) the natural shape of the demand curve is revealed

31. Where POD may help meet long-tail demand Potentially cost-effective use of POD for online orders (titles still in print but slower-moving) Use POD to keep titles in print, growing revenues Demand (sales) Title count ranked by demand Maximum offline-retail title count OOP or OSI invoked

32. So what are the typical economics for POD? • Costs and services vary by POD vendor, so we created a uniform model to track various options • This model consists of: a series of vendor tabs (expandable); a summary of all vendor results; and a cost-benefit tab for a book of a given page count and trim size • For this example, we modeled a 6 x 9 title, 256 pages in length • Pricing changes over time, but this snapshot provides a good look at the demand scenarios in which POD makes sense • We can come back to the actual model with your own data after the break (this is an introduction to the analysis)

33. Here’s a look at POD costs for Lightning Source

34. Here’s the same table with Quebecor-World data

35. Using per-copy data as the base, a cost-benefit analysis

36. With one significant analytical footnote … • The model assumes that every book printed and not spoiled is sold • There’s no reduction in the model for copies not sold • A smaller conventional press run can look like a good financial option if demand is predictable • Where demand is uncertain (or certain to be less than your minimum conventional print quantity), POD can become a better option An example taken from last year’s analysis by BookNet Canada…

37. There is more than one way to estimate POD benefits • A story borrowed from Michael Tamblyn of BookNet Canada… • Suppose you use POD at $6 rather than print 500 copies of a book at $3 each… • And suppose as well that you sold 100 of these books in year 1, 50 in year 2, ten in year 3 and 5 in year 4… • The financial comparison would look something like this…

38. One title, small volume, printed two ways… Taken over time, the savings available from POD comes to $1,938 ($2,928 - $990), a reasonable sum for a single title.

39. Greater benefits accrue across a full list… • We created a cross section of Canadian publishers (large, medium, small, children) • Separated front-list and back-list volume • Analyzed the relative ratio of back-list to front-list titles • Found that medium and smaller publishers tend to keep books in print longer, on average • We then used this basis to ask, what if the slowest-moving titles were converted to POD…

40. If the bottom quartile conformed to the BNC example… But maybe you’re not so convinced that storage costs should be included…

41. Taking out the cost of warehouse storage… The savings across publishers of various sizes and types still add up, providing a good return and an opportunity to reinvest…

42. The benefit, divided by the size of each set of new titles … In an environment in which the vitality of domestic content is a key concern, the ability to invest and re-invest can be very appealing.

43. The Canadian sales profile makes POD a good option • Last year, BookNet Canada used its database to develop a profile of books sales within Canada • Although the data set includes both Canadian and international entities, the results are illustrative • In 2006, 220 thousand titles sold fewer than five copies • These slow-moving titles were spread across 6,800 publishers (an average of 32 per publisher, presumably backlist) • Within this data set, 3,400 publishers had titles that sold just one copy

44. So what to make of all of this data?

45. Good news! It’s time for a break… • Five minutes • We’ll come back to use your examples in the POD model

46. “Print on demand, on demand”: a summary • There are three overlapping segments in the market for POD goods and services • POD can make financial sense when you look at all of the costs involved with creating and managing inventory • There is a potentially significant opportunity to use POD to maintain or grow the availability of unique Canadian content • The benefits available from POD depend on the size, page count and annual demand for any given title • Models can help direct publishers to the best use of POD, which can then be tailored to address the nature of specific imprints and titles

47. Resources • BookNet Canada • Book Industry Study Group • Cambridge University Press; University of Chicago • Publishing Research Quarterly • Leading vendors (e.g., Lightning Source, Edwards Brothers) • Your current vendor (depending on the relationship) • Leading-edge experimenters • Knowledgeable consultants

48. A “mini-assessment”: Have we helped make you… • More knowledgeable about the nature and use of print on demand? • More interested in exploring this area when you get back home? • Willing to recommend this presentation to a friend? • Thanks for your time and attention this afternoon!

49. For more information… Brian O’Leary, Principal Principal Magellan Media Consulting Partners 240 East 56th Street, Suite 4E New York, NY 10022 Brian.oleary@magellanmediapartners.com www.magellanmediapartners.com