The fine print

Kottayam and Ahmedabad seem unlikely places to set off India’s e-book evolution. Yet they were. In 2010, Ahmedabad-headquartered online retailer Infibeam was first off the block with its Pi e-book reader. Soon after, Kottayam, Kerala-based publisher DC Books introduced the Wink e-reader. Both were just a little bit ahead of their time. By mid-2011, Wink had been pulled off the market as tablets and smartphones began to pour into India. The Pi continues to list on the Infibeam website as a ‘sold out’ product.

But these two homegrown businesses were forerunners to an e-books frenzy that now has top global e-reader brands, publishers and online retailers lining up big plans for India. The country is considered one of the top 10 markets for books and the third largest market for English books. E-books are tapping into this market, aided by an expanding youth demographic. And everything from pulp fiction to serious literature, non-fiction and even comic books, is turning digital. But how big is the opportunity, really?

“The Indian e-book market is less than 1% of the overall books market by value,” says Ananth Padmanabhan, vice-president, sales, Penguin India, and vice-president of the Association of Publishers in India, an industry body. Estimates for the print publishing market peg it at ₹10,000 crore, but reliable figures are hard to come by. This has to do primarily with the fragmented reporting of sales by India’s publishing houses, dominated by small and mid-size businesses. There are global pointers, though, that e-books are well on their way to change how books are read and experienced. In early 2011, Amazon’s worldwide e-book sales surpassed its physical book sales for the first time, and continue to be among its fastest growing categories, even as its print books sales shows sluggish growth. At Penguin Random House, e-books contribute a third of total book sales in the US and 21% of global book revenues, both numbers up a couple of percentage points from 2012. And in its results for the quarter ended September 2013, HarperCollins reported that sales from its 30,000-odd e-book titles accounted for 22% of publishing revenues, up 30% y-o-y. Similarly, says Padmanabhan, “Publishers in a growing market such as India will definitely see a 3X-5X growth y-o-y in e-book sales for at least the next three to five years.”

Between the lines

“E-books in India are at a very early stage,” concedes Vinutha Mallya, founder of Linespace, a Bengaluru-based publishing advisory and consulting firm. But while they have arrived in a big way in India nearly a decade after the West, the ecosystem here is getting created faster. “We have more or less leapfrogged the e-book evolution in terms of devices,” says Haja Sheriff, country director, India, for Canada’s Kobo, the latest entrant into the e-book and e-reader business in India. So instead of the e-reader first and the tablet and smartphone later, India’s digital reading opportunity cuts across these devices, and operating systems all at once.

Leading the charge is Flipkart, which launched e-books in November 2012 across major mobile platforms, Android, Windows and iOS. “We have rights for half a million titles,” says Anil Goteti, director, retail, Flipkart. Already the largest seller of books in India, Flipkart has ambitions to do the same with e-books. Goteti observes: “Easier access to technology and content is making e-books popular. Over 90% of people who buy an e-book read it.” Moreover, from bookmarks to social media sharing and reading across multiple devices, e-books offer a far more interactive reading experience that appeals to a younger generation of readers. Much of the initial traction in e-books has come from free offerings, and that’s hardly surprising, given the ‘everything’s free on the internet’ mindset that is associated with written content. Flipkart has over 10,000 free titles, and has priced many of its e-books at under ₹99 to induce first-time buyers. It has also partnered with Sony and Nokia to have its e-book app pre-burned on some of their mobile handset models. 

Makers of e-book readers such as Amazon and Kobo point to the benefits of reading on a dedicated device — the e-ink that gives a real printed word feel, massive battery life of one to two months and the fact that they are less distracting than multi-function devices such as tablets and smartphones. Amazon’s iconic Kindle e-book reader, which launched last year in India, comes with a library of around 2 million e-books, and over 325,000 titles exclusive to its Kindle Store, according to a company spokesperson. Of these, over 600,000 e-books are priced at ₹200 or less. Kobo, now owned by Tokyo-based Rakuten, claims to have 16 million registered users across 190 countries, and a library of nearly 4 million titles, including more than 1 million free books. 

Kobo’s distribution strategy has centred on the bookstore, the very business e-books threaten to diminish. It launched a few months ago and now has over 100 retail outlets, including Crossword, Croma and WHSmith across 14 cities. Kindle e-readers are available both online and offline in over 200 outlets. But e-readers might not be the key to e-book consumption in the third largest smartphone market in the world after the US and China. IDC reports that smartphone shipments by vendors to India nearly quadrupled to 12.8 million units in the third quarter of 2013 on a y-o-y basis, with large screen phablets (5 inch – 6.99 inch screen size) growing to contribute 23% to the overall market in volume terms during this period. It’s hardly a mystery, then, where most Indians will be doing their digital reading.  

Paper v/s tech

The books industry is divided into two categories — trade books, which comprise the popular genres of fiction and non-fiction, and educational and academic books. Much of the action so far has been on educational books that came in from outside, says Linespace’s Mallya: “These were early adopters of e-books, and they got distributed through the library network.” The current buzz around e-books began with popular categories even as some, such as coffee table books and box-sets, continue to be print-led.  

Hachette was the first to launch its e-book titles in India last year. Penguin India started with 250 titles as e-books in July 2012, converting past titles or backlists, and also simultaneously introducing new titles, both in print and as e-books. Of Penguin India’s 2,000-odd titles, half are now available as e-books. While Penguin, among others, publishes both print and e-books at the same price, the end price of a book in India, whether physical or electronic, is determined by retailers. Already, trade margins, known as discounts to trade on the cover price of a book, are up, from 40% five years ago, to more than 50% currently. The retailer could then further discount it by up to 10%. Discounts to retailers on e-books are even higher, and they further discount the books to customers even more, making losses on e-books higher than that on print.

So, can e-books be more economical to produce and more profitable for publishers? According to industry sources, an e-book version is typically 15-20% cheaper to produce than the paperback title. And unlike a printed book, which has a production and warehousing cost each time its printed and distributed, producing an e-book is a one-time affair with minimal storage and distribution costs. “There are other costs — costs of technology, costs of storing an e-book, DRM [digital rights management] etc,” says Padmanabhan. “Yet they are more profitable in the long run.”

Indeed, publishers are also only too happy to grow their market beyond physical boundaries of each country. “Physical books are typically sold within a region while e-books can go on sale around the world instantly. They are about convenience. You publish once, and sell many times,” says Padmanabhan. There is also the problem of rising costs in the print publishing business. “Physical production and distribution costs have been increasing 15-18% every year on account of raw material cost increases, VAT and other taxes and distributor margins. But book prices have stayed flat for the past three to five years. We could manage because of economies of scale,” he adds.

Then, marketing expenses on promoting e-books tend to be high, but the reach is exponential. “If I run one promotion with Flipkart, I have the ability to reach a customer base of 5 million. I could never reach so many people unless I carried a full page ad in The Times of India,” says a senior publishing executive, who did not wish to be named. He adds that five years ago, even large publishing houses barely spent on digital. “Today it’s 20-30% of the marketing spends of even small publishers,” he adds. Such spends are justified, as the conversion rates are said to be at least 12-15% (usually much higher) in case of e-books, compared with 2-5% for a physical book. Why? E-books are promptly downloadable, the transaction is quick, and money gets credited instantly to the seller and publisher. 

Future tense

While e-books are growing at about 12-15% annually, and could well overtake their physical counterpart, for now printed books continue to sell the most. “There remains a significant demand for print in India and it’s growing,” points out Mallya, who sees e-books picking up over the next three to five years. Some e-book sellers have tried bundling of print and e-books but this hasn’t worked, simply because readers prefer either one of the formats: “They are different audiences.” 

Publishers and e-book sellers, meanwhile, are addressing the digital space through innovative offerings. Among them is a new category known as e-singles. Essentially, these are stories or chapters from a full-length book in fiction or non-fiction, or a collection of plays or poetry that a reader can buy separately, instead of the entire book, and consume in a shorter time. “It’s like buying an audio single,” says Padmanabhan. The idea is to provide choice and the option to pay as per need, he adds. Typically between 3,000 and 5,000 words, Padmanabhan says Penguin’s 120 e-singles released so far, in the fiction and non-fiction genres, are priced at ₹25-99 each. 

Self-publishing offers another opportunity for e-book sellers by creating a new breed of authors and readers. The revenue model here is different, with authors setting their own price. Smashwords, the world’s largest distributor of self-published e-books, for instance, works on the agency model, making money entirely on the commissions from e-book sales. Smashwords is a self-serve platform, which means the author or publisher is entirely responsible for writing and editing the book as well as creating the e-book cover. Smashword’s technology converts the manuscript into multiple formats so the book can be read on any e-reading device. Under the revenue share model, says Mark Coker, founder, Smashwords, the retailer earns 30% of the listed price on every sale, Smashwords earns 10% while the author gets the rest. It entered into a distribution agreement with Flipkart in August 2013 for supplying from its catalogue of over 200,000 e-book titles sourced from over 80,000 authors and small independent publishers across the world.

Clearly, in what promises to be among the largest e-book markets worldwide, the battle lines have been drawn. While Penguin’s Padmanabhan hopes to take e-book sales to 10-15% of total book sales for his company in three years, others too are bringing global networks and experience to bear on their India plans. Kobo is targeting to sell almost 250,000 of its e-readers by December 2014, Sheriff points out. With relationships with more than 11,000 publishers and about 1.3 million authors, Kobo is reportedly the biggest foil to Amazon and Apple’s quest for dominance in e-books. Its entry into India only signifies that the e-books business is going to see intense competition.