Caixin
Sep 24, 2012 07:03 PM

Penguin Unbound

(Beijing) – For John Makinson, CEO of the iconic British publishing house Penguin Group, there are two worlds in the publishing industry, in which the physical world represents finitude but in the digital, anything is still possible. Both of which, he says, require a strong brand.

If this is what really matters to modern readers inundated by constantly evolving formats in mass media, the publishing world may yet be able to start a new chapter. The plan is to turn digital, and to head for emerging markets, Makinson told an audience at the 2012 Beijing International Publisher's Forum in Beijing last month.

And China's markets are like no other – in profit potential and, competitor environs. The seemingly perpetual specter of government censorship makes printing maps of the South China Sea a little more inconvenient for the travel publisher, to start. There's the rock on the one hand. And then there's a real hard place on the other – the backdrop of hyperbolic devastation that the industry has faced since the advent of the Internet.

Stung into action by technological changes, publishing companies have spent the better half of the past decade working on ways to invest in digital products and exploring emerging markets including China.

In 2005, Penguin opened its first China offices in the cities of Beijing, Shanghai and Jiangmen. With an initial strategy geared toward bringing English-language titles to foreigners living in the country, the readership is now 80 percent Chinese. The current phase of development involves establishing a larger presence in the Chinese-language market, for which Makinson says the company has received official encouragement to make more titles available and engage in the origination of intellectual property. By the end of 2012, the company plans to acquire a total of eight to 10 titles for adaptation into English and have a total of 160 titles on offer in Chinese.

Penguin is also exploring the e-book market in China. Makinson said he's not sure whether the business will take off, but that three conditions will be needed for success.

"The first is there is a very large amount of digitized content available; consumers demand a lot of choice before entering into the digital book market," said Makinson. "Secondly, there needs to be a wide range of devices which are affordable for consumers to access the content," he said, "and thirdly, there needs to be strong platforms, such as the Amazon platforms. When those conditions are in place, the market takes off."

Makinson added that a prerequisite to any e-book market is a digital copyright regime which protects the interests of authors. The General Administration of Press and Publication, China's publishing regulator, has said that under China's 12th Five-Year Plan it will roll out policies aimed at strengthening the digital publishing market. That includes research and development efforts targeting digital copyright protection technology.

"This is something which, three years ago, I was very concerned about in China, where there wasn't really a copyright regime in place. And I really want to pay tribute to the GAPP and the enormous progress that has been made over the last couple of years in putting in place a framework for digital copyright," said Makinson at the forum.

But there's more than just the regulatory authorities to consider in China's evolving digital copyright law. Heavy on the sliding bar of influence are state-owned telecommunications companies and private platform providers, which are also having a large impact on digital publishing business models. 

Jo Lusby, general manager of Penguin Group China, said in an interview that the burgeoning domestic e-book market has come about with different players in China where "one publisher does not have much leverage over one platform provider."

Lusby said domestic Internet and telecom players have different views on how to manage digital content. Progress has been made in conversations with GAPP officials on copyright enforcement and e-book business models, Lusby said. Indeed, she trusts that GAPP is keen on promoting a framework very similar to what's called the agency pricing model for e-book sales. This could be a major boon to publishers that have seen perverse gains in international e-book sales, which have soared in volume but lag in revenue. 

Purchases of physical books continue to shrink, but hardcover revenues still far outpace that of e-books. In 2011, U.S. publishers saw US$ 11.1 billion in hardcover book revenues while e-books brought in US$ 2.07 billion, according to the Association of American Publishers.

The U.S. landscape is dominated by what is known as the Big Six companies: Hachette Book Group, HarperCollins, Macmillan, Penguin, Random House and Simon & Schuster. Despite a slightly more buoyant market in the United States, total U.S. revenues for books and other Big Six publisher products fell 6.9 percent year-on-year in the first quarter of 2012, according to Hoover's.

In March, the U.S. Department of Justice sued consumer electronics maker Apple and five of the Big Six for alleged collusion in e-book pricing under the agency model. In the agency model for e-books, a publishing agent sets the price of a book and retailers receive a percentage of the sale. DOJ claimed price-fixing in agency agreements for e-books.

Hachette, Simon & Schuster and HarperCollins agreed to a US$ 69 million settlement with the DOJ in September. Penguin, Macmillan and Apple are expected to face trials in 2013.

The agency model has challenged what was once Amazon's 90 percent share of the e-book market according to court papers, in which the wholesale pricing model allowed the platform provider to set prices considered scaldingly low by publishers.

So back to the two worlds theory and the notion that the value of dialogue created through good books can still serve as an intervening force for publishers such as Penguin.

"Brands are even more relevant in the digital publishing world than they are in the physical publishing world because the digital publishing world is confusing. And readers need to adapt themselves to brands that they can trust, that speak to quality," Makinson said.

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