Digital vs. Print … Publishing Industry Tipping Point Revisited

Jeff Hayes
Apr 21, 2011

Last summer I wrote a blog suggesting the publishing industry may soon reach a tipping point – a point at which the industry accelerates towards a digital business model and away from a print-based model. Recent financial results from Amazon.com, Gannett, The New York Times, and Apple provide further evidence that the industry is closer to that point.

Books

You probably recall last summer Amazon.com announced for the first time it was selling more Kindle and e-books than hardcover books. In its full year 2010 financial results Amazon.com disclosed some other amazing statistics:

  • Amazon is now also selling more Kindle books than paperback books. In 2010, the company sold 115 Kindle books for every 100 paperback books. Amazon sold three times as many Kindle books as hardcover books (300 for every 100). Wow! That’s a tipping point in my book.
  • Amazon stated it sold “millions” of third-generation Kindle devices in Q4 2010, eclipsing Harry Potter and the Deathly Hallows as the bestselling product in Amazon’s history. Kindle is now Amazon’s #1 product.
  • The U.S. Kindle Store has over 810,000 books including 107 of 112 New York Times bestsellers. Over 670,000 of these books are $9.99 or less, including 74 New York Times Bestsellers. These prices are lower than the typical hardcover or paperback version. Why? Because there is no physical printing, inventory or delivery.
  • Amazon has millions of free, out-of-copyright, pre-1923 books available to read on Kindle. Who needs print on demand to keep books in print?

What about tablets? Amazon now has a version of its “Buy Once, Read Everywhere” Kindle app that lets customers read a Kindle book on a Kindle device or iPad, iPod touch, iPhone, Mac, PC, BlackBerry or Android-based device. All Kindle apps are free and incorporate Amazon’s Whispersync technology, which allows readers to seamlessly switch between devices (i.e. read it on your Kindle or your iPhone).

What about libraries? Amazon announced this week that it will launch the public-library feature later this year that will give the Kindle the same library-borrowing capability as competing e-reading devices such as Barnes & Noble’s Nook and Sony’s Reader. Like B&N and Sony, Amazon is working with OverDrive a global distributor of e-content to over 11,000 libraries that has a catalog of more than 300,000 e-books and audio books. I wonder how long it will take before libraries are lending more e-books than printed books?

Newspapers

Gannett and The New York Times Co., two of the largest newspaper publishers in the U.S., announced their quarterly financial results this week. Executive summary – print advertising and circulation down (again), digital advertising up (again).

Gannett

Total Q1 2011 revenues declined 3.7% to $1.3 billion vs. $1.35 billion last year. The real story is in the details.

Publishing (USA Today, Newsquest) revenues declined 6.2% to $929.8 million vs. $991.5 million last year – the 17th straight quarter of declines in this segment.

  • Advertising revenues (including digital advertising within Publishing) were down 7.3%
  • Digital advertising within Publishing was up 13.3% for Community Publishing and 19.2% at USA TODAY
  • Circulation revenue declined 3.9%

Broadcasting revenues (television, Captivate) declined 2.1% to $163.9  million vs. $167.5 million last year (when the Olympics were being held).

Digital revenues (CareerBuilder, PointRoll, ShopLocal, Planet Discover, Schedule Star and Ripple6, but excluding Digital revenue from other segments) increased 12.1% to $157.6 million vs. $140.6 million last year.

Company-wide digital revenue (including the Digital Segment and all digital revenues from other business segments) increased 12.4% to $251.3 million vs. last year. Company-wide Digital now represents almost 20% of total operating revenues.

17 straight quarters of declining print-based publishing revenue and digital now represents 20% of total revenue – sounds like a tipping point to me.

The New York Times

Total Q1 2011 revenues declined 3.6% to $566.5 million from $587.9 million.

  • Advertising revenues declined 4.4% – however, print advertising declined 7.5% while digital advertising increased 4.5%.
  • Circulation revenues declined 3.7% and other revenues increased 3.2%.

The New York Times also implemented its new digital subscription plan a few weeks ago. According to The Times, “the debate consuming the newspaper business now centers on the question that The Times hopes to answer: Can you reverse 15 years of consumer behavior and build a business around online subscriptions?”

I think they will. I believe people will pay for quality content and anytime/anywhere access at a reasonable price.

Since announcing the new digital subscription plan The New York Times reported it has signed up over 100,000 customers and indicated it is ahead of its plan for 300,000 subscribers in the first year.

Apple

Total Q2 2011 (period ended March 26, 2011) revenues increased 82.7% to $24.7 billion from $13.5 billion. Some of the highlights of this incredible quarterly performance include:

  • iPhone and related products and service sales increased 126% to $12.3 billion. Unit sales were up 113% to 9.9 million.
  • iPad and related products and service sales increased to $2.8 billion. Unit sales were 4.7 million.
  • iTunes, App Store and iBookstore net sales increased to $1.4 billion.

What Should a Publisher (and their printer) Do?

I think every publisher needs to assume that printed books and print-based advertising are not coming back to previous levels and will become a smaller and smaller portion of industry revenue over the long term. All strategic investments should be focused on a digital publishing publishing platform and business model. If this isn’t the tipping point, then we are very close to it.

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