The State of the Printing Industry

From Publishers Weekly:

Questions surrounding the future of book printing drew a capacity crowd of 155 publishing professionals to the BMI (Book Manufacturers Institute) Book Manufacturing Mastered conference, held September 14 at Penguin Random House’s New York City headquarters. And though the book manufacturing sector was booming during the pandemic, economic conditions have softened and costs for most materials are continuing to go up. Still, speakers at the conference said book printers are generally in a good place, albeit with a host of challenges ahead of them.

In addition to rising costs, topics discussed at the daylong conference included the renewed postpandemic threat of work moving off-shore, sustainability concerns, the shift from offset to digital printing, and labor shortages.

“We’re basically where we were back in 2014,” said Marco Boer, v-p of IT Strategies, in the opening presentation. “We haven’t lost all that printed book volume that people were worried about when e-books came in, and so we all say this is okay. People are continuing to read and print, and that’s great.”

But a deeper look at the numbers and trends reveals some challenges to be addressed, Boer continued, noting that, after some strong years during the pandemic, the printing market is not stable. “Yes, we’ve had a great 2022. But it’s getting a little bit more complicated as we go forward.” He pointed to logistical challenges, uncertainty over how Amazon will impact the market, and rising paper costs, citing a projected annual 3% decline in supply.

In addition, Boer pointed to another key factor that portends change: the end of the megabestseller. He attributed that trend in part to increased competition from other sources of entertainment, pointing out that the Harry Potter series (whose final volume was published in 2007) were the last to sell tens of millions of copies. “Last year, the bestselling titles were by Colleen Hoover, and she sold 2.75 million books.”

Still, Boer said that unit sales in 2022 were stronger than they were in 2019. “So again, things are not bad,” he noted. “But [the instability] means you have to get more efficient.”

On two follow-up panels—one featuring printers and the other publishers—speakers noted that pressure from publishers and consumers for printers to become more environmentally responsible will also add to pricing pressures. For one thing, they said, the cost for postconsumer wastepaper needed for making recycled paper is the highest it’s been in years. But the printers agreed that the book manufacturing sector needs to invest in an environmentally sustainable future. Todd Roth of Thomas Reuters’s core publishing solutions business (which prints about 30 million books per year) said his company’s goal is to reduce its carbon footprint by 50% by 2030. Linnea Knollmueller of Penguin Random House said her company has pledged to be carbon neutral by 2030 and continues to up its use of certified paper (as of 2021, 96% of PRH’s paper came from certified mills).

Roth was one of several panelists who agreed that labor costs for book manufacturers will continue to rise, noting that his company is paying premiums for people to work on second and third shifts as a way to try to attract new talent. The company is also using younger employees to recruit much-needed workers.

While the consensus from the printers’ panel was that prices will have to rise as costs do, the panelists were cognizant that too many increases would negate some of the gains achieved during the pandemic in bringing back work from overseas, particularly from printers in China. David Hetherington of Business International said printers need to work together to convince publishers to support domestic book manufacturing.

Link to the rest at Publishers Weekly

It’s like an instant replay that you’ve seen over and over. It’s way more expensive to ship dead trees than it is electrons over the internet. It’s way more expensive to get physical space in warehouses for dead trees than it is to have some organized bits of information sitting on a big hard drive or collection of big hard drives.

Hard-copy books are inherently more expensive to create, distribute and sell than ebooks are and publishers (or self-publishers) earn far higher profit margins with ebooks than they do with any sort of printed book.

PG is not predicting the imminent collapse of the market for printed books, but printing books is a business that’s going to get smaller and smaller over time. Eventually, printed books will become another category of collectibles.

2 thoughts on “The State of the Printing Industry”

  1. “In addition, Boer pointed to another key factor that portends change: the end of the megabestseller. He attributed that trend in part to increased competition from other sources of entertainment, pointing out that the Harry Potter series (whose final volume was published in 2007) were the last to sell tens of millions of copies. “Last year, the bestselling titles were by Colleen Hoover, and she sold 2.75 million books.”
    As KKR pointed out last year, between POD and ebooks, the dillution of sales from the eternal backlist, used books, Indies, and KU has impacted everybody, including the legacy big names. 90% drop in book sale ceiling says it all.
    No bandwagons, no control over distribution channels, more competition.

    And books aren’t the only entertainment market suffering from dilution from the loss of distribution channel control. Cable and broadcast have lost 50% of their market to streaming, with more to come.
    Last week a big mistake allowed the leak of dozens of unredacted internal Microsoft gaming market documents from 2020-22, including one where the CEO of Gaming explained the state of game publishing and the *opportunities* it offered in coming times.

    Phil Spenser’s analysis is not only spot on for gaming, but also *books*, movies, and TV.
    From Gaming website KOTAKU (with a history of anti-XBOX bias, no less):

    “His analysis was in an email exchange from March 2020, in the midst of the Xbox team planning ahead of a feedback meeting with Grand Theft Auto publisher Take-Two. “In terms of subscriptions and the impact on larger publishers I realized that I haven’t really done a good job sharing our view on the disruption AAA publishers potentially see and how their role in the industry will likely change with the growth in subscription platforms like Xbox Game Pass,” Spencer wrote (the memo was directed to Microsoft CEO Satya Nadella, CFO Amy Hood, then-executive business VP Peggy Johnson, and head of marketing Chris Capossela).

    The head of Xbox, who first joined Microsoft as an intern back in 1988 and has been working on the gaming side of its business for over 20 years now, proceeded to diagnose the current state of big publishers as they face wave after wave of market disruption. It was a cogent, incisive commentary on the fears driving an ever-shrinking class of mega gaming companies that are clinging harder and harder to the few big-budget franchises they have that still pay out.
    Spencer lays out how publishers once existed to leverage scale in negotiations with retailers for shelf space. Then everything changed. “The creation of digital storefronts like Steam, Xbox Store and PlayStation Store eventually democratized access for creators breaking physical retail’s lock on game distribution,” he writes. “Publishers were slow to react to this disruption. The AAA publishers did not find a way to leverage the moat that physical retail created in the digital realm in a way that had them continue their dominance of the game marketplace.”

    Companies like Activision, Electronic Arts, and Ubisoft eventually made their own middle-man clients to try and get around platform fees, and a few later followed up with their own subscription services. None of them were built early enough or offered a compelling enough alternative to get big. Players complained about bad UI and bad deals. Franchises like Call of Duty and Madden that had once abandoned Steam returned. Game Pass got big while EA Play and Ubisoft+ stayed small. The only competitive advantage publishers have left is being able to pour more money than anyone else into annualized blockbusters.

    Spencer writes,

    “Over the past 5-7 years, the AAA publishers have tried to use production scale as their new moat. Very few companies can afford to spend the $200M an Activision or Take 2 spend to put a title like Call of Duty or Red Dead Redemption on the shelf. These AAA publishers have, mostly, used this production scale to keep their top franchises in the top selling games each year. The issue these publishers have run into is these same production scale/cost approach hurts their ability to create new IP. The hurdle rate on new IP at these high production levels have led to risk aversion by big publishers on new IP. You’ve seen a rise of AAA publishers using rented IP to try to offset the risk (Star Wars with EA, Spiderman with Sony, Avatar with Ubisoft etc). This same dynamic has obviously played out in Hollywood as well with Netflix creating more new IP than any of the movie studios.

    “Specifically, the AAA game publishers, starting from a position of strength driven from physical retail have failed to create any real platform effect for themselves. They effectively continue to build their scale through aggregated per game P&Ls hoping to maximize each new release of their existing IP.

    “In the new world where a AAA publisher don’t have real distribution leverage with consumers, they don’t have production efficiencies and their new IP hit rate is not disproportionately higher than the industry average we see that the top franchises today were mostly not created by AAA game publishers. Games like Fortnite, Roblox, Minecraft, Candy Crush, Clash Royale, DOTA2 etc. were all created by independent studios with full access to distribution. Overall this, imo, is a good thing for the industry but does put AAA publishers, in a precarious spot moving forward. AAA publishers are milking their top franchises but struggling to refill their portfolio of hit franchises, most AAA publishers are riding the success of franchises created 10+ years ago.”

    “It’s a brutal assessment but a fair one. Sequels, remakes, and spin-offs dominate at the big publishers. Companies from Sony to Ubisoft are slashing more off-beat projects and development teams to focus almost exclusively on games that have a chance of selling over 10 million copies. Meanwhile, the development schedules are getting longer and budgets are ballooning, making it increasingly harder for even the biggest publishers to absorb even a disappointing release, let alone a disastrous one. If none of that sounds sustainable it’s because it’s not.

    Microsoft’s answer to this is Game Pass, not out of the goodness of its heart but because it sees a new platform it can scale to feed the financial growth demanded by investors. “Our goal is to find a way to both grow our subscription (which is our new platform) and help the AAA publishers build towards a successful future,” Spencer writes. “For publishers with 2-3 scale franchises that’s a difficult transition. Again, taking a clue from Hollywood, it’s not clear how a standalone subscale media publisher grows is this world without adapting to new paradigms or getting consolidated but we believe we can help a Take2 by increasing monetizable [total addressable market] across more endpoints inside of a global platform like Xbox Game Pass (inclusive of xCloud).”

    The suggestion here is that the type of game that can thrive on a subscription service is either a small one that benefits from better curation and visibility or a live-service one that can make up revenue on the backend by charging all the new players microtransactions (the new store shelves are inside the games themselves). That’s also a pretty grim assessment, and probably part of the reason Sony has repeatedly said that bringing its big first-party exclusive games like Spider-Man 2 and The Last of Us to its competing PS Plus service day-and-date would cripple the economics of blockbuster production.

    Read More: The Massive Xbox Leak: 11 Big Reveals

    Spencer’s email was written over three years ago at this point, and was aimed largely at trying to summarize the current state of the industry for his bosses. We can see how things have played out since, though. Take-Two, Ubisoft, and Electronic Arts have decided to collaborate with Game Pass, and EA Play is now part of the service. Microsoft, meanwhile, gobbled up ZeniMax (including Bethesda Game Studios), and is now on the cusp of doing the same with subscription holdouts Activision Blizzard. All while smaller competitors like Embracer go into a tailspin.”

    More at the source including a link to the leaked emails.

    Seem familiar?
    Less small new ip (read: authors) more reliance on legacy IPs (name authors and series) and the increasing threat that a single failed bet will bring disaster (angry overlords, like Mr Dohle’s gamble’s payoff–or Disney’s Bad, horrible, terrible movie year). At some point Patterson et al will retire and not all have a trusty heir to keep their franchise going like Frank Herbert or Lee Child.

    The next generation of authors to be “nurtured” into “big names” are not going to the big corporate publishers but instead to smaller, more focused tradpubs or (horror of horrors) going indie, with the exact same access to market as the overhead strangled glass houses. (And better ROIs, typically).

    The gaming world is ahead of the other industries as digital distribution is over 90% across all segments (mobile is the biggest segment and 100%) with some recent blockbusters on PC and console going digital only. Corporate book publishing is dead last because their attempt to limit ebook growth has succeeded. Even better than planned. They aimed to limit digital to 25% and are now sitting at 20% or lower in some cases. Good job guys!

    And as the OP points out, pbook sales are stagnant despite a minor boost post pandemic.

    It’s not going to get better for Corporate book publishers and, unlike gaming, there is no Microsoft out there to buy them out before they crash and burn: Amazon has better things to spend its money on, B&N has no money to spend that way and even Ingram won’t help them.

    And it’s only going to get worse: they’ve been betting a lot on audiobooks and that segment is next in line for disruption. First by manuscript to audio services driving production costs to a few hundred dollars for authors (and yes, Audible’s reckoning is coming) and then PC based conversion software or, worst of all, ebook reader software that will read out standard ebooks.

    Economics on one side, tech on the other, pbook publishers are in for a real squeeze.

  2. Speaking of “AI” disruption, this just dropped:

    “What if podcasters could flip a switch and instantly speak another language? That’s the premise behind Spotify’s new AI-powered voice translation feature, which reproduces podcasts in other languages using the podcaster’s own voice.

    “The company has partnered with a handful of podcasters to translate their English-language episodes into Spanish with its new tool, and it has plans to roll out French and German translations in the coming weeks. The initial batch of episodes will come from some big names, including Dax Shepard, Monica Padman, Lex Fridman, Bill Simmons, and Steven Bartlett. Spotify plans to expand the group to include The Rewatchables from The Ringer and its upcoming show from Trevor Noah.”

    “The backbone of the translation feature is OpenAI’s voice transcription tool Whisper, which can both transcribe English speech and translate other languages into English. But Spotify’s tool goes beyond speech-to-text translation — the feature will translate a podcast into a different language and reproduce it in a synthesized version of the podcasters’ own voice.”

    More at the source, including a sample (in spanish).

    The tech can similarly translate documents to other languages.
    In a while, any author could finish a manuscript, translate it to other languages, and send the ebook out to the various national ebook stores. Then convert to audio and do the same. The BPHs can do the same but they probably won’t notice. Worse, the gatekeepers to this new tech are Microsoft, Amazon, and Google. (LLMs require large expensive datacenters. Not yet a business fr two guys in a garage. Come 2030? Maybe.)

    Brave new world.

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