1. New Publisher Business Models
March 2013
Nick Clements

2. Positive Trends : New business models
Digital Printing opening up new areas of value for Book Printers
Multiple Copies
Print to Stock
Customization
Single Copies
Print to Order
Personalization
Static Data
Variable Data
Print to Order is “Sell First, Print Later”
Print to Stock is improving the “Print and Pray” model so there is a little less praying
Customization is creating separate versions of a book from a superset of data
Personalization is creating unique, individual books

3. Print To Order

4. No title should EVER go Out Of Print
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Order
Meet ongoing low-level demand by printing to order and delivering direct to store or customer
Incremental Revenue
Author Satisfaction
Copyright Retention
No title should EVER go Out Of Print
Every Publisher should have a PTO programme. They have an asset, so long as they can make a profit from it, should continue to use it. (i.e. maximize the value of the long-tail). Letting a book go OOP is just throwing money away.
Business model is requests via book stores, web orders etc. i.e. sell first, print later.
80% of books in a publishers catalogue are out of print!
Copyright retention even more critical in an era of Self-Publishing where Authors are increasing looking to reclaim their copyright and publish the books themselves (if they can make a profit from self-publishing their works, then why can’t publishers from an Print To Order model!).

5. Print To Order – Economic Model
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Order – Economic Model
Look only at marginal cost of producing and selling a single copy
Pro Forma P&L
Sales
No retro discounts
Returns
No Returns
Net Sales
Cost of Sales
Production
Increased Unit Price
Royalties
No provisions for unearned advances
Total Cost of Sales
Gross Margin
Operating Expenses
General Admin
Automated order processing
Editorial
None
Sales & Marketing
Warehousing & Distribution
Despatch
Add in
Other
 No spoilage & shrinkage or pulping
Total Op Ex
Net Income ?
Challenge every line in your P&L to see if it makes sense… ?
But Publishers say that Digital Printing is too expensive… can’t print books digitally and sell at a profit!
Need to re-visit the P&L!

6. Print to Order: Success Stories
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print to Order: Success Stories
Big Six (Five?) Publisher:
Typical a Re-print is allocated Returns at 15% & Opex 38% of Net Sales
With PTO, Returns set at 0% and Opex. at 10%-18% of Net Sales
Book delivered direct to Store or Reader
Lightning Source
13,000+ Publishing Partners with 6m+ titles in Digital Library
50K books / day, 1.5 million books / month, av. run-length 1.8 copies
PTO service sells book on behalf of Publisher paying wholesale price less print costs
Big publisher massively expanding it’s POD programme by re-assessing how it calculates the potential profitability of a sale.
And printers / distributors round the world profitably exploiting publishers’ back-lists.

7. Print To Stock

8. Need to consider WHOLE value chain not just unit price
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock
Improve financial performance of your active backlist by printing in smaller runs, EVEN at a higher unit price
Cost Reductions
Risk Management
Efficient Cash Allocation
Need to consider WHOLE value chain not just unit price

9. Print To Stock – Cost Reductions
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock – Cost Reductions
Significant cost savings from printing in smaller quantities, locally
Transportation
Warehousing
Shrinkage & Spoilage
Transportation benefits mostly in STM market today, with D&P model where customers dispersed geographically (e.g. Wiley print in US, UK & Singapore), but gradually being adopted in other categories (e.g. scholarly), and Transportation costs rising due to oil prices etc. (also mention environmental benefits).
Warehousing & distribution can be 8-12% of net revenues (Springer & Elsevier on record with goal of getting rid of their warehouses).
Photo is Santillana warehouse in Mexico, represents their current offset process. Our solution is expected to eliminate this warehouse - 800,000 sq ft facility people.
Shrinkage & Spoiling can account for up to 10% of print-run if left in warehouse for long time

10. Print To Stock – Risk Management
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock – Risk Management
Offset is only more profitable when sales forecasts are accurate...
… Financial Controller of one large Publisher says 70-75% of their sales forecasts are wrong

11. Print To Stock – Risk Management
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock – Risk Management
In this example traditional print is only more profitable when sales are within +/- 20% of forecast
A4, 4C, 160pp, soft cover, RL = 2,000
Digital more profitable
Digital Printing
Offset Printing
Offset more profitable
Sales below forecast = over stock (unsold copies that need to be disposed off)
Sales above forecast = under stock (lost sales as unable to meet demand)

12. Print To Stock – Risk Management
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock – Risk Management
Even if 2/3rd of titles are +/- 20% of forecast, DP still more profitable across 100 titles
Sales Variance
-50%
-40%
-30%
-20%
-10% 0%
10%
20%
30%
40%
50%
Title Distribution
5.0%
7.5%
10.0%
12.5%
15.0%
Publishers Gross Margin weighted acc. to assumed distribution of sales variance
Digital Printing
(Total GM = € 996k)
Offset Printing
(Total GM = €968k)
But, Publishers say, “what can I do… I have to print to the sales forecast that I’m given, and assume it is correct”. Not true, if you look across 100 titles and assume a conservative distribution of variance to sales forecast, it is more profitable across your whole business to print digitally even at higher run-lengths. Even if some titles may be sub-optimal, you’re performance overall will be better. 12

13. Print To Stock – Efficient Cash Allocation
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Print To Stock – Efficient Cash Allocation
Don’t be seduced by lower unit prices with long pay-backs; you may be able to earn more profit by putting your capital work more frequently
Would you rather invest $10,000 for a year in ONE title that sells 100
copies a month or;
$10,000 in TEN titles that sell 100 copies per month?
Think differently !
In the above example you could use your capital up to 6x more over the course of a year, if digitally printing only one month’s worth of stock. However, you may be generating a lower profitability per title (assuming that digital printing was more expensive than offset), and need to assess on a company basis the trade-off between being able to sell more books each month and accepting a higher unit cost.
Additional benefit of risk reduction through diversification i.e. support more titles. Also, greater chance of spotting a bestseller

14. Customization and Personalization

15. Customization Single Source Multiple Sources (Mash- ups)
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Customization
Flat unit pricing irrespective of run-length combined with variable data printing capabilities open up entirely new business opportunities
Single Source
Multiple language versions
e.g. museum exhibition books
Content relevant to specific audience
e.g. school textbooks, car manuals etc.
Multiple Sources (Mash- ups)
More complicated
Technical solution, rights, payments etc.
But very high value
e.g. faculty textbook from multiple sources
Conceptually, unit price should be similar whether RL = 1, 10, 100 or 1,000
Single source = one publisher; multiple sources = >1 publisher

16. Customization – Economic Model
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Customization – Economic Model
Business model primarily driven by creating new value
Premium Pricing
Content targeted to readers specific needs
Greater relevancy equals greater value
Smaller Secondary Market
Highly specific content has limited resell market
Reduced chance of piracy (copying) as whole book is relevant
Reduced Costs
Removing unwanted content reduces book size & weight
Minimizes production and distribution costs

17. Customization – Success Stories
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Customization – Success Stories
Customized Educational Books
Customized Car Manuals
On-line applications allow creation of custom text books
Educators design books using publisher and their own content
Fastest growing portion of Pearson & McGraw Hill business
Santillana is extending business model to South & Central America
Each Bentley has 500 page hand cased-in Owners Handbook, Service book & Quick Reference Guide
Digital printing allowed Bentley to move from print runs of thousands, in 6 languages, to printing in 20 languages for 12 models, with runs as low as single copies
Production now done weekly, to order, with no stock retained
Only Indigo met Bentley requirements for quality and durability
Educational publishers are seeing a surging demand for custom books; fastest growing portion of their print businesses.
Pearson Custom and McGraw Hill Create offerings allow teachers to design their own books on-line by selecting publisher content and combining it with that of their own creation. Santillana, world’s largest Spanish and Portuguese language educational publisher now making bold moves in South and Central America.
Bentley produced just 3 copies of a special manual to accompany the Bentley State Limousine which the company gifted to the Queen as part of the Jubilee celebrations (btw - POD approach is saving Bentley up to £50,000 per year because there is no obsolete stock).

18. Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Personalization
Unique content created for every reader
Create additional value (premium pricing) by allowing Readers to integrate their own content in to books
Names, avatars or photos in Children’s Books
Family recipes in Cookery Books
Personal experiences in Travel Books
Only limited by your imagination
Requires channel for publishers to interact directly with readers
Self-Publishing can be seen as part of this phenomenon

19. Personalization – Success Story
Multiple Copies
Single Copies
Static Data
Variable Data
Customization
Personalization
Print to Order
Print to Stock
Personalization – Success Story
Classic children’s story by Dr Seuss with a powerful lesson of environmental fragility and the need for sustainable development
Results
115,000 Lorax Teacher Kits delivered
94% of teachers integrated into their lesson plans
94% of teachers used online writing tool w/ their students
87% of teachers found the In-School print program useful
93% of teachers said they want to more programs like this in future!
HP, together with Scholatics developed an Environmental Science lesson plan and materials for students 8-14 y/o
As part of their lessons, students encouraged to tell the story of their own environmental journey using characters & themes from the book
HP developed unique book creation software designed to allow each young child to intuitively create their own personal stories
Books available in pdf format or printed copies could be ordered online for $9.99 and delivered direct to the student

20. Next Steps

21. Requirements for Success (Publisher)
Publishers also need to adapt to take advantage of these new business models
1. Automation
2. Standardization
3. Organization
Automation: Digital printing only makes sense if there is no manual intervention in the processes – as soon as somebody has to do something, cost and time are incurred, and it doesn’t make sense when you are only producing single or low volume print-runs (need automation of inventory monitoring, rules for replenishment, order placement, invoicing etc.)
Standardization: Substrate, Format & Finishing – it’s a truism that standardization drives down costs in any industry, and Publishing is no different. Understand the cost implications of moving away from standard production formats, papers and finishing options!
Organization: need to integrate digital printing in to the daily business processes and routines of your organization – should be a natural part of how you plan your production strategy from initial conception through the life of the book.
Organizational effort needs to be X-FUNCTIONAL, and have a clear champion / leader.

22. Requirements for Success (Printer)
It takes more than a digital press to make a success out of digital printing…
Proven IT infrastructure (W2P)
High productivity manufacturing environment (digital workflows)
Logistics partnerships
And above all…
HP digital presses!
Automated order handling processes (W2P) and internal workflows
Efficient systems for processing high volumes of small order sizes (batching, kitting etc.)
Ability to deliver directly to Retailer / Reader (with white-label solution)

23. Thank You