Initiative for Equitable Library Access

Audiobook and eBook Publishing in Canada (2008)

Part II: An Overview of the Canadian Market

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3.0 The Audiobook Market

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"Downloading is reshaping the way audio is bought and sold."

Publisher's Weekly, May 8, 2006

3.1 Market Size

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We have very little in the way of solid statistics on the Canadian audiobook market. The country's premiere sales-tracking system, BookNet Canada's BNC SalesData, reports that audiobooks accounted for .66% of tracked unit sales in 2007 (roughly 320,000 units in total). This places the dollar value of 2007 consumer audiobooks sales at more than $5 million.

These data points are a noteworthy part of the audiobook puzzle, but they mainly capture sales in English Canada and do not include download sales of audiobooks (as we will see below the online channel is a significant growth segment in the market). Nor do the BNC SalesData figures reflect the important institutional market for audiobooks or any specialty retailers of spoken-word titles.

If we factor in an estimate for French-language title sales and download sales, our overall estimate for the Canadian audiobook market creeps up to about $7.5 million. Coming at this estimate another way, the total value of the consumer book market in Canada has been calculated as $1.6 billion¹³. If we apply the apparent market share of audiobooks from the BookNet data to this aggregate figure, we get a market value of $10.5 million, suggesting that the real value of the audiobook market in Canada falls somewhere in the $7.5–$10.5 million range.

As a point of comparison, the annual sales survey of the US-based Audio Publishers Association (APA)—a more wide-ranging study than anything we have in Canada—pegs the value of the American audiobook market at slightly more than US$1 billion for 2007. The APA reports that spoken-word audio¹⁴ sales have grown by 25% since 2004. Annual reporting from the Association of American Publishers (AAP) also points to strong growth in audiobook sales, on the order of 8–10% per year in recent years.

While we cannot easily transpose this market size to the Canadian market, many of the other data that we can draw from the US—for example, regarding format and title production—are highly relevant to our Canadian context given the extremely high market share of imported audiobook titles. In contrast to the overall book market, where imported titles hold a 65–70% market share, we estimate that imported titles hold as much as 95% of the Canadian audiobook market.

Leaving aside the question of imports for the moment, the available data do suggest that the Canadian audiobook market, while small, is growing more quickly than the broader domestic book market. There appear to be two main reasons for this: (1) the introduction of new audiobook formats and (2) growth in online sales in particular.

3.2 format

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As we noted earlier, Bowker Books In Print® reports that 13,437 new audiobook titles were released in 2007. In that year, a total of 311,535 spoken-word audio titles were listed in the authoritative Books In Print® database—the vast majority of which were available in Canada¹⁵.

Audiobooks are currently commercially published in multiple formats, including:

• Cassettes, which, while being phased out by some publishers, have proven to be surprisingly durable in both consumer and library markets. Cassettes owe their consumer loyalty to the large installed base of home, automobile, and portable cassette players and to the ease of use of cassettes for audiobook listening.
• CDs, including MP3 CDs. CDs continue to hold the lion's share of the consumer market, due in part to the prevalence of CD players and consumer comfort with the format.
• Downloadable digital formats—the fastest growing segment of the market, these files are largely sold through major online retailers for audiobooks, such as Audible, Simply Audiobooks, and eMusic.
• Preloaded digital formats, such as the Playaway, where the audiobook content is pre-packaged with a basic portable player (see Figure 1).

Interestingly, while market share is certainly shifting among these formats, none have been displaced outright. Drawing on the latest APA sales data, we can observe the following change in format market share in the US between 2003 and 2007, and a clear trend toward increased CD and online sales.

In addition to their various formats, audiobooks are sold in both abridged and unabridged editions. Unabridged works are word-for-word readings of the original print editions, whereas abridged titles have been edited for length. Abridgements appear to have been more the norm in the past in order to manage production costs and to help the publisher drive to an attractive consumer price.

However, the consumer market has shifted to favour unabridged editions in recent years and the ratio of unabridged-to-abridged sales is currently running about 70:30 in the United States. Roughly two-thirds of all new audiobook titles are now released as unabridged editions. Further, bestselling titles (or those expected to be bestselling titles) may also be released as both unabridged and abridged editions.

3.3 Pricing

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There are a few broad pricing relationships we can observe with respect to audiobooks. Audiobooks on cassette or CD are generally priced higher than a comparable hardcover print edition. This reflects the additional production cost associated with recording the audiobook and the relatively limited economies of scale relative to the print edition. Preloaded digital formats are priced competitively in relation to CD-format audiobooks.

Downloadable audiobooks tend to range somewhere between the price points for hardcover and paperback editions of comparable titles. Even with the cost of producing, storing, managing, and delivering these digital editions, it seems possible that prices could decline on downloadable audiobooks. However, publishers may be reluctant to price them too aggressively for fear of undermining the sales of the corresponding print editions.

Librarian respondents to this study provided the following Canadian list price benchmarks for various unabridged audiobook formats.

FORMAT	PRICE
CASSETTE, LIBRARY EDITION*	$108–$135
CASSETTE, COMMERCIAL EDITION	$45–$65
AUDIO CD	$40–$50
MP3 CD	$25–$40
DAISY CD**	$50
DOWNLOADABLE EDITION***	$25–$45

Bowker released a study last year that reported the average US list price for unabridged audiobooks as US$41.26 in 2006, as compared to an average list of US$27.55 for adult hardcover editions in that same year. This translates to roughly CDN$46.00 and CDN$31.00 respectively, at 2006 exchange rates, but of course there would generally be an additional Canadian list price mark-up on the US price (i.e., beyond the currency differential)—in which case the Bowker averages appear to support the Canadian price benchmarks given above.

As a further illustration of relative pricing across various editions, here is a random sampling of new titles releases from major multinational publishers, all of which were published in fall 2008.

	PRINT EDITION*	PRINT PRICE	AUDIO EDITION	AUDIO PRICE	DIFFERENTIAL
TITLE A	TP	$17.00	CD	$37.95	$20.95
TITLE B	HC	$30.00	CD	$45.00	$15.00
TITLE C	HC	$27.99	CD	$43.98	$15.99
TITLE D	HC	$23.99	CD	$32.98	$8.99
TITLE E	HC	$32.00	CD	$41.72	$9.72
TITLE F	HC	$39.99	CD	$59.99	$20.00
AVERAGE					$15.11

As a final comment on pricing, specialized online audiobook retailers such as Audible or Simply Audiobooks feature a subscription pricing model in addition to regular list prices on downloadable titles. At current subscription rates, the average price of a downloadable audiobook purchased from either retailer is roughly CDN$16.00¹⁶.

Given that these large consumer-facing platforms have an important price-setting influence in the marketplace, we expect that the increasing market share of downloadable audiobooks will push the average price of an audio title down over time. Audiobooks are likely to become more affordable as the market continues to shift online.

3.4 Consumer Behaviour

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Audiobook publishing is a commuter-based category: heaviest usage of audiobooks occurs in the car or on public transit. Publishers of audio titles report that sales tend to be concentrated in larger urban areas where many people make a daily commute between home and work. One Canadian publisher also noted a strong sales trend in the Victoria area, which was attributed to the popularity of gardening in that city combined with the long growing season.

In other words, audiobooks play an important role in entertaining or educating people while they are otherwise engaged in an activity that prevents them from reading a printed book.

3.4.1 Print-Disabled Readers and Audiobooks

For readers with a print disability, audiobooks are less a matter of multi-tasking than they are an invaluable format for accessing books of all kinds. As Jim Sanders, president and CEO of CNIB, has said, "For many people, technology can make things easier. For people who are blind, technology makes things possible."

As noted earlier, there are a number of non-commercial producers, such as library consortia, charitable organizations, and others, that produce audio adaptations of printed materials for circulation to print-disabled readers.

These materials are produced in a particular context—under copyright exemption and with a significant volunteer contribution—and have a restricted circulation through Canada's public libraries and via specialized agencies serving the print-disabled community. Further, these non-commercial editions are circulated in distinct formats that feature a higher degree of accessibility and sophistication in meeting the needs of people with print disabilities.

With all of these points in mind, we will defer further comment on audiobook production for print-disabled readers for the moment in favour of a more detailed discussion in Part III: Production of Digital Editions.

The growing market footprint of audiobooks provides real benefits to print-disabled readers. First, it means that they have a chance to share in the advantages of this increasing mass market adoption: lower costs both for devices and for audiobooks themselves, and a greater selection of available titles (especially those aggregated by large consumer-facing retailers online and by specialized library service providers).

The main limitation, however, remains the relatively small percentage of books that are produced in audio editions. Yes, many print-disabled readers have better access to audiobooks in 2008 than they would have in years past—especially those readers with the means, the equipment, and the computer skills needed to access audiobooks online. However, as we will see in Part III, there are some important gaps between commercially available audiobooks and truly accessible audio formats. Further, even with the aggregate selection of audiobooks available today, the vast majority of new book titles are not produced in audio editions.

3.5 Sales Channels

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Most audiobook listeners acquire their audiobooks at the library, as indicated in Figure 5.

We will defer a discussion of library distribution for the moment as this is the focus of a subsequent chapter (see Part IV). Bricks-and-mortar bookstores are the second-ranked channel, but all online sources combined have a share of sales roughly equivalent to bookstores. In general, the consumer market is shifting online as online retailers and other audiobook sites provide an extensive selection of audiobooks that can be acquired quickly and conveniently via download.

As Figure 6 illustrates, audiobooks are distributed¹⁷ in a few distinct ways: (1) through regular distribution to bookstores and other specialty sales outlets handling book and/or audiobook inventory; (2) to online book retail or specialty retailers for CD editions; and (3) on specialized audiobook sites that sell or rent a wide selection of titles.

Generally, book publishers use the services of their bookstore distributors to distribute audiobooks. To draw some examples from Quebec, audiobook publishers Québec Amérique and Planète rebelle are distributed by Prologue, and Les Éditions ATMA international by Les Messageries ADP in Quebec and by DG diffusion in France. Les Éditions AdA and L'Oeil qui écoute distribute directly to bookstores, while Les Éditions Un monde différent and Alexandre Stanké use Agence MSH, a distributor specializing in audio titles. Alexandre Stanké has a particularly highly developed network, also employing the Quebec electronic platform iThèque and France's Daudin, Belgium's La Caravelle, and Switzerland's Servidis-Transat in foreign markets, and having established business relations with Audible.fr—Audible's French-language platform.

On the retail side, Canada's bricks-and-mortar bookstores are an important channel for audiobooks—although, as noted earlier, these outlets carry a modest title selection. There are also a small number of speciality audiobook retailers in Canada, including the bricks-and-mortar storefront for Simply Audiobooks in Toronto and, also in Toronto, the Talking Book World mini-chain.

Audible is the leading online platform for spoken-word audio and also the largest audiobook retailer. Acquired by Amazon in February 2008, Audible's sales are currently running about US$100 million per year. Audible has launched a number of additional country sites, including Audible.fr in France, and has strong distribution ties to Apple's iTunes store as well as Amazon. Canadian-owned Simply Audiobooks is a key online retailer as well, with the majority of its $7 million in annual sales coming from US customers.

The difference between bricks-and-mortar and online stores in terms of title selection is quite dramatic. A typical large-format bookstore might carry 100–200 audiobook titles, and a specialty audiobook retailer several thousand.

In contrast, the online audiobook retailer Audible boasts an inventory of 50,000 audiobooks, radio broadcasts, and periodicals. Numilog, a subsidiary of Hachette Livre, is a major distributor and online retailer of French-language digital books and offers a comparable number of audiobooks and eBooks. The Quebec-based online retailer Tonality also offers an extensive selection of more than 23,000 French-language audio titles, most of which originate in France.

Eileen Hutton, vice-president and associate publisher for the US audiobook publisher Brilliance Audio, has said of the sales channels for audiobooks, "One of the biggest problems for audiobook consumers today is the very small footprint of audio in most bookstores. There just isn't enough space allocated to allow for much breadth of selection. Bricks-and-mortar retailers are driving their customers to the Web, to either buy physical product or to buy downloads.¹⁸"

3.6 Outlook

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The audiobook market in Canada is clearly shifting online, both in terms of where spoken-word audio titles are available to be discovered and acquired and in terms of consumer buying and reading behaviour. A September 2008 report released by the Canadian Internet Project (CIP) notes that Canadians continue to be among the world's most frequent and heaviest Internet users. The CIP study includes the following highlights:

• 95% of students, 87% of employed citizens, and 47% of retired individuals use the Internet—most are heavy users who spend 15 hours or more online each week
• 54% of all Canadian homes have broadband Internet access
• 48% of Canadian Internet users have purchased a product or service online
• Books remain one of the most prominent product groups for online shopping

In other words, cultural and consumer behaviour continues to move online, and audiobooks are well positioned to meet this trend. Online audiobook platforms feature levels of selection, convenience, and affordability that are impossible to replicate through bricks-and-mortar sales channels.

Because of this, we expect the audiobook category to continue to grow in the years ahead at a faster rate than the overall book market. The major online consumer platforms for audiobooks will continue to aggregate increasing numbers of titles, to integrate their inventories with other dominant consumer platforms, and to stimulate mainstream demand for spoken-word audio.

As CD and downloadable formats continue to drive growth in audiobook sales, we expect this may trigger expanded production in spoken-word audio as well. As such, the emerging importance of the online sales channel for audiobooks stands to serve both mainstream readers as well as a growing percentage of print-disabled readers.

4.0 The eBook Market

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"Is the world finally ready for eBooks?"

— Quill & Quire, May 1, 2006

"[eBooks] have become mainstream in the sense that they are a genuine consumer product for which there is real appetite."

—Penguin Group Chief Executive John Makinson in "E-Readers Wow at Fair, But Face Tough Competition," New York Times, October 20, 2008

4.1 Market Size

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As with the audiobook market, there is little concrete data on eBook sales in Canada, and the problem is compounded by the relatively amorphous nature of the category. Whereas audiobooks are distributed in both physical and downloadable formats—and the channels to market are relatively defined—eBooks circulate almost entirely as downloadable files. Further, they do so through multiple channels and without regard to national boundaries.

Ingram Digital is one of the largest distributors of digital content in the book business, and a subsidiary of the leading trade wholesaler of the same name. As of October 2008, Ingram's eBook inventory numbered more than 130,000 titles from 1,100 publishers. The company provides the following summary comments on the current state of play in the eBook market:

• The majority of eBook titles in inventory are English-language editions
• The majority of eBook titles in inventory have secured global rights
• The majority of eBook sales are made to customers in the US, UK, and Canadian markets

Ingram also reports dramatic growth in eBook sales, noting that downloads for July–September 2008 were double those of the same quarter in 2007.

The Association for American Publishers (AAP) and the International Digital Publishing Forum (IDPF) both track eBook sales in the US, retail trade and trade wholesale respectively, and both sets of figures point to dramatic growth in the category.

The IDPF reports that US trade wholesale eBook sales grew from US$5.8 million in 2002 to US$31.8 million in 2007 for an overall growth rate of 448% over five years. The AAP reports that US trade sales for eBooks reached US$67 million in 2007, growing 23.6% over the previous year.

Given the porous nature of national boundaries in eBook markets and the dominant market share of imported eBook titles in Canada (which is likely in the neighbourhood of 90%), we believe that both the AAP and IDPF figures can be accepted as indicators of growth and relative size for the Canadian market.

However, while eBook sales have grown significantly over the past five to six years, they still represent a very small percentage of the total book market. The estimated eBook trade sale of US$67 million in 2007 represents less than 1% of the total trade market in the US that year¹⁹.

4.2 Market Adoption

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As noted in the opening chapter of this paper, consumers and publishers have been hearing dizzying eBook projections for the last decade and are naturally cautious about framing their expectations for digital books today.

The promise of eBooks has always been increased convenience and choice for consumers—greater title selection, lower prices, immediate delivery, greater portability—and new efficiencies for publishers through on-demand digital distribution and the chance to drive sales and reach new readers via additional sales channels.

The market has nevertheless been slow to adopt eBooks. In 2006, the International Digital Publishing Forum conducted a consumer survey on eBook usage. The consumers in that study identified three factors preventing them from buying and reading more eBooks.

1. Price (too expensive)
2. Lack of selection among titles published in digital editions
3. Too many proprietary file formats with associated DRM protections—for consumers this has meant a lack of interoperability between reading platforms, concerns over the longevity of any one system or format, and frustration with DRM limitations on the usage of purchased files

These factors are widely considered to have impeded the growth of eBook platforms and markets to date, and they remain as pressing issues in the digital marketplace today.

However, that we are now observing a reasonably broad consumer adoption of eBook reading. This is happening as a result of a number of inter-related factors, including the deep penetration of broadband, the growing population of readers who have "grown up digital," and the emergence of major consumer platforms for eBooks.

As is sometimes said, every generation of publishers has to respond to the demographics of the day. For today's publishers, the change-driving demographic groups are those born after 1980—those who came of age when the Internet had firmly established itself as a new mass medium. It is difficult to fully measure the effect of these "digital natives" on the book trade and reading behaviour. But they are widely characterized as format-neutral multitaskers who are writing new rules for how they discover and engage with books.

Nick Bilton, of the New York Times R& D group, was recently quoted: "A common response to the prospect of an eReader is, 'But I love the feel of paper, I love a good book in my hands.' I can empathize with that sentiment, but I don't think the digital generation can. If it's not a touch screen, or hyperlinked, or instantly available at the press of a button, then it's not worth their time."

Aside from this generation's strong drive to digital flexibility and immediacy, many observers in and outside of the book trade have felt for some time that eBook reading was only one iPod-like device away from wider consumer acceptance.

It's not clear whether or not the book publishing industry has found its iPod as yet. But we have already seen the game-changing effect that a winning consumer device can have in the introduction of two major eBook readers: the Amazon Kindle and the Sony Reader. These competing consumer platforms have galvanized both industry and consumer attention²⁰. More to the point, in a very short period of time they have demonstrated that a successful eBook reader can trigger dramatic growth in the availability of and the consumer demand for digital books.

4.3 Formats and Platforms

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The early years of the eBook market—say 1998–2005—were characterized by a plurality of file formats and reading devices. Many of these were tied together via proprietary file formats that could only be used on a particular eBook reader.

This variety of file type and platform may be useful for the sake of healthy competition, but it is also a serious impediment to both consumer and industry adoption. Publishers need to produce, distribute, and manage not one but many digital editions for each eBook title. Consumers have to choose which technology they will invest in, and hope the one they choose will still be around in a couple of years. Librarians have to collect and manage multiple formats within their eBook collections.

Over the years, this spirited competition has seen the introduction and varied fortunes of several different eBook formats and platforms, including the following.

• Discontinued
  • Rocket eBook
    What: Reading device + proprietary file format
    When: Introduced by NuvoMedia in 1998, discontinued in 2001
    File type: Rocket (.rb). HTML-based proprietary format
  • Softbook Reader
    What: Reading device + proprietary file format
    When: Introduced in 1998, discontinued in 2001
    File type: HTML-based proprietary format
  • EB Dedicated Reader
    What: Reading device + proprietary file format
    When: Introduced by Everybook in 1999, since discontinued
    File type: PDF
• Ongoing
  • Adobe PDF
    What: Proprietary file format, de facto standard for fixed-format files
    When: Introduced by Adobe in 1993, established as an open standard in July 2008
    File type: Portable Document Format (.pdf)
  • eReader (aka Palm)
    What: Software application to support reading on mobile devices and PDAs
    When: Formerly Palm Digital Media/Peanut Press
    File type: Palm (.pdb)
  • Microsoft Reader (aka MS Reader)
    What: Software application for creating and reading proprietary file format
    When: Introduced by Microsoft in 2000
    File type: HTML-based proprietary format (.lit)
  • Mobipocket Reader
    What: Software application to support reading on mobile devices and PDAs
    When: Introduced by Mobipocket in 2000, acquired by Amazon in 2005
    File type: Mobipocket (.prc or .mobi)

These examples illustrate two broad phases of industrial development in the eBook category: a first phase that emphasized new reading devices using proprietary file formats, and a second generation of development focused on both open and proprietary formats and software applications for eBook reading.

US industry consultant Mike Shatzkin has reported recently on research he conducted in early-2008 on eBook reading behaviour: "[Our research] demonstrated pretty convincingly that most eBooks sold in the US are not read on [dedicated eBook readers], but are Adobe files that are most likely read on PCs...Only about a third of sales are of Palm, [Mobipocket], or [MS Reader] formats that we'd expect to be read on a handheld."

Shatzkin's observations are borne out by our interviews with retailers and aggregators during this study. A number of these respondents indicated that a large percentage of their digital inventories were in the form of Adobe PDF files. Some characterized these titles as "legacy inventory," suggesting that while early eBook collections have been built with PDF files this will likely change over time in favour of new file formats.

On that note, the current phase of eBook development began in September 2006 with the introduction of the Sony Reader, and then the Amazon Kindle in November 2007²¹. Both readers use E Ink technology to deliver a paper-like reading experience; both retail for $300–$400; and both are tied to a consumer-facing online store of digital book inventory.

Both the Sony Reader and the Kindle have proprietary formats as their primary file type—and each of these primary formats come bundled with DRM protections designed to constrain piracy.

Publishers that aim to make titles available on either platform have to go through an intake process that converts their source files to the requisite format, and catalogues the title within the online inventory for each reader. (Both readers also support additional file formats, as outlined below, and so users also have the option to load compatible files sourced outside of the Sony and Amazon eBook inventories.)

In terms of competitive posture, Sony has the advantage of a leading market position in consumer electronics. The company also has considerable expertise in building mass market appeal for its consumer products, as evidenced by the relatively rapid rollout of the Reader to book markets outside the US. The Kindle has the advantage of its linkage with the world's leading online book retailer as well as the expertise and established trading relationships that Amazon has with publishers around the world.

4.3.1 Sony Reader

The Sony Reader debuted in the US in 2006, and then in Canada and the UK in 2008. It retails in Canada for CDN$299.

The Reader is designed to be connected by cable to the user's laptop or desktop computer so that eBook or other compatible files can be passed back and forth. Consumers can purchase eBook titles for the Reader from the Sony Connect eBook store. Sony claims to have "thousands" of titles available via this consumer-facing platform.

The Reader's primary file type is Sony's proprietary Broadband eBooks (BBeB) format.

In addition to BBeB, the Reader supports DRM-free PDF, HTML, TXT, RTF, and ePub files as well as DRM-added PDF and ePub. The device can also play MP3 and AAC audio files.

4.3.2 Amazon Kindle

The Amazon Kindle was launched in the US in late-2007. It is still available only in the United States, where it retails for US$359. Amazon's main e-commerce site at Amazon.com boasts 185,000 eBook titles for the Kindle platform.

The Kindle uses Amazon's proprietary .azw file format. These files have a Mobipocket base, but they are distinct from their Mobipocket cousins. In addition to .azw, the Kindle supports PDF, TXT, RTF, and ePub files.

The Kindle is noticeably absent from international markets, including Canada. Amazon prefers not to comment on its longer-term plans for international release, but there appear to be two principal reasons behind the Kindle's US focus. First, the internal systems for managing transactions for the platform are strongly tied to the main Amazon.com site in the US, suggesting that some additional work—which Amazon clearly prefers not to undertake for the moment—would be required to integrate the Kindle platform with Amazon's various country sites outside of the US.

In addition, the Kindle links to Amazon.com via a wireless Internet connection. In the US, this wireless service operates on Sprint's CDMA cellular network²², and Amazon covers the connection charges to the network. In order to apply this model outside of the US, Amazon would need to negotiate similar terms with a cell carrier in each market in which the Kindle was introduced.

The Canadian market has a relatively smaller field of cellular service providers, including only two major telecoms that use a CDMA system: Telus and Bell. (The country's other major cell service, Rogers, uses a GSM network.) The less competitive cell phone market in Canada, along with the smaller size of the market generally, may discourage Amazon from launching the Kindle here in the near future.

A Kindle launch was planned in the UK for fall 2008, but it has been postponed to late-2009 due to implementation issues within European cell phone networks.

4.3.3 Measuring Market Adoption

Sony does not report sales for the Reader, in Canada or otherwise, but informal reports indicate that the device is selling at or above sales targets in the US and UK. Many observers, including Evan Schnittman, Vice President of Business Development and Rights at the Oxford University Press, have speculated that combined Sony Reader and Kindle sales will approach one million units in 2008.

As is the case with Sony, Amazon does not report Kindle sales in detail, but the reader's market penetration has been the subject of considerable speculation by industry observers and analysts alike.

In August 2008, the technology blog TechCrunch reported Kindle sales of 240,000 units in the first nine months since launch. Citibank's investment research unit subsequently released its updated three-year forecasts. These latest projections anticipate unit sales of 400,000 in 2008 alone and suggest that the Kindle could be a billion dollar business by 2010.

	2008E	2009E	2010E
Kindle Units Sold	378	794	3,312
Kindle Unit Price	$350	$298	$253
Cash Revenue	$132,300	$236,185	$837,522
Annual Revenue Recognition*	50%	50%	50%
Recognized Unit Revenue	$66,150	$184,243	$536,854
Kindle Book Sales
Units in Circulation	378	1172	4,484
Attach Rate (Books per Month)	1.0	1.0	1.0
Price per Book	$9.99	$9.99	$9.99
Book Sale Revenue	$45,315	$140,487	$537,530
Total Revenue	$111,465	$324,730	$1,074,384
Estimated Total Amazon Revenue	$19,704,899	$24,084,671	$28,504,125
Kindle as a Percentage of Total Revenue	0.6%	1.3%	3.8%

For its part, Amazon has reported the following of Kindle sales and consumer behaviour as of October 2008:

• Kindle editions account for more than 10% of unit sales for books that are available on Amazon.com in both digital and print formats.
• Print book-buying behaviour remains unchanged among Kindle owners in that those that have a Kindle continue to buy the same number of print books.
• Total book purchases, digital and print combined, increase by an average of 2.6 times among Kindle owners.

Bearing in mind that (1) these data come from a single source and (2) they describe consumer behaviour for only the early months of the Kindle's release in the US, they nevertheless reflect some of the publishing industry's fondest hopes for eBooks. That is, that eBooks might help increase overall sales in the industry—whether by encouraging consumers to buy more books or by attracting new types of book buyers (or both).

4.3.4 The Role of Mobile Devices

It seems clear that in the first half of this decade the majority of eBooks were read on PCs or portable digital assistants (PDAs) such as the Palm. In 2008, it seems equally clear that the number of new devices, platforms, and applications that are driving continued growth in the mobile device market will continue to figure in the development of eBook markets.

Some of the most successful product launches for both consumer and business audiences in recent years have been mobile devices, most notably the Blackberry from Research In Motion and the iPhone from Apple.

Further, while both the Sony Reader and the Kindle are drawing considerable interest and each is having a significant market-shaping effect at this time, some observers wonder if either company has the wherewithal to succeed in building a durable technology and content platform for digital reading. O'Reilly Media's Matt Slocum recently noted, "Distribution is what Amazon has as its core competency. The Kindle, like all of its predecessors, will not rise in success beyond the early adopters because Amazon does not own the brand loyalty within the consumer electronic market segment that is required to make the next big step in creating meaningful demand."

Perhaps because of this perspective, recent stories about the iPhone's suitability as an eBook reader have been widely discussed within technology and publishing circles. The iPhone has sold more than four million units by now. In the process it has established itself as a leading mobile platform, and third-party developers have responded with a variety of applications that support eBook reading on the iPhone.

"It's official," announced Forbes magazine in October 2008, "The iPhone is more popular than Amazon.com's Kindle." Forbes reported that a third-party eBook application for the iPhone, Stanza, had been downloaded nearly 400,000 times to that point and was continuing to be installed by iPhone users at a pace of about 5,000 per day. "In other words, Apple may have inadvertantly sold more e-readers than any other company in the nascent digital book market.²³"

Other iPhone applications, including TextOnPhone and Readdle, have also been quickly taken up by iPhone owners. All of these third-party applications rely on public domain content, such as the inventory at Project Gutenberg, to supply books to consumers reading on iPhones. However, they also allow users to load content purchased or gathered elsewhere in a variety of file formats. Readdle, for example, supports .doc, .gif, .html, .jpeg, .pdf, .ppt, .rtf, .txt, and .xls files.

Given the mass market adoption of devices like the iPhone, and the flexibility of the e-reading applications developed for the device to date, it's possible that the PDA category could push the eBook market toward a more platform-neutral state (i.e., non-proprietary file format) in the years to come. At the least, given Apple's success in knitting together technology and music content through its iTunes platform, mobile devices like the iPhone and consumer electronics brands such as Apple can be expected to play an expanded role in the developing eBook market.

4.4 Pricing

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It appears that Amazon, with its broad reach in the book market, has now effectively set the price for eBooks. Amazon has aggressively priced most eBooks available through its .com site at US$9.99. This is a price that undoubtedly respond to consumer interest in lower eBook prices, but it also appears to be a price point at which Amazon may be losing money on every digital copy sold.

A BookNet Canada study provides an overview of how this retail price breaks down within the value chain for digital books.

	DOLLAR VALUE	% OF RETAIL
Retail Price	$9.99	100%
Author Royalty	$1.00	10%
Publisher Margin	$4.25	42.5%
Retailing Costs	$5.25	52.5%
Sub-total	$10.50
Retail Profit per Unit	($.51)	(2%)

It remains to be seen how this situation will reconcile itself in the years ahead, but for the moment Amazon seems prepared to forgo profits on eBooks sales in favour of driving unit sales of the Kindle and greater consumer adoption. Most other consumer-facing platforms for eBook sales—at least in English markets—will have to match or at least approximate this price.

Interestingly, the French online retailer Numilog has taken a different approach in holding the prices of eBooks at 10–20% less than a comparable print edition. Numilog's market position is strong enough that it may be able to fend off other price competitors for the time being until it is more clear what sort of volume and pricing patterns will develop in eBook markets for the medium to long term.

4.5 eBooks and the Print-Disabled Reader

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As with growth in the audiobook market, the burgeoning collections of eBooks represent real opportunities for print-disabled readers. Depending on the file format, an eBook can be enlarged for screen reading using magnification software, or can be converted to synthesized voice with text-to-speech applications, such as JAWS.

In this sense, at least at a theoretical level, any eBook could become a more accessible text, through magnification, rendering as a large-print edition (on screen or through print-on-demand), or conversion to spoken-word audio. In practice, there are a number of factors that intrude on this possibility.

First, not all books are published as digital editions. By some estimates, considerably fewer than half of all titles released by major multinational publishers are commercially released as eBooks. As of fall 2008, this is changing—Penguin Group, for example, has recently announced its intention to publish all new titles in both print and eBook editions—and is likely to shift further in the years ahead.

Second, not all digital book files lend themselves to easy manipulation or conversion. As we have observed, a large percentage of the digital book stock available today exists as PDF files. While the latest versions of the PDF format are more pliable, the format is generally not ideal for access or conversion by print-disabled readers²⁴. Similarly, DRM protections on eBooks interfere with accessibility by preventing text-to-speech applications from converting the text to synthesized voice. The anti-copying protections in the file's DRM components perceive the text-to-speech application as an illegal attempt to copy.

In short, a growing stock of eBooks is an important building block to improved accessibility for print-disabled readers, but, as we will see in Part III below, the ideal state for accessible digital content is a highly agile, standards-based format that can be easily converted or adapted to meet the diverse needs of different users within the print disabled community.

4.6 Outlook

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Consumers expect a lot of the eBook format. A 2006 IDPF study demonstrated clearly that consumers strongly believe that a much wider selection of eBooks should be available, that eBooks should cost considerably less than their print counterparts, and that having purchased an eBook, customers should be free to use it in any way they would use a print edition. In particular, eBook consumers expect to be able to read their books where, when and how they wish (i.e., to move books from device to device as needed) and to share them with friends.

As we have seen, the emerging eBook market responds to a number of these concerns with a wider (and growing) selection of titles and aggressive pricing. We expect that title selection will continue to grow rapidly in the years ahead and that price competition will be intense in the near future as well.

The industry is still searching for the proper balance with respect to DRM measures, but it appears that consumers remain determined to vigorously resist any protections that they perceive as overly restrictive or as an undue limit on flexible and fair use. For publishers, the choice will be to publish with DRM—especially for platforms such as Sony and Amazon that explicitly support it—or to pursue greater consumer acceptance at the risk of increased piracy.

Beyond this, the online distribution of digital books also challenges some long-held conventions in book publishing, including the industry's definition of "in print", the basis for calculating author royalties, and the concept of territoriality.

The consumer behaviour, technology platforms, and sales channels that the eBook market needs to thrive are increasingly in place. We expect that the accommodations that publishers, retailers, authors, and consumers reach around rights management, as well as the adaptability and agility of file formats for digital editions, will now be the major determinants of the pace and degree of consumer adoption of eBooks over the next three to five years.

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¹³ The Book Retail Sector in Canada, Department of Canadian Heritage, January 2008.

¹⁴ We use the terms "spoken-word audio" and "audiobook" interchangeably throughout the paper.

¹⁵ This compares to 10,608,796 print titles listed in Bowker's Books In Print® in 2007.

¹⁶ Please note that these are consumer prices. Neither of these online retailers serves the library market at this time.

¹⁷ For further background on the book trade in Canada, please see The Book Retail Sector in Canada, Department of Canadian Heritage, January 2008. The paper is available in PDF and HTML editions, and in both official languages, on the Department of Canadian Heritage website: www.pch.gc.ca/progs/ac-ca/pubs/index_e.cfm

¹⁸ "Downloads Have Publishers Singing a New Tune," Publishers Weekly, May 8, 2006.

¹⁹ The Association of American Publishers estimates 2007 US trade sales at US$14.9 billion.

²⁰ Amazon scored something of a consumer adoption coup on October 24, 2008, when Oprah Winfrey featured the Kindle on her television show, proclaiming it her "new favourite thing in the world." Oprah's ability to shape consumer tastes and drive buying behaviour is well documented, and in this case, her endorsement came with a special discount offer for any viewers wishing to buy the Kindle. Advertising Age reports that on the day the show aired, traffic to Amazon.com increased by 6%. As Amazon is a top-20 Internet site, a 6% increase likely translates into hundreds of thousands of additional visitors.

²¹ There are a number of other readers coming to market as we prepare this report—including the foldable Readius device from the Dutch firm Polymer Vision and the more business-oriented Plastic Logic Reader.

²² There are two types of cell phone networks: CDMA and GSM. Devices that operate on one do not operate on the other.

²³ "iPhone Steals Lead Over Kindle," Forbes, October 2, 2008.

²⁴ The current Adobe Acrobat release is version 9.0. From version 6.0 onwards (circa 2003), the Acrobat program has featured improved accessibility features for users with print disabilities. PDF files can now be specifically created to be accessible by those with a print disability. A tagging function built into the Acrobat program is a key component of this. Current PDF file formats can include tags (XML), text equivalents, captions, and audio descriptions. Some software applications, notably Adobe InDesign, can automatically produce tagged PDFs. Leading screen readers, including JAWS, can read tagged PDFs, and the current releases of Acrobat and the Acrobat Reader can also read PDFs aloud. Tagged PDFs can also be re-flowed and/or magnified for readers with visual impairments. However, not all PDF files are created with tags, and problems remain with adding tags to older PDFs or to those that are generated from scanned documents. In such cases, the file content cannot be re-flowed or magnified reliably, and screen reading software will not be able to access the file reliably. This is especially true in the case of files with more complex content (e.g., graphs or charts).

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