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AAP Names Task Force To Create E-book Standards
Jim Milliot -- 4/3/00
Technology primary topic at association's annual meeting

To no one's surprise, technology was the dominant topic at the Association of American Publishers' annual meeting, held March 22 in Washington, D.C., as well as at the "Growth Strategies for Independent Publishers" seminar held the previous day. A presentation on the e-book market given by Andersen Consulting and a discussion of print-on-demand technologies were the most talked about sessions at the meeting, along with a speech by Barnes & Noble chairman Len Riggio, who urged publishers to lower prices, eliminate returns and invest more on upgrading their infrastructure. (For a more detailed look at Riggio's remarks, see feature, p. 25).

The study of the e-book market began late last year at the urging of Peter Jovanovich, out-going AAP chairman and CEO of Pearson Education, who noted that Andersen was charged by the AAP with developing an "action plan" with regard to e-books that could be implemented by an association task force. Jovanovich told the membership that his goal in backing the study was to help the publishing industry "seize the initiative" in dealing with the fledgling e-book market, thereby preventing an outside entity from imposing its own standards on publishers.

Representatives from Andersen said that publishers "have a historic opportunity" to develop an industry that could bring benefits to both themselves and consumers, but only if they act quickly. Andersen's primary recommendation was that the AAP facilitate the creation of an "open standards solution" that would include setting guidelines for digital rights management, numbering systems and metadata structures. Growth will also require support by publishers for "innovation in a secure environment," Andersen advised. The consultants warned that if publishers fail to take the lead in working together to define standards, e-book market development "will be slower, more chaotic and less profitable."

The consulting company predicted that an open standards environment would result in consumers "being able to buy any e-book from any authorized source and read it on any authorized device." In addition, in an open environment, authors/agents, retailers and publishers would retain their present roles, and transactions would be visible to publishers, a situation that would permit them to ensure security and understand market trends.

The study presented an exceptionally optimistic outlook for e-book sales, estimating that by 2005 retail revenues in the consumer market could be as much as $3.4 billion, although revenues of $2.3 billion is more likely. The number of e-book reading devices was projected to jump from an estimated 30,000 to 28 million. The study also found that 70% of e-book revenues would be incremental.

While publishers were skeptical of the revenue projections, they did agree that the association needed to become proactive regarding e-books; in fact, Jovanovich announced that a task force to help develop the standards already had been formed; its members are Bertelsmann, Pearson, McGraw-Hill, Thomson, Houghton Mifflin, Holtzbrinck and HarperCollins. Target date for establishing the standards is September.

Panelists speaking about the development of the on-demand market had some numbers of their own. The most impressive figure was given by Ed Marino of Lightning Print, who estimated that his company would generate $25 million in sales at the retail level this year; he added, "We're giving some publishers five-figure checks per month." Marino said LP has done business with 10,000 outlets and has found a "natural relationship" with e-retailers because their search engines create demand for hard-to-find books.

Marino told PW that LP is adding about 200 books per week to its digital archive, with about 70% of the titles it receives already in digital form. As the company builds its database and infrastructure, it will consider putting print centers in different locations, although Marino thought it would be a while before LP started looking at locating systems in stores. "You would really need to get a critical mass" before an in-store system made economic sense, Marino explained.

In some other facts and figures, Marino said the cost of printing a 300-page book is $4.80; he also noted that 70% of the orders LP fills are for a single title, with the balance for runs of 25 titles or more.

Susan Frost of Replica Books acknowledged that the business model of Replica has changed since it was launched three years ago. Originally aimed at the library market to publish out-of-print and out-of-stock books, between 65% and 70% of Replica's business is currently with retailers. The company's on-demand facilities are being used to print companion titles for e-books, to publish titles from unpublished writers whose work appears on places such as iUniverse and to print a limited number of titles for a publisher to test-market.

Frost believes that many publishers are starting to sign nonexclusive agreements with a variety of on-demand printers because each reaches some different market. Frost also predicted that before too long, only bestsellers will be printed on offset presses with the rest produced by on-demand machines.

Technology also showed up in the March 21 luncheon address of Walker & Co.'s publisher, George Gibson. Gibson said that while he "is not convinced technology will change everything" about publishing, publishers have to take advantage of the opportunities it provides, whether it be selling content to e-book companies or selling pieces of information through the Internet. Gibson noted that Walker's sales from Amazon.com have risen from zero in the fiscal year ended May 1997 to a projected 7%-8% of sales in fiscal 2000.

Immediately after lunch, attendees at the small publisher seminar were given a brief overview of what is going on with the major bookstore chains. John Bohman of Crown Books told the audience that Crown is gradually doing more business directly with publishers and is in the process of reestablishing relationships with publishers and wholesalers. Currently, about 90% of Crown's replenishment business is going through Ingram, although Bohman said he would like to begin working with additional wholesalers. Bohman reported that Crown has no plans to open new stores this year and projected only modest store openings in 2001.

Phil Ollila of Borders Group Inc. observed that the company currently has 900 mall stores, and he anticipates that it will stay at that number. However, the company will expand its superstores, and Borders sees growth opportunities in airport stores, Ollila said.

Ollila told attendees that Borders buys about 35,000 titles per year through 60 head buyers. When visiting a Borders buyer, Ollila told publishers to be sure to be able to discuss marketing plans for the book as well as any sales information the publisher may have on similar titles.

Patricia Bostelman of Barnes & Noble said that one of the best pieces of advice she can give small publishers is to "make sure you get your books listed in industry databases." She added that B&N had recently signed an agreement with BookScan to collect sales data, and that B&N will make the information available to publishers at no charge.

Levitt Wary

Arthur Levitt, chairman of the Securities & Exchange Commission, told attendees that although the U.S. is experiencing an unprecedented period of prosperity, he is concerned that "basic fundamentals of investing are being ignored." And while he acknowledged that it is hard to value Internet companies, "many of today's valuations defy rational fundamental analysis." Levitt observed that many startups "are groomed to go public quickly," and that the huge need for capital is not healthy. The first victims of an economic downturn will be IPO companies, Levitt predicted.
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