Canadian publishing has been watching the digital revolution to the south and waiting and preparing for it to cross the border. There are signs and stirrings, but so far the adoption of e-books and e-readers has been more evolutionary than revolutionary. Most publishers in Canada do not expect sales of e-books to make up more than 3.5% of their sales before the end of 2010, but they do see much bigger changes coming.
It was last November when the Kindle finally came to town, and spring and summer brought Canadians the Kobo e-reader and then the iPad. Before then, publishers had been digitizing their frontlists and backlists, but as HarperCollins Canada president and CEO David Kent puts it, "We were all dressed up with nowhere to go. Now, we can go to the prom with Apple, we can go the prom with Amazon, with Kobo...."
Simon & Schuster Canada president Kevin Hanson says the delay may have served Canadian publishers well. "When it hit the U.S. marketplace, for us, it was advantageous in some respects, that we could just watch," he says. "We could watch consumer behavior. We could watch some of the tussles between some of the different parties as to how they were dealing with one another. So to some degree some of the dance steps have been worked out."
Kent expects that 2010 will be a watershed year for the digital market in Canada. And his predictions for how big it could get have been bold. Interviewed on CBC Radio's The Current, other panelists foresaw e-books rising to 15% of the market, but Kent suggested that market share could be 50% by 2015. "I'm sticking with my numbers," he tells PW, adding, "I may be lowballing." Lisa Charters, senior v-p, director of digital, at Random House of Canada, notes, "I think that we all, the whole industry, but in Canada as well, we underestimated the impact of iPad sales. They have been quite strong." Random House of Canada president Brad Martin says the company has seen significant increases in digital sales on a month over month basis, but on a very small base. "We are still a long way from reaching a critical mass that the United States has in terms of devices."
Still, publishers are taking note of the growth. "As a generality, our e-book sales are increasing 30% per month compound, but it's from nothing, so it doesn't really mean very much yet," says Scott McIntyre of D&M Publishers. "But it's clearly going faster than even Mike Shatzkin [predicted]."
Canadian publishers are in varying stages of digitization. Some are just working on their deep backlists, but most of their newer titles are already selling as e-books with all the major players. Others are just getting started.
"The story for us digitally has just been the amount of resources and time and effort to digitize the backlist of a 104-year-old company," says McClelland & Stewart president and publisher Doug Pepper. "We made it very much our priority to do it, so we're watching the sales closely, understanding of course that we're still in the process of getting our backlist in there. Our frontlist, if everything goes fine and we have the rights, goes immediately into digital."
Publishers of children's books and heavily illustrated books say the iPad was a step in the right direction, but the technology is still not capable of doing what their books require. "Essentially, we've made the decision to digitize only the books that are full print editions or have limited illustrated content," says Suzanne Alexander, Goose Lane Editions publisher, adding that the company's fiction and nonfiction that isn't heavily illustrated is now being sold as e-books on Amazon and Kobo. Aside from the technical obstacles, McIntyre says D&M does not do digital editions of its art books either. "‘No one will give you digital rights because no one knows where it's going," he says.
"Here as elsewhere, this is all a bit of a Wild West right now," says Diana Barry, director of digital services for the Association of Canadian Publishers. "Changes are happening so quickly in the industry that it is a struggle for all of us to keep on top of it." The association has obtained some funding from the Ontario government's Media and Development Corporation to help its members digitize their lists. ACP has also negotiated agreements with e-book retailers such as Sony, Kobo, and Barnes & Noble on behalf of some of its members. It is still in talks with Apple.
While the effect of digital on sales of print books in Canada is relatively small so far, there is concern about how the expected growth will affect booksellers. Indigo Books & Music hopes to cover both bases as the majority shareholder in Kobo. President Joel Silver says the Kobo e-readers are selling well in the stores. "I don't know if we're feeling it at the level of the U.S., but I think it puts a lot more pressure on our other businesses. But we are selling more books, so it has made us a lot more aggressive about how we merchandise tables and really try to make the business, rather than counting on some hits to make it." Silver says the company tries to find new ways to draw people into stores such as renovations to children's sections to make them a place where kids and parents will want to spend time.
Independents are already under pressure from competition with Indigo and expanding book sections in nontraditional retailers such as Wal-Mart offering deep discounts. Recently, online sales have surpassed the independents' market share.
"When you connect the dots across the country, the independents are important, but I think they represent less than 15% of the business. I know that online is past that now," says Jacqueline Hushion, executive director, external relations, for the Canadian Publishers Council. "A company told me the other day that their sales of electronic product are 30% of their business, but it depends on the kind of company you are. It depends on whether or not you are a trade publisher [or] an educational publisher. The legal publishers, people who are in the reference business, legal, medical... are way higher."
Mike Collinge, v-p of sales and operations for the Toronto-based book manufacturer Webcom, says he can see publishers putting more resources into digital development and products. "The Canadian arms [of global companies] are definitely putting money and development into electronic products and taking some of the investment out of the print products. We can see that now," he says. "If the printed product is going to maintain its role and be a little more aggressively priced so it can compete and provide value vs. electronic products, then I think a lot of [the] supply chain tradition needs to change," he adds, suggesting that print needs to be more responsive, with less waste and redundancy. Webcom plans to announce some changes soon that Collinge thinks will help publishers achieve those changes.
As Kevin Hanson spoke of the advantages the lag in the digital market in Canada offered to publishers, it was hard not to think of Macmillan CEO John Sargent's now famous tango with Amazon over pricing.
His efforts were appreciated north of the border, too. "Bless his heart," says Kim McArthur, president of McArthur and Company. That showdown, she says, "completely changed the landscape on pricing and contracts and royalties for e-pub.... That was a case where the Canadians were able to sit back and go ‘we couldn't have afforded to do that.' " McArthur is pleased "we can set our own retail prices."
But the question of what that price should be is still an unknown in Canada as much as it is in the rest of the industry. Even though the iPad's entrance was a game changer, David Caron, copublisher of ECW Press, points out that the agency model still sets a limit on the maximum price for a book. But he says he thinks the retailers have an important role in helping to find a price that is acceptable for publishers and still attractive to consumers. "[If] I have information about my books, [and] I understand what these books are worth, and I don't want to see that worth undermined, there's value in being able to control that price," he says. "On the other hand, I don't have the information about a wide range of titles that the retailers have." He says he thinks retailers can offer valuable research and advice about how other books have sold and at what price and play a key role in helping the industry figure out viable pricing. "I hope that however we do this, whether we are in agency relationships or wholesale relationships with these retailers, that we'll be able to work together to figure that out," Caron says.
The wait for the digital revolution to begin has not only given Canadian publishers time to observe what works and doesn't work, it has also allowed them a trial period to do some testing and experimenting of their own.
House of Anansi Press did some early testing last year with Shortcovers before it became Kobo, giving away electronic copies of Emily Schultz's novel Heaven Is Small in the week before its official pub date. Publisher and president Sarah MacLachlan says Anansi is now benefiting from some of Kobo's promotions such as one highlighting the Booker longlist, which included Anansi author Lisa Moore.
Kristin Cochrane, publisher of the Doubleday Group Canada, says the company learned a lot from a test with Rosie Alison's novel The Very Thought of You. When it was among the books shortlisted for the Orange Prize, Random House of Canada realized that it could get the e-book out faster than the physical book, and as a result it expects to have sold 300 copies before the print version is available. "It felt like the right thing to test because there was a lot of noise around the Orange Prize shortlisting announcement, and we knew people couldn't get it," says Cochrane. "It felt like because she was unknown, it's a good way of getting it out first."
Random House of Canada is testing digital in three ways: price promotions and experiments to get people participating in new authors; offering e-books enhanced with video, audio, and illustrations; and some original products that come mostly from nonfiction titles.
RHC's Lisa Charters says that offering a free e-book or a price promotion for a short time period can be a way to jump-start a new book or a fairly new author. The hope, she says, is to "get people excited about it and then they tell two people and then you can bring the price back up and it all just keeps flowing." Or a price promotion could be used to introduce readers to an established author they've never read before. For a week in August, Margaret Atwood's novel Oryx and Crake, the first in a trilogy, was available as an e-book for 99 cents. "Instead of giving away the new book, we can give [readers] the first book in a series and get them excited and then we know that will lead to all kinds of sales of a particular writer," says Charters. Another aim of such promotions is to get the book on the Amazon Kindle bestseller list. "There's no question that e-book readers are looking to those for guidance about what to read next, so if you can get it on there, then you can usually get the momentum to keep it there," she adds.
Charters says the company will also be introducing new book products in an e-book format. For example, Random House of Canada and Random UK worked together to produce and market a Nigella Lawson app based on recipes from all of her books to date. "It's not a book that's being enhanced. We're actually creating a new thing that actually lives and breathes in the app space," she says, noting that the products are well suited to health and cooking topics. Martin adds that the company plans to do some digital-only books. "It might just start with a short story collection or something smaller to whet people's appetite to see if they are interested in this author and then we can see a better future for print publications," says Tracey Turriff, senior vice president, director of marketing and corporate communications. "There is some sign that e-books are leading to impulse purchases in a way we haven't seen them for a long time because of the price point," says Anne Collins, publisher of the Knopf Random Canada Publishing Group.
This fall ECW Press is also developing a promotional iPhone app that it hopes will help market author George Murray's book of aphorisms, Glimpse. Downloading the free app will give users one aphorism per day. If they like it and want the whole e-book, they can have it by paying for an unlocking code. The book is available in the Apple ibookstore, but ECW still has to get Apple's approval on the app before it will be available. Copublisher David Caron says two previous ECW books have had apps: one for a poker book and one for Sam Cutler's You Can't Always Get What You Want, on his time as tour manager with the Rolling Stones and the Grateful Dead. However, ECW licensed the application rights for the poker book, and the Cutler app was developed by a third party, so this is ECW's first time working directly with Apple. "More than anything, we're trying to discover what the process is," Caron says.
Optimists in the industry sometimes suggest that e-books and e-readers will attract a new segment of consumers who will augment, not displace, the current audience for printed books. But Anansi's Sarah MacLachlan is skeptical. "That would imply that we're going to catch a whole bunch of people who don't already read, and I don't know that that's what the gadget's going to do," she says. "What I'm seeing in terms of gadget pickup is it's older people, retired people, people with dough—it's people who are reading already. So I can't help thinking it's going to take a swipe at the side of print publishing. And the gadgets are only going to get better."
It's a concern shared on another side of the industry by Mark Champagne, president of Login Canada, which distributes academic and trade books and electronic products for more than 580 publishers. His clients lean more heavily toward academic publishing. At the moment, he says, not all textbooks are available in electronic form, and students are likely using a mix of digital and print books according to their own preferences. But he says, "It will more than likely displace the book. We certainly haven't seen that yet on the higher education side, but that doesn't mean that it won't happen eventually."
As a part of that CBC Radio panel discussion, the host asked HarperCollins Canada's David Kent if he thought printed books would disappear. His answer, he recounts: "We're on the radio, the radio. People said ‘Talking movies, that's the end of this. Television, that's the end of this. Television is the end of movies. Video, that's the end of movie theaters. And you know what? They all live together. We still have radio, we still have movie theaters... and so we will [still have] books, but we'll have choices."
Raincoast Books is betting on that kind of co-existence. The Vancouver-based wholesaler and distribution company just announced that it is moving its warehouse facility to a location that will accommodate 40% more books. "I know everybody is trying to get their head around where the digital market is going, what the digital audience looks like," says Jamie Broadhurst, v-p of marketing. "From my perspective, it's going to be a hybrid culture. People are going to continue to use print product when it is the best design at the best price and the best package, and switch to digital when it's convenient, but it's not going to be an either/or proposition," he says.
Lionel Koffler, owner and publisher of Firefly Books, takes a step back for a broad view of the situation. "The concern about the adaptation to electronic books I think is interesting because the publishing community still sells books to only 5% or 6% of the public in North America," he says. "There is a vast unreached market for books and reading in every form that is something that I still see as potential.... Rather than worrying about the erosion of our market and revenues, I think we should be marketing e-books out there to people who don't read books yet or don't buy them on a regular basis, who are a tremendous well of unexploited revenue."
Political Storms on the Horizon
While many publishers agree that Canada's copyright legislation needs to be updated, the draft of a new act has caused great concern among publishers. Jacqueline Hushion, executive director for external relations with the Canadian Publishers' Council, describes the draft bill as "full of holes you could drive 18-wheelers through."
Carolyn Wood, executive director of the Association of Canadian Publishers, says it has "alarming implications." Although there are things in the bill ACP applauds, Wood says, "The educational exemption is a big concern. And there are other concerns as well."
One of the biggest problems is that while the draft bill makes education an exemption under the fair dealing category, education is undefined and too broad, Hushion says. "It's oriented toward educational institutions, etc., but it's also oriented very much to the individual Canadian consumer and what he or she wants to do with content in this era when, with technology, anything is possible in your basement," she says. It's a "huge concern, and if it goes wrong, we won't have to worry about any other policies or the industry or anything else."
The CPC and others are preparing written comments, but Hushion said there was no word yet on whether there would be a legislative committee or hearings about the bill.
The federal government is also reviewing the foreign investment policy for the book industry; comments from individuals, publishers, retailers, distributors, and associations were accepted up to September 18. The policy has controlled foreign investment in the book industry to protect it as a cultural industry. The rules have prevented Simon & Schuster Canada, as a relative newcomer to Canada, from having a Canadian publishing program. It has also meant that long-established companies like HarperCollins Canada, Penguin Group Canada, and Random House of Canada are still considered foreign publishers even though they do publish Canadian authors and books. The policy also prevented Indigo Books & Music from being sold to a company outside of Canada. Any loosening of the policy would be controversial. Wood was preparing a statement from the ACP. "The main thrust from our members," she says, "is that this policy has in fact proven remarkably effective and resilient and while we haven't always agreed with every outcome when it's been tested, on the whole, we think it has allowed a lot of really positive developments for our industry and Canadians."