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The Market Demand for Books in the U.S.: 2006-2011

The Market Demand for Books in the U.S.: 2006-2011. Albert N. Greco Professor of Marketing Fordham University Graduate School of Business Administration New York City and The Institute for Publishing Research, Inc. 201-439-1839 agreco@fordham.edu November 2008. Areas of Research.

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The Market Demand for Books in the U.S.: 2006-2011

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  1. The Market Demand for Books in the U.S.: 2006-2011 Albert N. Greco Professor of Marketing Fordham University Graduate School of Business Administration New York City and The Institute for Publishing Research, Inc. 201-439-1839 agreco@fordham.edu November 2008

  2. Areas of Research Book Publishing Industry • Publishers (Editorial; Sales/marketing; Intellectual property issues; Exports and imports; Market/consumer demand issues) • Retailers (B & N; Borders; BAMM; Mass merchants; Price clubs; etc.) • Distributors (B & T; Ingram; Hudson News; etc) • Libraries (Public; School; College/university; Special libraries) Scholarly Journals Publishing Scholarly Communications Marketing Entertainment (Industries) • Newspapers and Magazines • Motion Picture Industry • Broadway and the Performing Arts • Toys, Games, and Theme Parks

  3. Market Demand Research Methodology U.S. Department of Commerce Bureau of the Census U.S. Department of Education U.S. Department of Labor The Congressional Budget Office National Endowment For the Arts International Trade Administration B.E.A. The Federal Reserve Bank S.E.C. Reports Quarterly Reports Annual Reports Conference Calls Interviews/Visits Wall Street Analysts’ Reports Publishers Weekly Subtext The Wall Street Journal The Financial Times The L.A. Times The Washington Post CNBC The New York Times Bloomberg Detailed Data Since 1982ARIMA Models

  4. Marketing Data: Major Trade Book Publishers FY 20007-2008 ($ Millions) U.S. % of U.S. World U.S. % Sales Market Sales World Share Sales Random House $1,266 13.2% $2,388 53% Penguin 1,015 10.6 1,692 60 HarperCollins 970 10.2 1,388 70 Simon & Schuster 730 7.6 886 82 Hachette 515 5.4 515 100 Wiley 390 4.1 469 83 Scholastic 390 4.1 422 92 Holtzbrinck 225 2.4 350 64 HM/Harcourt 180 1.9 197 91 Rodale 193 2.0 193 100 Thomas Nelson 190 2.0 190 100 Sterling 150 1.6 150 100

  5. Marketing Data: Juvenile Book Publishers (Net Publishers’ Revenues; $ Million) 2007 2006 % Change Scholastic $432 $226 91.1% Random House 320 322 -6.2% HarperCollins 228 225 1.3% Penguin 224 223 0.4% Simon & Schuster 160 163 -1.8% Disney 80 84 -4.8% Candlewick Press 65 60 8.3% Little, Brown 52 47 10.6% Houghton Mifflin* 50 53 -5.6% Holtzbrinck 27 25 8.0% Harcourt* 20 23 -13.0% TOTAL $1,658 $1,451 14.2% *Merged in 2008

  6. Market Demand Data Forecasts Determine “Top Line” Forecasts for Books in the U.S. Revenues Projections Projections Release Estimates Release Date Date: U.S. Department of Commerce 2004 AG: Jan. 2004 Com. Dept. Dec. 2005 2005 AG: Jan. 2005 Com. Dept. Dec. 2006 2006 AG: Jan. 2006 Com. Dept. Dec. 2007 2007 AG: Jan. 2007 Com. Dept. Dec. 2008 2004- 98.4% of 2006 Commerce’s data

  7. The Law of Supply and Demand* Supply and demand are the forces that make market economies work. Law of Supply: A microecnomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases or decreases. Law of Demand: A microecnomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa. * There are exceptions; e.g. gas used in cars, etc.

  8. Supply A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices. Each product will have its own supply and demand patterns based on price, utility, or personal preference. If consumers demand more of a product and are willing to pay more for it, then producers will add to the supply. As the supply increases, the price will fall given the same level of demand.

  9. Demand An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as the demand increases, and vice versa. Companies spend money to determine the amount of demand that the public has for its products and services. Incorrect estimates will either result in money left on the table if it underestimates demand OR looses money if it overestimates demand.

  10. Market Demand: Media Usage (Hours Per Person per Year Above the Age of 18; Selected List) 2006 2007 2008 2009 2010 2011 Consumer • Books 110 109 109 108 108 108 • Magazines 125 125 126 124 124 122 • Newspapers 178 171 164 159 155 152 Videogames (+12) 76 85 101 116 125 131 Broadcast TV (Net/Ind.) 650 639 639 642 643 644 Cable TV (Basic/Prem.) 962 973 964 964 964 958 Internet (+12) 182 189 193 195 197 197 Mobile (Downloads) 12 15 19 24 29 32 Box Office 12 12 12 12 12 12 Total media 3,499 3,496 3,493 3,493 3,509 3,502 Source: The Statistical Abstract of the U.S.

  11. Market Demand: Media Expenditures(Dollars Per Person per Year Above the Age of 18; Selected List) 2006 2007 2008 2008 2010 2011 Consumer • Books $99.56 103.60 105.52 107.96 110.75 114.03 • Magazines 44.46 44.35 44.42 43.97 44.31 43.10 • Newspapers 49.23 47.74 45.78 44.61 43.85 44.20 Video Games 33.91 43.91 55.77 67.60 75.36 80.76 Cable TV (Basic/Prem.) 306.60 330.93 354.51 378.15 400.78 422.82 Internet 54.06 55.45 59.53 63.88 67.42 70.65 Mobile 12.33 15.66 19.4 23.42 27.22 30.70 Box Office 36.36 38.01 38.16 37.66 38.80 39.29 Total all media 813.19 851.57 903.30 950.64 998.07 1,038.70 Source: The Statistical Abstract of the U.S.

  12. Market Segmentation Refers to the aggregation of prospective buyers into clearly defined groups (i.e., market segments) that have common wants and needs and will respond similarly to a marketing “action”.

  13. Market Demand Shock And Market Anomaly A sudden surprise event (sometimes called a “Black Swan”) that increases or decreases demand for goods or services and has an impact on prices. A positive shock increases demand. A negative shock will decrease demand

  14. Market Equilibrium The state in which market supply and market demand balance each other and, as a result, prices become stable. Generally, when there is too much supply for goods or services, the price does down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium (which is often not achieved).

  15. Market Equilibrium The equilibrium price is where the supply of goods and services matches demand. Is there “market equilibrium” in the U.S. book industry?

  16. Supply: U.S. New Book Title Output 2003 2004 2005 2006 2007 Agriculture 1,535 1,501 1,483 1,426 1,298 Arts 8,431 8,779 8,762 9,201 9,423 Biography 9,837 9,765 8,904 11,271 10,615 Business 7,614 7,905 7,885 8,719 7,651 Computers 8,955 6,928 6,092 5,472 5,709 Cookery 2,590 2,857 3,062 2,705 2,673 Education 7,562 7,135 6,951 6,449 7,335 Fiction 24,666 38,832 34,927 42,777 50,071 General Works 2,195 4,266 2,017 2,078 2,346 History 13,192 14,191 12,686 15,241 14,764 Source: R.R. Bowker

  17. Supply: U.S. New Book Title Output 2003 2004 2005 2006 2007 Home Economics 1,628 1,760 1,634 1,755 1,682 Juveniles 33,469 37,976 32,112 30,395 30,063 Language 6,899 6,088 5,669 5,134 4,846 Law 4,675 4,509 5,468 5,359 5,380 Literature 6,493 7,972 6,297 8,227 9,796 Medicine 10,552 11,834 11,688 10,931 10,720 Music 3,740 4,859 4,076 3,545 3,407 Personal Finance 402 552 542 582 538 Philosophy/Psych. 10,040 11,410 10,556 12,961 12,635 Poetry/Drama 7,007 9,891 9,414 10,700 10,258 Source: R.R. Bowker

  18. Supply: U.S. New Book Title Output 2003 2004 2005 2006 2007 Religion 14,517 21,669 16,785 19,854 18,956 Science 12,962 12,639 12,626 12,655 12,872 Sociology/Economics 23,530 23,222 23,750 27,675 24,596 Sports/recreation 6,323 6,196 6,438 6,666 6,363 Technology 7,142 7,753 7,138 7,262 6,858 Travel 4,172 5,304 4,941 5,376 5,793 Subtotal 240,098 275,793 251,903 274,416 276,649 POD/Short Run/Misc. 26,224 19,730 30,597 21,936 134,773 Total 266,322 295,523 282,500 296,352 411,422 Annual % Change -- +11% -4.4% +4.9% +38.8% Source: R.R. Bowker

  19. Supply: U.S. New Book Title Output: 2007 New Annual Titles: 411,422 Net Title Published Every Day: 1,127.18 (365 Days) New Title Published Every Hour: 46.97 New Fiction Title Published Every Hour: 5.72 New Juvenile Title Published Every Hour: 3.43 New Religious Title Published Every Hour: 2.16 New Sociology/Econ. Title Pub. Every Hour: 2.81

  20. All Books (Excl. Stand. Tests) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 35,685.9 37,264.1 38,298.6 39,371.0 40,653.7 42,009.9 % Change 4.4 2.8 2.8 3.3 3.3 Publishers Net Units Millions 3,100.2 3,126.8 3,106.3 3,107.0 3,116.4 3,132.2 % Change0.9 -0.7 0.0 0.3 0.5 Domestic Consumer Expenditures Millions USD $ 54,244.0 56,625.1 58,128.8 59,739.3 61,574.7 63,525.0 % Change 4.4 2.7 2.8 3.1 3.2

  21. Adult Trade Books (Total) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 9,180.4 9,576.9 9,750.2 9,988.1 10,256.1 10,511.6 % Change 4.3 1.8 2.4 2.7 2.5 Publishers Net Units Millions 824.3 838.8 835.8 839.6 841.7 844.2 % Change 1.8 -0.40.5 0.3 0.3 Domestic Consumer Expenditures Millions USD $ 16,133.5 16,842.6 17,140.4 17,561.4 17,989.0 18,416.6 % Change 4.4 1.8 2.5 2.4 2.4

  22. Juvenile Trade Books (Total) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 3,399.9 3,656.6 3,658.9 3,752.0 3,842.2 3,931.2 % Change 7.5 0.1 2.5 2.4 2.3 Publishers Net Units Millions 873.4 900.9 888.3 886.9 887.4 888.2 % Change 3.1 -1.4-0.2 0.1 0.1 Domestic Consumer Expenditures Millions USD $ 5,995.9 6,423.8 6,436.6 6,585.1 6,737.0 6,893.0 % Change 7.1 0.2 2.3 2.32.3

  23. Juvenile Trade Book Categories 2006 2007 Fiction/YA/Fantasy $ 529.9* $ 736.9 Picture Books 1,355.6 1,369.2 Chapter Books 457.5 462.6 Readers: Early Beginners 305.8 324.7 Workbooks/Activity Books 452.0 457.1 Religion 58.7 59.6 Reference 129.7 132.3 Novelty/Film Tie-Ins/”Other” 110.7 114.2 *Net Publishers’ Revenues

  24. Juvenile Trade Books: Hardbound Best Sellers How Many Copies Do You Have to Sell to Make the Top Ten List? 2007 H.P & The Deathly Hallows (13,114,692) 2006 The End (Series of Unfortunate Events) (2,089,054) 2005 H.P. & The Half-Blood Prince (13,500,000) 2004 The Grim Grotto (1,404,367) 2003 H.P & the Order of the Phoenix (12,193,840) 2002 Carnivorous Carnival (Series of Unfort. Events) (726,543) • The Prayer for Jabez for Kids (478,957) • H.P. and the Goblet of Fire (7,900,000) • H.P. and the Prisoner of Azkaban (3,600,000) N.B. H.P is Harry Potter

  25. Mass Market Paperback Books 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 1,886.2 1,814.7 1,777.7 1,765.4 1,771.5 1,790.6 % Change -3.8 -2.0 -0.7 0.3 1.1 Publishers Net Units Millions 575.1 541.8 520.8 506.5 495.3 488.9 % Change -5.8 -3.9 -2.8 -2.2 -1.3 Domestic Consumer Expenditures Millions USD $ 3,242.2 3,125.4 3,069.2 3,047.7 3,054.9 3,081.8 % Change -3.6 -1.8 -0.7 0.2 0.9

  26. Religious Books (Total) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 2,422.0 2,575.0 2,719.6 2,864.2 3,021.5 3,190.0 % Change 6.3 5.6 5.3 5.5 5.6 Publishers Net Units Millions 263.4 275.5 284.1 293.3 302.7 312.2 % Change 4.2 3.5 3.2 3.2 3.1 Domestic Consumer Expenditures Millions USD $ 4,685.1 4,981.7 5,255.4 5,538.3 5,838.0 6,154.2 % Change 6.3 5.5 5.4 5.4 5.4

  27. Professional Books (Total)* 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 8,893.0 9,240.9 9,611.5 9,848.4 10,084.9 10,363.2 % Change 3.9 4.0 2.5 2.4 2.8 Publishers Net Units Millions 280.9 285.6 287.3 287.3 287.7 289.0 % Change 1.7 0.6 0.0 0.1 0.4 Domestic Consumer Expenditures Millions USD $ 11,648.5 12,104.0 12,594.2 12,882.8 13,188.7 13,539.9 % Change 3.9 4.0 2.3 2.4 2.7 * Print. Digital books TBA.

  28. K-12/Elhi [Elementary and High School] Books (Total)* 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 4,748.9 5,051.9 5,246.3 5,434.4 5,770.9 6,115.8 % Change 6.4 3.8 3.6 6.2 6.0 Publishers Net Units Millions 177.2 178.4 181.9 185.1 192.4 199.8 % Change 0.7 2.0 1.7 4.0 3.8 Domestic Consumer Expenditures Millions USD $ 5,374.8 5,713.4 5,942.1 6,168.1 6,544.4 6,949.4 % Change 6.3 4.0 3.8 6.1 6.2 *Includes printed textbooks and supplementals. Digital TBA.

  29. Standardized Tests (Total) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 2,396.6 2,672.2 2,928.7 3,165.0 3,422.4 3,658.6 % Change 11.5 9.6 8.1 8.1 6.9

  30. College Books (Total)* 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 4,642.1 4,801.2 4,971.1 5,138.3 5,309.7 5,493.9 % Change 3.4 3.5 3.4 3.3 3.5 Publishers Net Units Millions 77.0 77.9 79.0 80.2 81.2 82.2 % Change 1.2 1.4 1.5 1.3 1.2 Domestic Consumer Expenditures Millions USD $ 6,522.3 6,750.6 6,986.8 7,231.4 7,477.2 7,723.7 % Change 3.5 3.5 3.5 3.4 3.3 *Includes printed textbooks. Digital TBA.

  31. University Press Books (Total) 2006 2007 2008 2009 2010 2011 Publishers Net Dollar Sales Millions USD $ 531.0 546.9 563.3 580.2 597.0 613.7 % Change 3.0 3.0 3.0 2.9 2.8 Publishers Net Units Millions 29.0 28.7 29.1 28.2 27.9 27.7 % Change -1.0 1.4 -3.1 -1.1 -0.7 Domestic Consumer Expenditures Millions USD $ 641.7 683.6 704.1 724.5 745.5 766.4 % Change 6.5 3.0 2.9 2.9 2.8

  32. Market Demand: U.S. Books Certain book categories have or will experience declines in unit sales. Why? Problem with the “marketing mix”? Product (not what consumers want?) Price (too expensive for consumers?) Placement (books are hard to find? Promotion (publishers and retailers do not promote?) or Economic issues (discretionary expenditure?)

  33. Demographic Data: Who Reads Books? Percent of U.S. Population 1982 2002 Read any book 60.0% 56.6% Read literature 54.0% 46.7% Literary Reading 1982 1992 2002 Males 48.1% 47.4% 37.6% Females 63.0% 60.3% 56.1% Source: National Endowment for the Arts

  34. Demographic Data: Who Reads Books? Men’s Favorite Book Categories Under 18 Science Fiction & Fantasy 18-24 Science Fiction & Fantasy 25-34 Science Fiction & Fantasy 35-44 Science Fiction & Fantasy 45-54 History 55-64 Mystery +65 Mystery Source: Codex Group

  35. Demographic Data: Who Reads Books? Women’s Favorite Book Categories Under 18 Young Adult 18-24 Literary Fiction 25-34 Literary Fiction 35-44 Romance 45-54 Romance 55-64 Romance +65 Romance Source: Codex Group

  36. Demographic Data: Who Reads Books? Literary Reading By Age 1982 1992 2002 18-24 58.6% 53.3% 42.8% 25-34 62.1% 54.8% 47.7% 35-44 58.7% 58.8% 46.6% 55-64 54.8% 56.8% 51.6% 65-74 52.8% 52.8% 43.8% +75 47.2% 50.8% 45.3% Source: National Endowment for the Arts

  37. Demographic Data: Who Reads Books? Literary Reading By Age (Millions) 1982 1992 2002 18-24 17.8 12.9 11.4 25-34 24.9 23.1 17.6 35-44 17.0 23.4 20.5 45-54 12.7 15.8 20.1 55-64 12.0 11.3 12.6 65-74 7.8 9.3 8.0 +75 4.1 5.0 5.7 Source: National Endowment for the Arts

  38. Demographic Data: Who Reads Books? Literary Reading by Percentage of Population by Geographic Region: 2002 Northeast 49.7% [N.E. 50.0%; Mid-Atlantic 49.7%] Midwest 46.7% [West No. Cen. 49.9%; East No. Cen. 45.5%] South 42.1% [South At. 43.3%; West So. Cen. 40.9% East So. Cen. 40.9%] West 51.2% [Mountain 53.4%; Pacific 50.4%] Source: National Endowment for the Arts

  39. Demographic Data: Who Reads Books? Literary Reading by Gender 1982 1992 2002 Males 49.1% 47.4% 37.6% Females 63.0% 60.3% 55.1% Overall 56.4% 54.2% 46.7% Source: National Endowment for the Arts

  40. Demographic Data: Who Reads Books? America’s Most Literate Cities Minneapolis Seattle St. Paul Denver Washington, DC St. Louis San Francisco Atlanta Pittsburgh Boston Source: Jack Miller. Based on: booksellers; educational attainment; Internet resources; library resources; newspaper circulation; and periodical publications.

  41. Marketing Information: Where Do Consumers Find Out About New Books? Under 25 55-64 Browsing in local bookstore 67% 74% Recommendation friends 63 62 Displays in local bookstore 45 47 Info. In author’s prior book 32 32 re new book Library/librarians 25 22 E-mail from bookseller 24 25 Rec. Bookstore staff 16 14 E-mail from author/bookseller 12 10 TV/radio ad 6 7

  42. Marketing Data: Favorite Authors: Under 25 Stephanie Meyer 20% Kanye West 7 Chuck Palahniuk 6 Meg Cabot 9 Dave Eggers 3 Chelsea Handler 2 Gregory Maguire 5 Chris Paolini 5

  43. Marketing Data: Favorite Authors: +25 Stephen King 14% Mitch Albom 7 Harper Lee 13 Jodi Picoult 6 John Steinbeck 11 Philip Roth 2 Bill Bryson 2 John Updike 2 Daniel Silva 1 Carl Hiaasen 2 Janet Evanovich 4 John Grisham 7 Ian Fleming 2 Lee Child 1 Patricia Cornwell 2 Ken Follett 1

  44. Marketing Data: Top 15 Trade Book Categories: 2007 % of Total Revenues Adult Fiction 17.97% Juvenile 16.26 Religion 15.4 Romance 6.97 Health/Diet 5.22 Business 4.62 Self-Help/Inspiration 4.19 Gen. Ref. 3.94 Computer/Tech 3.42 Cooking/Home Ent. 3.25 Art/Illus/Coffee Table 3.17 Sci-Fi/Mystery 2.74 Travel 1.88 Biography 1.63 Personal Finance 1.37 Other/Misc. 7.96

  45. Marketing Data: Trade Books 2007: Where Do Consumers Purchase New Trade Books? Revenues Units Bookstores 48.84% 49.83 General Retailers 25.80 25.90 College Adoptions 7.80 7.49 Libraries & Insts. 8.28 4.43 Elhi Schools 3.34 2.08 Direct to Consumers 5.95 10.29

  46. Marketing Data: Juvenile Books: Where Do Consumers Purchase New Juvenile Books? Revenues Units Large Bks.Chain 25.3% 18.3% Book Clubs 15.3 16.2 Internet 11.9 8.3 Mass Merchants 6.5 7.9 Indep/Sm. Book Chains 9.0 8.6 Mail Order 5.2 4.5 Price Clubs 5.0 3.8 Food/Drug 2.1 2.9 Dollar Stores 2.1 5.7 Used Bookstores 1.6 5.3 Books Fairs 0.5 0.8 Other 15.6 17.9

  47. Market Demand: Will Consumers Accept Digital “E-Books”? Are you ready and willing to read a digital book? On a desktop computer? On a laptop computer? On a SONY Reader ($270)? On a Kindle ($350)? On a smart phone (Black Berry, etc.)? On a “Palm Pilot” type hand-held device?

  48. Marketing Issue: Disruptive Technologies Michael Porter’s Five Forces provide a framework to analyze this question: • Competition in the industry • Potential of new entrants into the industry • Power of suppliers • Power of customers • Threat of substitute products

  49. Market Demand: Threat of Substitutes A product or service that partly satisfies the wants and needs of consumers. For a product to be a substitute of another good, it must have a particular relationship with that good OR provide a better service. When a product’s price increases, the demand for its substitute will increase because consumers will go looking for a cheaper alternative. When a product’s price decreases, the demand for its substitute decreases.

  50. Market Demand: Threat of Substitutes Switching Costs This is the cost a consumer incurs as a result of switching to another product or a supplier. The switching “cost” could be financial or psychological. Many companies try to employ marketing strategies that trigger some sort of high switching costs to dissuade consumers from switching to a competitor’s product (e.g., cell phone companies; 2 year contracts; high cancellation clauses)

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