Commentary & Analysis
The Tipping Point Chronicles: Book Publishing and Digital Printing
By Noel Ward,
By WhatTheyThink Staff
Published: November 16, 2005
By Noel Ward, Executive Editor, On Demand Journal November 16, 2005 -- It can be hard to think about digitally printed books when Harry Potter and the Half-Blood Prince had an initial run of over 10 million copies. But the ever-present 80/20 rule applies to books as much as anything else: 20 percent of the titles published in a given year drive 80 percent of publishers' revenue--and support the rest of the house. While books are considered "best-sellers" when they crack the 50,000 mark, the vast majority of titles sell far less, with most copies winding up back in publishers' warehouses, draining profitability. A couple of key bugaboos in book publishing are the cost of a minimum offset print run--ranging from 2,000 to 5,000 copies--and the time-honored (and totally bizarre) practice of refunding retailers for unsold books that land back on publishers' loading docks. These titles are stored, sent out as needed, but ultimately some 60 percent of mass market paperbacks and 40 percent of hard cover books are never sold. Ultimately some 60 percent of mass market paperbacks and 40 percent of hard cover books are never sold. Publishers (and booksellers) have been reluctant to change, but economic pressures, including those from mega-retailers like Barnes & Noble, Borders, and online outlets like Amazon.com, are opening the door to digital book manufacturing. This was the focus of the Book Publishers Thought Leadership Conference, held by Xerox October 26 and 27 at the Gil Hatch Center in Webster, New York. It brought together people from a dozen major publishing houses, several book manufacturers, and a leading retailer to look at the state of the industry and what's coming next. Many publishers have not looked at this technology for several years and don't realize the advances and changes in cost and quality that have taken place. With the conference, Xerox wanted to help publishers understand the new business models and where digital print solutions might make better business sense. The Tipping Point Of course, printing books on digital equipment isn't new. I toured Pearson's operation about seven years ago, and Quebecor World, R.R. Donnelley and Offset Paperback Manufacturers have substantial digital book production plants. Many large universities have had their own operations for years and all types of hardware and software manuals have been produced on monochrome digital print engines for about a decade. What's different today is that all the associated technologies--digital color, finishing and workflow in particular--are ready for prime time and the economics are making sense to publishers who recognize that printing books with toner instead of ink opens up new opportunities. Some 30 percent of the 200,000 new titles printed last year were printed in quantities of less than 100 units. That's 60,000 titles. Consider, for example, that some 30 percent of the 200,000 new titles printed last year were printed in quantities of less than 100 units, says Frank Romano of RIT. And this proportion is likely to reach 50 percent by 2010 as more new authors reach the market thanks to digital printing technology and changing distribution and publishing options. This tipping point will bring a profound change in the way the book business works. Inventory Management Ed Lane of R.R. Donnelley explained that while book publishing is still a long-run business, many titles in the short-run space can take advantage of a digital solution. At RRD, some 80 percent of short-run jobs are under 10,000 copies, and over a third are under 2,000 copies. Even smaller runs can be based on demand. This drives the need for an inventory management system (IMS) that helps deliver consistent earnings with lean inventories, improves cash flow, lowers working capital requirements--and yields fewer returns from booksellers. An IMS also drives revenue by eliminating out-of-stock books and enables publishers to keep a deep backlist because any title can be produced on demand. As Nicholas Negroponte of MIT's Media Lab would put it, it's a lot easier to store bits (a digital file) than it is to store atoms (a bound and printed book). Some of RRD's customers are already reaping the benefits of the IMS. An IMS helps deliver consistent earnings with lean inventories improves cash flow and yields fewer returns from booksellers. Lane noted, however, that challenges remain for one-color book production. Halftone quality is still not adequate for all applications, although this varies by substrate and print engine. Transaction management--a workflow issue--is still not consistent, but solutions are reaching the market. Case binding--critical for some types of books--remains difficult for digital printing, at least as an inline option. Cost competitiveness to offset remains a challenge and will ultimately improve, but even as digital press makers like Nipson, Océ or Xerox lower their costs, offset press vendors are further streamlining makeready and making their presses competitive for shorter runs. The Secret Lives of Books Edward's Brothers, a book and journal manufacturer based in Ann Arbor, Michigan and with facilities in North Carolina, believes in using offset and digital printing to manage inventory costs and printing based on demand. In their trademarked "Life of Title" approach, EB manages the inventory of every title they produce down the to last copy. And when a title is printed, it often skips the typical supply chain and goes directly to the end-user, streamlining the overall operation and reducing costs for the publisher. John Edwards, president and CEO, described how this process saves customers money, showing real dollar values that compare traditional processes with those his firm employs. His model showed the dollar value of books in a warehouse over time, along with the carrying costs of those titles. Since it's not uncommon for books to sit in a warehouse for up to 6 years, the costs of maintaining that inventory winds up being substantial: over $400,000 annually in Edwards' example. That would seem enough to get the attention of a publisher. But that's not always the case. The supply chain from publisher to end-user will be more tightly integrated and virtual inventory will be commonplace. Ironically, a book manufacturer like EB often winds up facing the same challenges as much smaller printers trying to convince a company to use digital printing to reduce the total costs of, say, marketing collateral. Because the costs of waste, warehousing and inventory management are often invisible, the real value of the Life of Title solution is really only apparent to a CFO whose job it is to worry about poor use of financial resources. While the Life of Title strategy is working today for EB customers, Edwards sees this model as the future for the industry. The supply chain from publisher to end-user will be more tightly integrated and virtual, micro or zero inventory will be common phrases. Most transactions will be done over the Web, with invoicing "rolled up" each month rather than dragged out as it is today. Total cost will be the key driver and performance metric on all sides of the supply chain, with cost savings shared by partners--publishers and manufacturers. But suppose you redefine book manufacturers? This Ain't Your Corner Bookstore The last stop in the book supply chain is the bookstore, and as it does for so many other products, the big-box or category-killer retail format works well for books. Borders and Barnes & Noble dominate the market, with the latter ranked as the number one brand and market leader and number two specialty retail website. B&N also publishes books under its own imprint, including classic works and those of new authors. To make their system work, B&N presently has multiple warehouses that can deliver books to most stores--or direct to customers--in the U.S. within three days. One of the keys to B&N's success is selection--and knowing what sells--all the way down to the store level. Like any top-tier retailer, B&N knows to the last inch of shelf space how well each title is moving. This helps optimize inventory levels to keep the most profitable titles on the shelves. That's great at the store level, but to deliver books within three days to stores or direct to customers, it means warehousing. Now think back to RRD's IMS or Edwards Brothers' Life of Title models. If you know the rate at which a given title is selling, you can produce just enough copies to meet demand. For a bookseller like B&N, this minimizes warehouse space-- which could very well be turned into book production space. At the end of the supply chain, the retail price of the book doesn’t change but the costs of delivering that book drop dramatically, and profits go up. Stretch the model out further and what is now a leader in bookselling becomes a publisher, manufacturer, retailer, and distributor. Stretch the model out further and what is now a leader in bookselling becomes a publisher, manufacturer, retailer, and distributor. That's just one snapshot of where books are likely going at the retail level. And B&N is not alone in pursuing this strategy. Amazon.com has acquired its own digital book publishing operation and other models are also in play. How's YOUR Book Coming? Quincy Allen, president of Xerox's Production Systems Group noted that surveys by the Jenkions Group indicate that some 80 percent of people believe they have a book inside them, waiting to see the light of day. Not many are likely to be the next Harry Potter series or upstage John Grisham, but the urge to write a book is present in many people. And the pent-up desire has an outlet, thanks to technology. It is these aspiring authors who write and publish and sell their works through independent publishers like Lulu and Trafford, both of which were at the conference. Both firms offer book production and primarily rely on the Web as the distribution channel, but that's only for the moment. I believe we'll soon see a few shrewd book marketers begin providing the infrastructure independent authors need to get their books into the likes of Barnes & Noble, Borders, Wal-Mart and more. And if B&N or Amazon can produce the books on demand, more authors have a way to reach the market. Monumental Crossroads " The book publishing and printing business stands at a monumental crossroads," said Allen. "Distribution models are changing in trade titles, overall demand continues to decline in professional / university and the baseline product in education is undergoing fundamental change. Publishers, book manufacturers and retailers are the leaders are tasked with making decisions that will allow their organizations to deal with these changes--and move forward in a profitable fashion." This was why Xerox sponsored this Publishers Thought Leaders Conference, which was long on information and examples and short on product pitches. In fact, Allen was the only Xerox exec who addressed the audience at any length. This meeting was not about products, but about the changes facing the book publishing industry and how they are being addressed. Joining the other presenters were Xerox customers who have implemented book manufacturing solutions that are bringing revenue in today. Joe Makarewicz, executive vice president of Offset Paperback Manufacturers in Dallas, Pennsylvania described how OPM has partnered with equipment and IT partners to implement digital publishing solutions for educational, healthcare and financial services customers. For more on OPM, read the story I wrote about my visit there earlier this year. John Lacagnina, president of ColorCentric in Rochester, New York explained how his company's Intellectual Property Manufacturing System (IPMS) has shortened the supply chain for creation, production and fulfillment of titles. In fact, ColorCentric, produces many of the books coming out of Lulu.com. I've been there, and it is one lean, streamlined operation. Christian Schamberger of Mercury Print described how Mercury is supporting educational publishers with shorter runs of books (often in full color), customizing texts, re-binding books, and reducing inventory and costs. Let me tell you, this conference was worth the trip. Book publishing is on the brink of significant changes and digital printing is going to be a key part of new business models across the industry. And as that happens, book printing will, as Bill Lamparter of PrintCom points out, ". . .be the first area of printing in which digital will account for more than half of the total volume." Whether that takes five years, or even ten, the change is coming.