Publishing noob

Notes and observations from the world of book publishing

Archive for the category “E-books”

iTunes Partner Program for publishers aka iBookstore

I was happened to be involved in the process of acquiring an publisher account for the iBookstore since they are now expanded to Finland as well. And boy it was not was easy. First of all, you cannot use your existing Apple Developer Account, but instead use another one already registered in iTunes. For this I had to use my personal account.

Another woe is the requirement to obtain an U.S. Tax ID called Employer Identification Number or EIN even for foreign entities that have no business in the United States. They use it for the sign-in process and it has nothing do with actual taxes, since all payments will come through Apples subsidiary located in Luxembourg. The process took quite a while, since foreign entities cannot receive the EIN instantly over the phone. Not to mention faxing documents all over, that is so 90s.

This makes it interesting for European publishers, since in Luxembourg e-book taxation is way lower than most of the EU countries. I have wrote about this European taxation issue earlier. Seems like now in things are happening around this issue, since Luxembourg will drop the VAT rate for e-books to 3% and in France it will drop to 8% from the earlier 20%. Amazon.co.uk is registered in Luxembourg, so we might even see this reflecting to the e-book prices. In any case this means better margins for the authors and publishers.

There was also an interesting set of questions presented for the publisher during the registration process. They asked non-binding information about the amount of active titles in the print catalog, how many e-books we have published so far and how many e-books we have not published, even though we have the rights. This was probably just to give  some idea about the publishers potential, but probably also to promote their Apple-approved aggregators who do ePub conversions and so on.

Now after I have registered to the Apple AppStore and iBookstore, I would ask Santa that those backend services would have the same great UX as in Apples consumer devices.

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Taxation on ebooks

One thing I completely forgot to mention in the post “Why is Europe lagging behind?” was the complexity of taxation for e-books in the EU. Here in Europe, we have this thing called Value Added Tax. Basically the value added tax is added to the price of the product and then the seller remits the tax back to the government. The difference to sales tax used in the United States is that the in VAT the consumer ends up paying the tax.

For historic and cultural reasons, printed books and newspapers have been granted a lower VAT rate in almost every EU member country. Here in Finland, for newspaper and magazine subscriptions the VAT has been 0%, where books have 9%. Ministry of finance has proposed that the VAT for newspaper and magazine subscription should be set to 9% as of year 2012. Some magazine publishers have to cope with this situation, some by laying off their staff. Google Translation for this finnish news piece is poor, but basically one major finnish magazine publisher has to layoff 80 people out of 500 because of this new increased VAT.

The strangest thing is somehow it has been decided in the EU that an e-book is “an electronically transmitted product”, which means that it is assigned a higher VAT than the printed version of the book. Below are examples of book taxation in some European countries:

Country Printed VAT e-book VAT
Finland 9% 23%
Belgium 6% 21%
France 5.5% 19.6%
Germany 7% 19%
Ireland 0% 21%
Spain 4% 18%
UK 0% 20%

Personally I think it is ridiculous that basically the same product in different delivery method has been punished with higher taxation. Specially in value added taxation, where the buyer ends up paying the difference. No wonder consumers are complaining about the high prices of e-books compared to the printed counterparts.

I have not followed this issue too much lately, but The EU Director General for Education and Culture, Jan Truszczynski, has commented in the march of 2011:

We believe content should be taxed the same way, whether printed or in tablet.

I cannot agree more. Different book publisher organizations here in Europe have said for a long time that is an issue that needs to be tackled.

Just for curiosity I tried to find out information about how this is handled in the United States. Seems like there the problem is not the unfair taxation, but rather than the complexity, since sales tax can vary by county and municipality. So if Europe is lagging behind in e-book adoption, so are the tax rules on electronic products in this new e-commerce era where geographical location should not even matter that much.

I feel lucky that I am an engineer, not a tax accountant.

Spotify for books

These discussions around subscription based business models have boomed lately. Customers have been already rejoicing around Netflix and Spotify which satisfy all their needs for movies and music for a fixed monthly payment. Personally I just love Spotify. For a mere 15 euros per month, I can listen to good choice of artists as much as I want. They also have put effort for usability, so all the songs are also available in offline mode for my phone. So no pesky DRM’s to hinder my user experience. I would probably go for Netflix too if they were operating here in Finland.

It is quite easy to understand why some people prefer subscription based models. They like predictability of the fixed monthly fees and the fact that in some models you can engorge the products in all-you-can-eat style. It is also pretty convenient, there is no need to whip out that credit card every time you want to do a micro scale transaction. So in another sense, people including myself are insecure, greedy and lazy. And businesses are abusing this fact. For them it also means more predictable business with steadier flow of income and some motivation to actually develop the product. Because buyer can just cancel the subscription if he/she is not happy with the service received. At least I hope it is so.

From here on, lets concentrate on subscription models in publishing. This week it was being rumored that Amazon is probably going to offer a subscription based service for its Prime customers. Also an interesting spanish version of the same idea by 24symbols have just popped up.

Finnish publishing company Otava launched this kind of service “Luekirja” or “Readbook” with a HTML5-based reader earlier this year. This decision to create their own reader  is probably made to avoid Apple/Android app market royalties. Otava has created a pricing model where you can buy one month subscription for 20 euros per month with a limit of three books. Another option is three books for two months for 25 euros. I have not tested out the service for a while, but in the beginning it was filled with technical problems. But kudos to them for at least trying. It would be interesting to know how it has proven to be business wise.

So When you think about media consumption there are tons of subscription based services selling magazines, newspapers, movies and music already out there and doing just great. Now when you think about it, we have had these so-called book clubs for decades here in Finland. Now e-books and online reading devices just make the delivery part now so much more cost-effective.

This is not without implications too, this will need a lot of work on the publishing contracts and how the revenue is trickled down to the author. There has been some nasty comments around Spotify, like Lady Gaga getting played over one million times and getting royalties for 112 euros. As you can imagine, a lot of artists then quickly pulled their songs from the service. But I have not heard such news for a while, but seems like there is still a lot of debate around this subject. I think if done properly and in honest sense, it is possible to create a subscription based model, where all three major participants (service, publisher, author) benefit from it.

I have no doubt in my mind, that there will a Netflix or Spotify for books. But by whom and when, that is the question. Amazon has a pretty good chance, unless they mess it up somehow.

Why is Europe lagging behind?

I think most of you have heard the news from Amazon who announced earlier this year how they are selling more e-books than hard covers. Of course it is still small potatoes in the big picture, but I think the trend has been set in a pace that surprised most of us. When reading these kind of news in a country like Finland I feel that we are lagging so much behind. If you look the sales statistics from the Finnish Book Publishers Association, digital products (including audio books) represent only around five percent of the total sales of 260 million euros.

There are many reasons for this situation. First of all if somebody asked me six months ago about buying an e-ink based reading device, I would say no unless the person was consuming a lot of books written in english. We are a small language group with only around 5 million people, so the big sales potential is lacking. The amount of titles is finally gotten to the point where it is actually justified to buy a reading device purely for reading books. I think the situation around the variety and amount of titles has gone way better, but I think this is still an issue to be tackled. I think the idea of producing e-books aside with the printed versions is now generally accepted in most major publishing houses.

Second most important thing is the lack of key players like Amazon and Barnes & Noble back in the States. They have huge R&D resources to develop stuff from the reading devices to a complete ecosystem around it. My hats of to Wernel Vogels (CTO of Amazon), who is said to be the man behind the cloud services. Here in Finland we waited and waited to see what were the results of the reader and format wars. Now that the dust is settled, we are just starting to build things when others are already sipping their ice tea in the porch. I think everybody acknowledges that in the European businesses are more likely to play it more safely than their oversea counterparts where risk taking and possible failing is generally more accepted. Small players in Europe should have the edge on being innovative and flexible, but that is not actually happening. Instead we see big players dominating the publishing business.

Also one peculiar thing has happened in Finland. Major mobile and broadband operators (Sonera and Elisa) who used to provide just the infrastructure are now very keen also selling content which is delivered through their wired and wireless connections. Elisa for example has set up an online service which sells only digital audio and e-books. I think it is an interesting concept, but I wonder how sustainable it is. But at least they have the guts to build the infrastructure and applications to support the sales of digital products. Of course this is upsetting some old players in the value chain, like traditional brick and mortar chains.

To sum it up, there are still lot of unanswered questions and the whole publishing industry is struggling how to monetize digital content. I have been following the publishing industry for such a short time, that even I do not have a clear vision who is going to be the winner here. But what comes to books in general, I do not see them struggling with the same problems as other content types like news and magazines. Books have managed to obtain a steady state in the consumers media usage starting all the way from the Gutenberg days. I think e-books just a different format aside with hard covers, paperbacks and audio books. Just enable readers to find relevant and interesting books and let them choose in what format they want to consume them.

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