I had promised that this blog will have more of an international focus, and that hasn’t been the case to date. My excuse is that most of the companies and events driving change have been American, and the US is far ahead of the world in terms of e-reader and e-book adoption rates. And it’s where the rest of the world is headed at greater or lesser speeds.
At this point we have covered a lot of the basics, so it’s time to take a little trip around Europe to see what’s going on in some of the larger book markets. If you find any inaccuracies (there is a lot of conflicting information out there, and some market have very poor data), please share it in the comments below and I will update this post.
The European Market
I will only talk about the four largest book markets in Europe (plus Ireland), but some things are common to the whole region.
1. VAT (sales tax which varies from country to country) is a major issue. For the EU, there are two rates. The low rate includes daily necessities like milk and newspapers, and other goods for social reasons like print books and children’s shoes. The higher rate includes more luxury items like televisions, electronics, and services like legal fees. While the EU allows member states to apply a low or no tax rate on the sale of printed books, e-books are erroneously classified as a “service” and are thus charged at the higher rate. Even though the EU issued a ruling in 2009 allowing member states to reduce the tax rate on e-books, few member states have followed suit.
2. The e-reader market is very competitive, but at an early stage. Apple are leading Amazon in some sectors, and Sony made early moves in others, but overall adoption rates are too low to give any guide to the future.
3. E-books sales, while increasing, have not seen anything like the explosion in the US. There are a number of reasons for this including: (a) relative price of e-readers; (b) high taxes on e-readers; (c) high taxes on e-books; (d) Amazon has a smaller share of the overall book market because of higher freight costs, taxes, poorer overall broadband/wifi infrastructure; (e) cultural differences/publisher resistance/political interference. Despite this, the market is growing fast.
4. The Kindle is only officially available in the UK. Customers elsewhere can order it from the US, but it comes shipped with a US plug and there are significant delivery costs.
5. Small publishing companies and self-publishers are often barred from distribution channels.
6. European self-publishers have some barriers to entry that don’t exist in the US. They get paid slower by Amazon, they must get clearance from the IRS or 30% of their income is withheld, they are often taxed twice on their earnings, Amazon pays lower royalty rates on European sales (except for the UK), and B&N don’t allow them to list at all (it can be done through Smashwords, but this costs, and sales aren’t as high). This means that in non-English languages, there are far less self-published e-books available, which is a factor in e-reader adoption.
There are four local European Amazon sites: Germany, Italy, France and the UK. Customers have the ability to order from the US site, but some titles are restricted. When ordering e-books from the US site, VAT is applied to some titles but not others. Their seems to be an international surcharge (of up to 2 Euro) applied to some titles, but not others. Amazon does not release information on this pricing policy, so it is not clear if this is deliberate and Amazon is absorbing these costs or not.
The UK is about a year behind the American digital market. They have their own dedicated Kindle store, and it’s very easy for UK author to sell their e-books in the US market and vice versa. While Apple have made moves into the market here, Kindles are selling well too. Overall, Kindles are still the preferred e-reader, but Amazon is rapidly losing market share.
E-books have captured a 5% of the market so far, but some publishers (such as Quercus) are seeing far higher rates of digital uptake than others, mostly driven by bestsellers.
Printed books are currently taxed at a zero-rate and e-books are taxed at 20%. There have been moves to reduce the tax on digital work, but no legislation has been adopted to date. While this high tax rate is undoubtedly affecting sales of e-books, growth is speeding up and 2011 is expected to see a surge in e-book numbers.
The runaway success of self-published UK author Stephen Leather (who sold over 40,000 e-books in December in the US alone), at very low prices, has led to some consumer anger over e-book prices from the large houses.
Since the abolition of the Net Book Agreement – a fixed-price agreement between British publishers and retailers – supermarkets such a Tesco have become huge players in book-selling, and a lot of book-buying has moved online, which has led to the closure of several UK chains and the diversification of existing chains into other products. Waterstone’s, the largest book chain in the UK has been in financial trouble for some time, and indie bookstores are under constant threat of closure.
The Agency Agreement is being investigated the Office of Fair Trading (a government body) who are expected to rule shortly on whether this agreement is illegal. If it does so, Amazon will be free to discount the price of e-book as much as it likes, selling at a loss if it chooses to, which will result in a huge depression in UK e-book prices, and an increase in Amazon’s market share.
The Irish market tends to track the UK market. Most successful Irish authors are published by UK (or US) publishing houses, have UK agents, and sell around 80% of their book there. While Irish bookstores do stock a significant range of Irish-published and Irish-interest books, the vast majority of sales are of foreign titles. VAT on e-books is 21% and scheduled to rise to 23% by 2014. While there is currently zero-rate on printed books, there are plans to abolish this and raise it to 23%.
France is slightly behind the UK in e-book numbers, and Apple is on track to capture significant market share of the e-reader market. French VAT on printed books is 5.5% and the rate for e-books is 19.6%, although there is a proposal to reduce this to the lower rate in 2012.
The French parliament recently passed a law preventing retailers from discounting e-book prices by more than 5% of list price (which is set by the publishers). In a linked move, French publishers have banded together to create their own e-book retailing site. Whether this will be able to capture significant market share is doubtful.
On March 1 of this year, the European Commission (which doesn’t allow price-fixing or collusion) raided the offices of several French publishers to investigate for illegal e-book price fixing. However, it has long been law in France (as well as Italy, Germany, and Spain) to fix the prices of printed books. The EU have since announced that the investigation has expanded to several countries. One to watch.
The respective tax rates here are 7% on printed books and 19% on e-books. The German e-book market only accounted for 5.4% of sales in 2010, but the world’s third largest book market is expected to have a breakthrough in 2011, with 40,000 titles now available.
Smaller publishers have greater access to the market here, and have seen strong growth in digital.
Italy & Spain
Until summer 2010, there wasn’t even an e-book market in Italy and Spain to track. Spain charges 4% tax on printed books and 18% tax on e-books. The European Commission recently knocked back a proposed law to bring in a standardised tax rate of 5.5% for all books. The Spanish market has huge potential, as it encompasses Spain, and all of Mexico, Central America and most of South America. Spain’s Big Three publishers have announced a common platform to sell e-books.
Italy’s rates are 4% and 20%. The Italian market is very small, with only about 7,000 titles available. Italian publishers have come together to provide a common retailing site where customer can purchase e-books. While growth over Christmas was 400%, this was from an extremely low base.
In both markets, smartphones are very popular, and come become the e-readers of choice for many consumers.
Amazon may have missed a trick in Europe by only officially launching the Kindle in the UK. Germany is the third largest book market in the world, and the potential in the Spanish-language market is massive.
This has allowed Apple to make inroads with the iPad and the iPhone, and smartphones in general are poised to be big players in certain markets.
Kobo have made a big-play internationally. They already have locally-merchandised English-language stories in Canada, the UK, Hong Kong, New Zealand and Australia. International versions of their wireless e-reader will soon be available across Europe. In May they will launch local stores in Spain and Germany, to be followed by The Netherlands, France and Italy.
While the VAT rates have slowed growth across Europe, growth is still occurring, and speeding up, in all markets, and pressure is beginning to emerge to reduce the high tax rate on e-books.
European publishers have had extra time to prepare for all these changes, but they haven’t used it wisely. There is a huge fear of piracy amongst European publishers, but instead of combating this with cheap e-books that are easy to purchase, they have restricted access to the market by shutting out small publishers, have been slow to bring out digital versions, and have fixed high prices.
In short, they have doubled down on all the mistakes that US publishing made, even without Amazon breathing down their necks.