Will HarperCollins Be Left in the Dust as Consumers Move their Libraries Online?
HarperCollins Publishers, a subsidiary of News Corp, is the second largest publisher of consumer books in the world with a print and digital global catalog of more than 200,000 titles1. Book publishing accounted for approximately 20% of revenues for News Corp at $1.6 billion in 2016 and digital sales accounted for approximately 19% of this revenue2. While digital sales have remained roughly constant for the past few years as a percentage of total revenue for HarperCollins, the firm has expanded its digital offerings significantly, as the number of publications offered in digital format has increased from 30,000 in 2013 to 100,000 in 20163.
HarperCollins has consistently been at the forefront compared to competitors in responding to the digitization trend in the publishing world. In response to the advent of e-reader devices such as the Kindle, iPad and the Nook, HarperCollins has ensured that nearly all of its new releases as well as most of its older catalog of titles is available digitally. In 2013, HarperCollins also launched a “digital-first” series through its romance segment Avon that releases one new title each week in digital format4. HarperCollins has also been a first mover in engaging with new subscription-based distribution models, such as Oyster and Epic!5. Oyster launched in September 2013 and charges $10 per month for access to their library, where users have access to an unlimited number of titles. HarperCollins was the first of the five largest publishing houses to sign on and was later followed by Simon & Schuster6. For the time being, publishers such as HarperCollins have been able to adapt to digital disruption by migrating their content to a new format and engaging with new models for distribution, but have not changed their business or operating model substantially in order to achieve this.
As the gatekeepers of content produced by authors, HarperCollins still relies primarily on brick-and-mortar locations and now electronic channels to distribute their content but do not directly interact with consumers. With Amazon, Oyster, Barnes & Nobles, e-readers and smaller book stores, HarperCollins continues to provide content, but is not directly involved in the process of reaching consumers and the changing operating and business models of the distributors of this content. This will likely change as the distributors move into creating their own content, similar to shifts made by Netflix and Amazon in the video streaming industry from distribution to content creation. Distributors such as Amazon and Scribd are moving into the content creation space, now acting as direct competitors to HarperCollins and other publishers as they integrate vertically7. This poses a significant threat to HarperCollins, as their business model relies on being able to source content from authors and bring it to market through distributors and their operating model has focused solely on building relationships with distributors, not with the ultimate end user of the content – the consumers buying and reading their books.
In response to these developments, HarperCollins has started to venture into the direct-to-consumer market. In 2013, the firm launched CSLewis.com and Narnia.com in order to sell the works of author C.S. Lewis directly to consumers, bypassing the distributors8. This has been an opportunity for HarperCollins to interact directly with consumers and allowed them to start gathering data on consumer preferences and behavior that previously was only available to distributors9. In order to stay competitive and continue to support their business model of providing relevant content, HarperCollins needs to stay on top of what consumers want to read and not allow distributors to control access to this data and replace publishers by starting to generate their own content. The launch of these two websites is a positive start for HarperCollins, but they will need to continue to invest in this direct dialogue with consumers in order to remain relevant.
In order to achieve this dialogue, HarperCollins will need to continue building out websites directly targeting consumers, build out teams that can gather and analyze the information that is generated from these consumers and build out distribution channels to reach these consumers. The shift into digital publishing makes the distribution aspect easier from an operating perspective, as HarperCollins can distribute e-books to consumers in much the same way that they distribute e-books to sites such as Amazon already. However, in order to serve consumers who want to purchase print books, Amazon will need to make the decision to either build out a distribution team to ship books directly to consumers, or partner with a logistics company to handle this distribution now that they are not delivering mass quantities of books to retail locations but rather shipping directly to people’s homes. Making this investment in direct to consumer distribution will be important for HarperCollins going forward to stay relevant in a world where books are moving off the shelves and onto computers.
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1News Corp, Annual Report 2016, p. 9, http://files.shareholder.com/downloads/AMDA-1ZMCJ9/3237472482x0xS1193125%2D16%2D679975/1564708/filing.pdf, accessed November 2016.
2Ibid., p. 51-52.
3Ibid., p. 9; News Corp, Annual Report 2013, p. 11, http://files.shareholder.com/downloads/AMDA-1ZMCJ9/3237472482x0xS1193125%2D13%2D373501/1564708/filing.pdf, accessed November 2016.
4 News Corp, Annual Report 2013, p. 11, http://files.shareholder.com/downloads/AMDA-1ZMCJ9/3237472482x0xS1193125%2D13%2D373501/1564708/filing.pdf, accessed November 2016.
5 Jack Smith IV, “Freshly Minted: For This Book Subscription Platform, The Publishing World Is Their Oyster,” Observer, May 23 2014, http://observer.com/2014/05/freshly-minted-for-this-book-subscription-platform-the-publishing-world-is-their-oyster/, accessed November 2016.
6Ibid.
7 Ellen Harvey, “Publishers Must Embrace Data-First Thinking,” BookBusiness, 4 March 2014, http://www.bookbusinessmag.com/post/publishers-must-embrace-data-first-thinking/#, accessed November 2016.
8 Ibid.
9 Ibid.
Thanks for posting, Majken. It will be interesting to see whether HarperCollins’ operating model will need to change significantly to manage a multitude of direct to consumer sites and data collection on behalf of different authors. I’m also curious whether content creation for books is comparable to content creation for on-screen shows and movies – that is, whether Amazon’s vertical integration into book content creation is a plausible threat, seeing as books are inherently a different creative endeavor (hinging on the success of one person) than film and TV (where large teams and production companies are involved).
Thanks Majken! It was really interesting to learn how Harper Collins is thinking about their competitive advantage to digital distributors. Bruna raised a good point – I do wonder if Amazon really will pursue content creation for books. And if so, what is the incentive for an author to publish through Amazon rather than traditional publishers like Harper Collins?
I also have concerns with Harper Collins’ attempt to build out ecommerce sites for various authors. It seems cost intensive to build and maintain, and it’s hard to imagine that a consumer would think to purchase a book through cslewis.com rather than through Amazon. My recommendation would be for them to take an entirely different approach, and offer an entirely new value proposition. For example, Harper Collins could create a digital platform for high school students across the country to engage in discussions / debates about books. Schools would pay a subscription fee for this platform, earning Harper Collins a new source of revenue.
Thanks Majken! I think if Harper Collins is going to pursue sales of books directly to the consumer, then they need to have some differentiator that will allow them to attract customers from more established B2C sellers like Amazon — and in the end, I think the answer is bringing content creators in-house. In the end, I think it comes down to incentives for authors to publish in this way. For example, Amazon offers a platform for up-and-coming authors to publish, but terms are heavily in Amazon’s favor if the books ever do make it to the publication stage. It seems to me that if Harper Collins can sign some of these authors to contracts with favorable terms, then they may begin to build a small in-house content creation group that could help them to get some momentum going. I’m interested to see how this plays out!
Super interesting! As I read your post I could not help but thinking if maybe the digitization trend requires publishers to re think the idea of what a “book” is. Many other content forms have undergone a transition as they moved from the physical to online. Before the internet, consumers read newspapers – however the majority of consumer time online is spent reading new native content formats such as blogs, medium posts and tweets. Is the idea of a 200+ page monolithic book past its prime? Should books be written as standalone chapters that themselves can be broken up, searched and sold just like an episode of TV on iTunes? Perhaps these new online “native” formats will empower the new direct to consumer distribution models you discussed.
Interesting post Majken. I really liked the fact that the company is trying to sell directly to consumers, as they can get more detailed info on what their customers want. Also by cutting the distributors, I imagine they can lower prices to try and increase consumption. However, as many of the other comments, I have concerns on how Harper Collins will differentiate itself from companies like Amazon. Maybe reducing prices? Also, do you think its better to have separate pages for authors or books instead of one centralized store?
In addition, I also wonder how does e-reading (Kindle or others) affect revenues of companies like these given that prices for e-books are much lower than for printed ones?
Thanks for the post Majken! I thought the approach for HarperCollins to go directly to consumer was very interesting, and I think will definitely help them stay on the cutting edge of consumer demands. I have similar concerns to Ben about HarperCollins entering the B2C space in distributing e-books directly to consumers, as I think it would be difficult for them to compete with an established platform like Amazon for purchasing e-books. In terms of the threat of Amazon entering into content creation in addition to distribution, I was generally surprised by that move, although it does parallel entry of digital streaming companies into original video content creation. I would imagine that HarperCollins adds some additional value to the supply chain other than content distribution that would allow them to maintain a competitive advantage in the space. Perhaps they have developed relationships with content producers/authors and editors, or have developed skills critical to identifying best-selling content? If that is the case, it might make sense for HarperCollins to focus on adding value in the selection of content instead of attempting to try and compete with a behemoth such as Amazon in distribution. I do agree, however, that it is important for them to connect directly with customers, if only to collect data on genre and topic interest trends.