Divergent books

Despite perceptions that the publishing business is troubled, or even facing the same tumult of the music business, the CEO of HarperCollins said that the growth in digital book sales were improving margins and even royalty rates for authors, and even creating ways to test variable pricing for e-books once they are released.

At the UBS Global Media and Communications Conference on Wednesday, HarperCollins CEO Brian Murray said that the industry was “not going the way of the music business,” with digital publishing translating into greater consumption of books purchased, he noted. He said there were “very very positive trends” in the digital ecosystem, even though there was a time when “we didn’t know where we were going to end up.”

The publisher counts Neil Gaiman, Amy Tan, Rick Warren and the Divergent series (pictured above) among its top selling authors and titles.

The company, a unit of the newly spun off News Corp., is testing what he called “dynamic pricing,” where prices of ebooks can be changed “daily” to increase revenues and royalties for authors, as opposed to the print side, where prices are set on the book itself.

Murray emphasized blooming growth of digital titles. Ebook sales have grown from $100 million in the first quarter of fiscal 2010 to $375 million in the second quarter of fiscal year 2013, a 275% growth rate, according to the American Assn. of Publishers. A PriceWaterhouseCoopers study shows ebooks commanding 14% of the market in 2013, rising to 18% next year and 23% in 2015. Overall, the global market for books is projected to remain “steady.”

Murray also said that even physical retailers could see business stabilize, noting the recent improvements for independent booksellers.

While he called Amazon as a “frenemy” — “they can be very difficult to negotiate with” — he said that they have been encouraged by the competition in the ebook retailing space, with 5 major sellers emerging. Five years ago, they thought there may be only one. “It is nice to know Google and Apple are right there nipping at their toes,” he said.

Moreover, he said, HarperCollins has been “less dependent” on Amazon because it has a significant Christian publishing side, where consumers have been slower to adopt digital books.

Along with expansion into international markets, HarperCollins has been able to cut costs, noting that it has reduced the number of book warehouses from nine to four, Murray said. He said that ebooks commanded 22% of net sales globally through its most recent quarter, compared to 15% a year earlier. Sales of general ebooks books in the U.S. were 35%, compared to 29% a year earlier. He cited international markets like India, with the widespread adoption of smartphones as the platform for ebook reading.

He said that authors are benefiting from improved royalty rates. Citing industry figures, he showed a “hypothetical” print royalty of 85 cents per unit, compared to $1.25 for ebooks, with lower costs.

“While this business is a complex business, we are sure authors are benefiting quite significantly as the business shifts from print to digital,” he said.

In the most recent quarter ended September 30, HarperCollins reported revenue of $328 million, from $352 million a year earlier. Segment earnings before interest, taxes, depreciation and amortization was $43 million, from $40 million a year earlier.

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