Excitement of this kind is quite rare in the publishing industry. The last came a few years ago when Random House took over Penguin. And now, Amazon’s buyout of Westland has given the industry an interesting conversation beginner.
Amazon had signalled their intent in February 2016 when they acquired a 26% stake in Westland from Trent. It was known at that time itself that Amazon was not in this deal for a minority stake. Those who read the deal closely knew that at some point in time, Amazon would take over the company. That it would happen so soon (within six months of the initial acquisition) was something no one really anticipated.
The acquisition can only be good for Westland. They move from being owned by Tata Trent – someone who can at best be called “a reluctant owner” – to someone who will want to grow Westland into a premier publisher, maybe one of the largest in India. Westland will now get the investments that they have always had to fight for, often in vain. And they will get the muscle to compete in the market and dominate.
Till now they have been successful because they have had big names publishing with them. Now they will dominate because they will have scale, money, publishing bandwidth and, most importantly, Amazonian muscle power. However, the fact that a publishing house that boasts of some of the biggest names in the industry should get sold raises a question in itself.
Whenever such a high profile acquisition happens in any industry, there should be some introspection, some questions asked. No one is asking these questions in the publishing world today. For they involve commerce. Money. And talking blatantly about money in publishing is “just not done”.
Is publishing a business? For some, it surely is. For the writer it may be an art (or craft as some would say), but for the publisher it is surely a business. No one is in it for love and fresh air. Yet, in publishing, no one makes “enough” money – the key word being “enough”.
Publishers keep complaining that they don’t have money for advances, for marketing, for acquiring new titles, etc. Authors are at the quintessential bottom of the pyramid – at least, in their minds they are. Distributors never stop complaining. Bookstores have gone a step further and downed shutters.
So where is all the money going? First of all, is there as much money as people make out to be? Time to do a reality check.
Any business becomes attractive if:
- There is an opportunity to scale up.
- The business is profitable.
- The valuations in the space are attractive.
- The business provides some other intangible benefits, like recognition, stature, status, etc., to the promoters.
Let’s see how English trade publishing (non-academic fiction, non-fiction, etc.) in India stacks up on these parameters.
Scale
In a country of 1.2 billion people, one would expect serious scale. India has one of the largest English speaking populations in the world. Hence it is not unreasonable to expect publishing to be a big business. When we talk of the publishing topline in India, a lot of numbers are thrown around. Rough estimates put the total turnover of the Indian publishing Industry at Rs 26,000 crore.
Most of this, of course, pertains to academic books and education-related publishing. Educational publishing is an extremely fragmented – with over 9000 publishers – low-margin and opaque industry. So, trade publishing constitutes a minuscule portion of this.
But just how minuscule is that?
The Nielsen Quarterly report of book sales in the July-Sept 2016 quarter estimates total sales at Rs 144 crore. This is what consumers paid for the books sold in this period. If we extrapolate uniformly from this figure for all four quarters, that would translate into annual sales of Rs 576 crore. It is believed that Nielsen numbers represent only 50% of the market. So a rough estimate of total sales would be Rs 1150 crores.
Now, not all of this comes to the publishing companies, since the retailer and distributor keep some of the money. Assuming that even two-thirds goes to the publishers – and some companies say the proportion is lower – we’re talking about a collective topline of Rs 750 crore.
An industry of some $110 million, then, is hardly anything to write home about. If you’ve ever wondered why bestselling international authors – except Jeffrey Archer – don’t have India on their book promotion circuit, here’s the answer: the scale – or the lack of it.
Is there an opportunity to scale up? On paper (pun unintended), yes But in reality, the needle has not moved much over the years. Book sales have stagnated.
Profitability
Publishers lose money on most books published in India. So, 20% of the books published pay for the 80% of the books that don’t make money. This is true for the entertainment business in general, but the key difference in publishing is that the 20% of the books that do make money don’t exactly have the publishers rolling in gold.
In fact, for multinational publishers – and even some of the local ones – a high proportion of revenues (70% or even higher) come from international imports. Here, losses on account of forex fluctuation come into play.
In general, the high costs of distribution and marketing of books eats into profitability. And what kills it is the fact that the publishers never get paid on time. They often get their dues as much as six months after the books have been shipped to the distributors.
What’s more books are now sold to distributors on a returnable basis – which means that the distributor has the right to return his unsold stock and only pay for what he has managed to sell. And then of course there are inventory carrying costs, logistics, printing, advances, etc., most of which are rising. And we are not even talking of fixed costs, office rentals, salaries, and so on.
But the price of books has not kept pace with the rising expenses. When my first book, If God was a Banker, came out in 2007, it was priced at Rs 195 and the publisher’s topline was roughly Rs 137 a copy. (Discounts to retailers were quite reasonable those days).
Today the book is priced at Rs 295, but the publisher’s revenue for every copy is approximately Rs 148. An increase of Rs 11 per copy does not even cover inflation.
So, profits aren’t particularly high, with the margins being 6-8% at best. If the top five publishers – Penguin Random House, HarperCollins, Hachette, Rupa, and Westland – command about Rs 500 crore between them in topline sales, their collective profit, then, is between Rs 30 crore and Rs 40 crore.
To put things in perspective, Penguin Books came to India in 1987. HarperCollins has existed as joint ventures with different partners (Rupa and the India Today group) and then on its own for many years in India. Rupa just completed its 80th year, and Westland started life in 1962, as East West Publications. If, after all these years in existence, this is the kind of money the publishers make, it does tell a story.
Valuations
This is the culmination. How can one expect high valuations in an industry with low profitability and limited opportunities to scale up? This explains why Amazon bought Westland at a reported Rs 40 crore only – inclusive of the Rs 9.5 crore paid in February 2016. That translates into a valuation of about two times the revenues. Isn’t that a pittance for a company that has been over five decades in business and publishes some of India’s most successful authors?
Applying the same yardstick, the other four in the top five could actually be purchased at a collective price of less than Rs 1,000 crore. For businesses which are as reputed as these publishing houses are, for an industry which brings together huge intellectual assets, for an industry that documents cultures and the imagination, this is a trifle.
This low growth and lack of valuation in brings to the fore another challenge. The industry does not attract investments. Private Equity funds stay away from traditional publishing. Hence, all growth has to be necessarily funded by internal accruals.
Yes, in the past, there have been multiple investments by Everstone and IFC in S Chand & Co, but that was on the back of a solid educational books business. Juggernaut too, was started with the backing of Nandan Nilenkani and a few other investors, but I am sure they invested in Chiki Sarkar, whose aura and reputation more than compensate for the lacklustre nature of the upublishing business. Lack of valuations are also preventing the entry of new players.
In any industry that does not attract new players or investments, innovation takes a back seat. That is what is happening to the publishing industry today, notwithstanding the efforts of a Juggernaut and its digital delivery.
Recognition
In private conversations, at least one publisher has expressed to me the desire to walk away from this trade. The same publisher also expressed frustration at being unable to do so, for the business has given him an identity, a recognition, which no other trade would have.
This is a fact. Publishers enjoy a stature in society which professionals from other industries don’t have. They enjoy access to powerful people, celebrities, and wield the kind of influence which not many can boast of. This can be addictive. But this can’t be the only reason that anyone remains in publishing.
Publishing as a business cannot justify its existence if one were to look at pure commercials. There are better ways for businesses to make the same money that publishing companies do. There are easier ways to build much higher valuations.
I agree that publishing gives wings to a passion. It supports an art which is extraordinary in more ways than one. It helps define cultures. It helps entire generations broaden their perspectives and live life differently. It employs a number of people directly and indirectly, and hence supports society. All this cannot be measured in terms of money alone. But somewhere deep down, I feel that unless we figure out a way to make the entire publishing eco-system richer, we are fighting a losing battle.
All this boils down eventually to one parameter: sales. If we figure out a means to increase revenues for publishers, things will fall into place. Profits will rise, valuations of publishing houses will go up, more investors will flock to this space, publishers will be able to pay more to attract talent, create more readers, and bookstores will be back in business. The ecosystem will benefit.
What we lack in India is not quality writing, talent, intent, or ability – it is scale. And till we fix it, nothing will and nothing can change. The one thing we don’t want, some years for now, is to have people begin their stories about English language publishing in India with the words “Once upon a time…”