INDUSTRY SEGMENT PERFORMANCE
Spending in the children's category was given a huge boost by the publishing phenomenon of the Harry Potter books. Published by Scholastic and written by J.K. Rowling, the three Potter titles sold more than 10 million copies in hardcover and another 3.2 million copies in paperback in 1999. The success of the Potter titles was cheered in the publishing industry not only for boosting sales, but also for attracting boys to books, an audience notorious for its disinterest in reading books.
Channel-related issues distort the industry's growth rate because of changes in book inventory. The emergence of superstores during the late 1980s and early 1990s led to a considerable rise in book ordering by distributors and retailers, and publishers' shipment figures reflected this growth. Over the seven-year span from 1987 to 1994, unit sales of consumer books exhibited 8.4 percent compound annual growth. Although these books were being shipped from publishers, not all were being sold to consumers; the remaining books were left in the hands of book retailers.
Online booksellers have become an increasingly important part of the industry. Led by Amazon.com and Barnesandnoble.com, online sales totaled $687 million in 1998, more than four times the 1997 total of $163 million. As the number of online households continues to grow in the coming years, we expect that online spending on books will continue to expand. In 1998, the average Internet-equipped household spent more than $24 purchasing books online, representing nearly a $17 increase over the 1997 figure. We predict that in 2003 sales will reach $50 per household and aggregate spending online will total an estimated $2.7 billion.
E-commerce is not the only recent technological innovation to affect the book industry now that electronic books (E-books) have finally hit the market. Manufactured by the companies NuvoMedia, SoftBook Press, and Librium.com, electronic readers (E-readers) permit users to purchase books that can be read on a portable screen.
Whether or not the introduction of E-books to the book market will render business difficult for authors or publishers, we do not believe the electronic market will significantly affect the traditional print medium. That we have not taken to reading online is evidenced by the fact that online newspapers and magazines have not appeared to have cut into print circulation despite the dramatic increase in Internet penetration. The book-purchasing population also tends to be older than the online population, at least at present. Of those who bought at least one book in 1998, nearly two-thirds were 35 and older and nearly 43 percent were 45 and older.
Trade book sales will recover as the inventory correction brought on by changes in the retail infrastructure gradually wanes. Shipments of trade books, which account for 59.4% of all consumer book spending, will rise 4.8% in 1998 and at a compound annual rate of 3.2 for the 5-year period, following a 7.1% decline in 1997. End user spending on trade books will grow at a compound annual rate of 5.7% over the five-year period 1997-2002.
Mass-market paperbacks, which have their own distribution channels (newsstands, drugstores, supermarkets, etc.), are projected to recover from a sharp 1997 decline, when unit sales dropped 10.2%. As with trade books, swelling retailers' returns, as high as 50% with large discount outlets such as Wal-Mart and Kmart in 1997, have hurt sales. Increased sales in early 1998 indicate that this problem is working itself out. Following a 7.8% 1997 decline, end user spending on mass-market paperbacks is forecast to rise 6.5% in 1998 and at a 4.1% compound annual rate from 1997-2002.
Religious book sales and book club sales bucked overall industry trends by posting net gains in end user spending of 3.6% and 4.9% respectively in 1997. End user spending is forecasted to grow at a compound annual rate of 4.5% for religious books and 5.8% for book clubs over the forecast period.
The overall decline in trade book sales notwithstanding, a record 228 titles sold over 100,000 copies in 1997. Ten hardcover titles, five fiction and five nonfiction, exceeded the $1 million sales mark in 1997.
Online book sales, which increased tenfold in 1997 to $150 million, are projected to quadruple in 1998 and to reach $2.1 billion by 2001 -- a compound annual growth rate of 69.6% over the five-year forecast period (1997-2002).
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