Number of publishers going insolvent jumps 58% in one year

The number of publishers going insolvent has increased 58% in the last year*, with 128 publishers going out of business, up from 81 the year before, according to research by Moore Stephens, the Top Ten accountancy firm.

The steady rise in popularity of e-readers, such as the Kindle, is a major driver of the rise in insolvencies. Smaller publishers who have been slow to adapt and make their publications available as e-books have seen sales fall, as the decline in physical book sales continues to outstrip the growth of e-books.

Some smaller publishers have been unable to sustain themselves with this structural fall in profits, and have been forced to close their doors.

Even sub-sectors of the industry that have traditionally enjoyed higher margins, such as academic publishing, have seen sales and profits under pressure.

Last year, according to data published by the Publishers Association, sales of physical books fell 5% to £2.7 billion, while e-book sales rose 11% to just £563 million with digital revenues growing to 35% of the overall total.

Recent statistics from Ofcom also found that at least 10% of all e-books in the UK were illegally downloaded.

The publishers’ profit margins also continue to be squeezed by the deep discounts they have to offer to remain competitive with online retailers, such as Amazon.

David Elliott, Restructuring & Insolvency Partner : “Some smaller publishers have not reacted quickly enough to a rapidly changing market.

“The fall in the value of sales for physical books is larger than the growth of e-books, and this is a worrying trend for publishers that are still dependent on paper for their profits.

“E-books require different marketing strategies, for example, to physical books and small publishers may not possess the expertise needed to succeed.

“Both forms will continue to have a place in publishing, but the industry is shifting so that e-books will be much more important. However, publishers that capitalise on this transition are achieving greater profit margins and making substantial savings in areas such as shipping, storage, and printing costs.

“Some publishers have begun to invest in producing very expensive, high quality books, aiming to tap into the luxury goods market and avoid margin compression. However, even if this part of the industry was to see rapid expansion it would be unlikely to offset the seismic effects of the shift to e-books.

“Over the past few decades, the shift to a primarily online model for bookselling has been very difficult for small publishers. The rise in popularity of e-books has served to aggravate and increase the pressure on them recently, and many have not been able to survive.”

“The growth in e-book sales has also been matched by a strong price war between publishers – to which piracy and illegal downloads further eat into their margins. Academic publications are particularly vulnerable to piracy as students have become accustomed to easily accessing content on the internet for free.”

*Year ending June 30 2015

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