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Debates Shaping the Book Industry in 2012The one piece of news that clearly triggered the mostheated debate within the industry was the proposedmerger of Random House and the London-headquarteredPenguin in late October 2012, a deal resulting in a “supergroupto redefine trade” (The Bookseller, November 2,2012).For the broader reading public, however, another storyprobably induced stronger emotions and succeeded inencapsulating the entire scope of change and transformationof books: “Amazon’s billion-dollar tax shield” (Reutersspecial report, December 6, 2012). It was revealed bynumerous media reports that the US retailer saved hugelyby having set up European headquarters in tax-friendlyLuxembourg, and optimized its management of revenuesacross complex fiscal networks. As a result, Amazon wouldcharge the full VAT of 20% on ebooks in Great Britain, whilepaying only 3% of taxes at its Luxembourg holding. Theuproar among consumers, which included calls for a boycott,was huge. In December 2012, the European Commissionordered Luxembourg to close the VAT loophole (TheGuardian, December 21, 2012).Other events also show how much the book business hasevolved.The already stiff competition over pricing in the UK wasfurther hightlighted when both Amazon and Sony startedpromotional campaigns through their ebook platforms inearly fall, offering scores of bestselling ebook titles at aradically low retail price of 20p. Discounts of up to 97%raised author concerns that such a downward spiral onprices might ruin the industry. Publishers recorded significantvolume growth, which translated into extra value, asthe promotion cost was pocketed by the distributors(“Ebook price war sees discounts reach 97%”, The Guardian,September 18, 2012; for a detailed analysis by valueand volume and publishers, see The Bookseller, January24, 2013).In January 2013, news broke that one of the main retailchains for all kinds of media content, including books, hadto go into administration. HMV operated 239 stores acrossBritain, with analysts pointing to competition from onlinechannels as a main cause for the failure (The Bookseller,January 18, 2013).The value chain around ebooks has not just been upset byconfrontations between brick-and-mortar retailers andonline outlets or by aggressive pricing strategies. Librarieshave also raised the concerns of publishers because oftheir desire to include ebooks in their offerings, a developmentthat publishers think could significantly reducethe number of book buyers. Confronted by major budgetcrises and severe cuts in government support, British librariesare struggling to cut costs and better serve thepublic. As a result, some 71% of libraries have either alreadyintroduced e-lending or plan to do so imminently(“UK Library E-lending Evolves”, Publishing Perspectives,November 21, 2012).Publishers in the US and UK have reacted by strictly limitingoptions to lend their books. At the consumer level,digital rights management (DRM) embedded in ebooksfurther limits their ability to lend books to friends. In theUK, the Intellectual Property Office has stepped in by proposingnew legislation that will allow “greater freedom touse copyrighted works such as computer games, paintings,photographs, films, books, and music, while protectingthe interests of authors and right owners,” targetingpossibilities for private copying. The British government isexpected to have new regulations in place by fall 2013(PublishersLunch, December 20, 2012). Such a move wouldfurther enliven the debate on the use of DRM altogether.Earlier Developments: 2010 and 2011In 2011, sales of books by UK publishers fell 2% comparedto 2010 to £3.2 billion, with a 5% decrease in physical booksales outweighing a 54% increase in digital sales.All digital formats—ebooks, audio book downloads, andonline subscriptions—accounted for 8% of the total invoicedvalue of book sales in 2011, up from 5% in 2010.Consumer ebook sales in 2011 constituted 6% of consumerphysical book sales by value. 13% of academic and professionalbook revenues came from digital products (UKPublishers Association (PA), based on Nielsen data, May 1,2012).As in previous years, the end-of-year holidays in 2011 resultedin yet another push from print to digital, as mirroredin statistics reported by Nielsen BookScan; print sales in fictiondeclined by 30% in the three weeks after the holidays,according to The Bookseller. In the week of December 31,2011, fiction hardcover sales were down 14% and paperbacksdeclined by 34% (The Bookseller, January 23, 2012).At the same time, sales of printed works showed significantdecline in the UK and other English-speaking markets. Accordingto statistics presented by Nielsen BookScan inFebruary 2012, in the UK “the print decline accelerated in2011, while in the first four weeks of 2012 print sales havedropped 12 percent, with fiction sales down almost 26The Global eBook Report 23