Financial Models for Digital Products Timothy Doyle, Harvard University Press February 14, 2011

Overview of Harvard University Press 2 98 year-old academic publisher Target markets: Institutions and individuals Editorial focus: a diverse list that includes:  Humanities, History and Science  From scholarly monographs to trade titles for a general audience Growth strategies:  Introduce new products (digital and print)  Publish more titles (front and backlist)  Target new markets

Deliberate Approach to Digital Products 3 Development of digital product strategy as starting point  Content assessment  Understand markets and customers for digital products Prioritization of opportunities  eBooks as an additional format  Curated collections  Enhanced eBooks  Digital distribution Critical to consider implications to staffing and infrastructure

Economic Drivers – Print v. Digital 4 Digital Costs Revenue Subscription Perpetual access Pay-per-view Aggregated and Disaggregated content Different kinds of editorial, production, sales, fulfillment Platform and development Digitization and encoding Customer service (3 rd party) Print Individual book purchases via booksellers One time payment via wholesalers (institutions) Editorial costs Book production Sales and marketing Warehouse and fulfillment

Key Considerations for Digital Products 5 Size of digital product (corpus v. single work) Semantic markup (interpretive v. structural) Permissions (availability of worldwide digital rights) Multimedia and interactive enhancements (complex v. simple) Design (comprehensive design layouts v. format redesign) Platform and IT investment (custom development vs. modifications to existing systems)

Example of Print P&L 6

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Example of Digital P&L 8

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Summary and Key Take-Aways 11 Focus on digital product strategy  Understand content depth and market opportunities Plan for iterative development  Need to adapt to industry changes and learnings  Revenue models still not clear (as compared to costs) Consider staffing and infrastructure implications

Questions: What types of products beyond eBooks is the market interested in 2. What other tools have people found to be successful 3. Cannibalization and Piracy – any experience 4. What success are people having digitizing out of print backlist

Appendix 13

Digital Consideration Matrix 14

Summarized Digital P & L 15 Net Sales Subscription Earnings$2305% eBook$65014% Perpetual Access – Academic$2,75062% Perpetual Access – Public Library$2836% Perpetual Access – School$772% Consumer$1443% Top-Up$2796% Total$4,413100% Cost of sales Platform$87539% Royalty$1,10350% Other Costs$25011% Total$2,228 Gross Margin$2,18550%