Jose Henrique Guimaraes, Acaiaca @ European Digital Distributors Meeting Madrid

1. THE BRAZILIAN eBOOK MARKET
José Henrique Guimarães
Founder and CEO – Acaiaca Distribuidora de Livros
::June::2015::

2. Today’s presentation
• Brazil
• The Brazilian Book Market
• e-books in Brazil
– e-commerce / m-commerce, infrastructure and devices
– e-book content, numbers and sales
– Major players (retailers and distributors)
• Bottlenecks, Opportunities and Challenges

3. What is happening in Brazil ?

4. Brazilian Economy Overview
• World’s 7th largest economy
• Rank 56 on 61 in competitiviness research (IMD Business School – Switzerland)
• World Bank’s 2015 report:
“Brazil experienced a decade of economic and social progress from 2003-2013 in which over 26
million people were lifted out of poverty and inequality was reduced significantly”
“… After having reached universal coverage in primary education, Brazil is now struggling to improve
the quality and outcomes of the system, especially at the basic and secondary levels.”
“To address the current macro imbalances and revitalize growth, the authorities have announced
measures to reduce entitlements, cut discretionary expenditures and reduce Treasury’s support to
public banks and the electricity sector, in order to reduce the fiscal deficit.”
“… there is no immediate threat of an external crisis as Brazil has $360 billion of reserves (about 17%
of GDP), and a solid financial sector.”
“Brazil’s medium-term outlook will depend on the success of the current adjustment and the
adoption of further growth-enhancing reforms. To achieve higher growth in the medium-term,
raising productivity and competitiveness is the crucial challenge for Brazil.”

5. • GDP growth in Brazil has slowed
from 4.5% in 2006-10 to 2.1% over
2011-14 and 0.1% in 2014.
• Inflation remains high, reaching
8.17% (IPCA-IBGE) in the past 12
months.
• Unemployment rates is growing
and reached 6.4% in Apr, 2015.
• Basic interest rate (Selic) raised to
13.75 in June, 2015
• Average monthly income per
capita: R$ 1,052.00 (average price
of a book: R$ 30,00)
Brazilian Economy Overview
GDP Projection for 2015

6. Book Industry Summary – 2014
According to the Brazilian Book Chamber annual report, in 2014:
– Brazilian Publisher’s sales decreased 5,16 %.
– However, if government sales are excluded the result is a growth of about 1%.
– Government sales corresponds to 22.8% of the total market and equals 353
millions of Euros.
– Government sales + K12 = about 50 % of the Brazilian Market.
– eBooks sales account for 0,3 % of overall sales.
– In the last 10 years overall production grew 52 % in units (16% in R$)
• Trade books: 101 % in units (15% in R$)
• Religious books: 107% in units (42% in R$)
• STP books: 52% in units (62% in R$).
Besides eBooks accounting for only 0,3 % of the total market, individual reports from
trade publishers suggests a market share from 8% to 12 % of sales for fiction books
and between 3% and 5% for non-fiction books (when comparing books sales available
in physical and digital formats).

7. Publishing Industry Overview – Print
2013/2014
Source: Brazilian Book Chamber
Description 2013 2014 Var.%
TITLES 62,235 60,829 -2.3%
New Titles 21,085 19,285 -8.5%
Re-prints 41,150 41,544 1.0%
NET SALES FROM PUBLISHERS (in Billions of Euros) 1.53€ 1.54€ 0.9%
Government 0.42€ 0.35€ -16.0%
K-12 0.37€ 0.41€ 10.6%
Trade, STP, Religion and others 0.74€ 0.78€ 5.6%

8. Brazil - 10th Largest Book Market
-
5.000
10.000
15.000
20.000
25.000
30.000
United
States
China Germany Japan United
Kingdom
France Italy South Korea Spain Brazil
27.400
15.342
9.536
5.409
3.875 4.401
3.110 2.974 2.708 2.239
Market Value 2013 - million Euros
Source: IPA

9. Printed Books Distribution Channels in Brazil
(without government sales)
Bookstores 49.85
Distributors 20.10
Door to door 9.45
Super Market 3.26
Schools 2.50
Churchs and Temples 4.10
Export 1.05
Direct Marketing 1.32
Companies 1.43
Newsstand 1.95
Internet (Publishers Direct to market) 0.71
Private Libraries 0.11
Others 4.17
Total 100.00
Channel
2014
(% share)
Source: Brazilian Book Chamber

10. e-commerce in Brazil
e-shoppers with at least one purchase (in millions)
• 49,2% of Brazilians, age 10 or older, have internet access (IBGE – PNAD 2012 ). Current
population: 204 million people

11. e-commerce in Brazil
• Reading materials (books, magazines and subscriptions): 8% of total amount of orders. Tied
in 4th position in terms of category (#1 fashion and accessories).
• Mobile sales (internet access without any apps): 9,7% of total sales in 2014 versus 2,5% in
2013, out of which 65% through smartphones and 35% via tablets.
• The estimated value of purchases done by Brazilians on international websites in 2014 is R$
6.6 billion.
Online sales of consumer products

12. R$ 299,00 R$ 2.499,00 (16GB) R$ 3.499,00 (16GB)
• Kindle in Brazil (local sales): started in Dec, 2012
• Apple Stores: Feb, 2014 (Rio de Janeiro) & Apr, 2015 (São Paulo)
• Even though the whole book production chain (“from paper to the final product”) is tax-
free, taxes still apply to e-readers in Brazil.
• Smartphone sales increased 55% in 2014 in comparison with previous year. Current
total amount of operational units: 54,5 million units. Growth expected for 2015: 16%
(IDC Brazil).
• Tablets: 156% increase in units sold from 2012 to 2013 (official 2014 data not available)
Mobile devices

13. Publishing Industry Overview – eBook
2013/2014

14. Retail – the strongest part of the book
supply-chain in Brazil
• Considering all sectors, Brazilian retail is very efficient.
• B2W (Americanas, Submarino and other retail brands), “the Brazilian amazon”,
accounts for approximately 24 % of total internet retail business and 5 % of book
sales on retail. They belong to the 3G Capital Brazilian Group, owners of Interbrew /
Budweiser, Burger King, Heinz and others.
• Like B2W, there are other strong retailers that are not focused on books (both
physical and digital).
• eBook sales are concentrated among 6 big players in Brazil: Amazon, Apple, Google,
Kobo, Saraiva (Brazilian) and Cultura (Brazilian).
• Independent books stores represent less than 1 % of total eBook sales.

15. The Big 6 eBook retailers
Besides having only 1 % of the printed book market, Amazon.com.br is the
leader for eBooks in Brazil in Portuguese and in foreign languages. Operation
started in 2012 for e-books and in 2014 for physical books.
Besides not having a BRZ store, Apple products are very popular in Brasil,
mostly among A and B class individuals. The number 2 in Brazil have
problems with pricing because of exchange ratio variation, mainly during this
time of recession in Brazil.
They have a small structure in Brazil for books, but Android accounts for 90%
of the current smartphone local market.

16. They are one of the first in Brazil with partnership with Livraria Cultura, but
they lost some space recently to the other players.
For physical books, they are very popular among heavy-readers, because
they carry a huge catalogue. Besides the partnership with Kobo, they are not
putting much energy in eBooks so far.
“The BRZ Barnes and Noble”,. They launched their own e-reader, called LEV,
last year, but they don’t have a ecosystem like Amazon, Apple nor Kobo.
The Big 6 eBook retailers

17. 19,08%
8,11%
4,84%
4,06%
3,05%
2,09%
53,48%
Saraiva Cultura B2W Leitura Curitiba FNAC Others
Source: estimate by Acaiaca Digital
Retailers market share in 2014

18. eBook Distributors in Brazil
Bookwire is a newcomer. The German company established a local office in
Brazil at the end of 2014.
Acaiaca Digital is part of the Acaiaca Group, which was established more
than 50 years ago and offers Distribution of books as well as Third Party
Logistics Services for publishers of all sizes. Acaiaca is a major distributor in
Brazil, both in Physical and Digital books.
Xeriph: also owner of the former e-bookstore Gato Sabido, they are an
aggregator and do fulfillment for local bookstores as well. They were the first
company to offer e-distribution of books in Brazil.
DLD is the number one in Brazil and they work as a dedicated distributor to
seven major trade Brazilian Publishers. The company was created several
years ago in preparation for global platforms arrival in Brazil (with whom
they have a contract that limits the maximum discount that can be applied
to ebooks)

19. • Brazil is still a “closed” economy in terms of external commerce and investment. Our
economic policies in the last century was oriented for self-sufficiency, with a
relatively low presence of foreign investments.
• Doing business in Brazil is very complicated, because of red tape, excessive laws,
complex taxation system and infra-structure issues.
• The majority of Brazilian trade publishers are family owned companies and lack the
resources (money, know-how and others) required to make the transition from
physical to digital books.
• Piracy is a important concern in Brazil.
• The language acts as a barrier for attracting foreign competition.
• Since the market is “so protected”, publishers can be more conservative in their
decisions toward eBook sales.
Bottlenecks

20. • The Brazilian Government has been signalizing for the past 5 years that purchase of
content will migrate soon from physical books to digital books. This will have a huge
overall impact on the market.
• “Pure” e-readers may become tax free in the near future which would result in
significant reduction on the current prices (around 50%)
• A fixed price law is in-transit through congress right now
• Metadata: local market currently lacks a standard (such as Onix).
• Convertion of publishers back catalog is still a challenge, mainly because:
• Current costs (and pay-back estimates) and concerns associated with the
Portuguese language. A lot of content available only in PDF format.
• Difficulties associated with securing the digital rights both national and
International(international contracts restricted to printed books.
Challenges and Opportunities

21. Conclusion
There is still a myopic vision in Brazil about opportunities in the eBook market.
With a market about 0,3 % only of the total net sales, print and digital, the
payback for eBooks production / conversion is considered too long for many
medium and small publishers in Brazil. Therefore the back catalogs of Brazilian
publishers are not being converted to digital on the necessary scale.
On the other hand, the whole digital market in Brazil is still under development
and gowning exponentially: e-commerce (more than 20% per year), m-
commerce (from 0% to 9,7% in 5 years), smarphones (55% last year). Many
Brazilians still have to travel abroad to by e-readers / tablets / smartphones at
competitive prices and/or make purchases in international stores that are not
reflected on the local market numbers.
Therefore, if we consider e-books sales as the result of the following equation:
Education (hability and willingness to read) + Purchasing Power + Infrastructure
(Internet Access and Devices) + Content, we strongly believe that the ebook
market in Brazil will grow significantly over the second half of this decade.

22. Thank
You!
José Henrique de Abreu Guimarães
+55 (11) 2102.9800
josehenrique@acaiaca.com.br