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VIEWER DISCRETION ADVISED VIEWER DISCRETION ADVISED

THIS INFORMATION MAY BE DEPRESSINGTHIS INFORMATION MAY BE DEPRESSING

WARNING!WARNING!

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Cowan, Liebowitz & Latman, P.C.Cowan, Liebowitz & Latman, P.C.1133 Avenue of the Americas, New York, NY 100361133 Avenue of the Americas, New York, NY 10036

(212) 790-9200(212) 790-9200cll.comcll.com

Not for reproduction without permissionNot for reproduction without permission

Book Publishing 09Book Publishing 09

The RecessionThe Recession

By Martin P. Levin, Esq.By Martin P. Levin, Esq.

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Book Industry Annual Growth2005-2008(E)

Source: 2005-2007 Book Industry Trend 20072008 Estimate using sample of 81 publishers-AAP

3

2005 2006 2007 2008 (E)

$34,629

$36,344 (E)

$37,085

$35,686

-2.4%+3.2% +3.3%+3.9%

Million$

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Book Industry Sales by Segment2007-2008 (millions)

CategoryCategory 20082008 20072007 % change% changeAdult hardcoverAdult hardcover 1,555.31,555.3 1,787.71,787.7 --13.0%13.0%Adult paperbackAdult paperback 1,452.51,452.5 1,402.51,402.53.6%3.6%Adult Mass marketAdult Mass market 807.9807.9 832.5832.5 --

3.0%3.0%Childrens/YA hard.Childrens/YA hard. 795.5795.5 908.4908.4 --12.4%12.4%Childrens/YA paper.Childrens/YA paper. 560.5560.5 526.8526.86.4%6.4%

Audio BooksAudio Books 159.1159.1 201.5201.5 --21.0%21.0%Electronic booksElectronic books 53.553.5 31.831.868.4%68.4%ReligiousReligious BooksBooks 608.3608.3 658.1658.1 --7.6%7.6%Higher EducationHigher Education 3,670.93,670.9 3,573.43,573.4Source: Association of American Publishers

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New Book Titles & New EditionsNew Book Titles & New Editions(2002-2007 ) (Units)(2002-2007 ) (Units)

Source: R.R. Bowker

2002 20072006200520042003

247,777

291,922

282,500

295,523

266,322

276,649

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20 largest book publishers in the20 largest book publishers in theU.S. 2007 ($ millions)U.S. 2007 ($ millions)

(Top 10)(Top 10)

1. Pearson $5,2952. McGraw-Hill $2,3673. Reed Elsevier $2,018

4. Scholastic $1,7345. Cengage/Thomson $1,4806. Random House $1,2667. Educational Media $1,1028. Harper Collins $9729. John Wiley $85410. Simon & Schuster $762

Rank Publisher Sales

Sources: Open Book Publishing, Inc. November 2008

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20 largest book publishers in the U.S. 20 largest book publishers in the U.S. 2007 ($ millions)2007 ($ millions)

(Next 10)(Next 10)

1. Thomson Corp. $7372. Holtzbrinck Group $5503. Hachette Livre $515

4. Wolters Kluwer $4775. Readers Digest $3756. Informa $3727. BNA $2958. Rodale $2469. Encyclopedia Britannica $22010. Harlequin $198

Rank Publisher Sales

Sources: Open Book Publishing, Inc. November 2008

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--And for the 20% of remaining sales--And for the 20% of remaining sales

There are 3,223There are 3,223publishers accordingpublishers according

toto Literary Market Literary Market PlacePlace

Source: Researched by Angel

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How Bad Can it Get?

While 2008 ended on anWhile 2008 ended on an

disappointing and even discouragingdisappointing and even discouragingnote for many in the book industry,note for many in the book industry,the outlook for the new year is eventhe outlook for the new year is evenbleaker.bleaker.

One-time adjustments by retailersOne-time adjustments by retailersand underlying shifts in the structureand underlying shifts in the structureof the book industry will make 2009of the book industry will make 2009the worst year for publishing inthe worst year for publishing indecades, and could lead to a long-decades, and could lead to a long-term fundamental change in theterm fundamental change in thebusiness. business.

Peter OlsenPeter OlsenPW January 5, 2009PW January 5, 2009

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Olsen foresees :The worst for Borders, B&N strugglingThe worst for Borders, B&N struggling

Growth of Amazon threateningGrowth of Amazon threateningindependent book storeindependent book store

Increase in returns in first half 2009 toIncrease in returns in first half 2009 tofinance inventoryfinance inventoryLower initial printings of new titlesLower initial printings of new titles

Pressure from bookstores for higherPressure from bookstores for higher

discounts and promotion $discounts and promotion $Longer payment termsLonger payment terms

New round of consolidations of New round of consolidations of

publisherspublishers

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Stocks Plunged In 2008CompanyCompany 12/31/0712/31/07 12/31/0812/31/08 % change% change

Marvel EntertainmentMarvel Entertainment 26.7126.71 30.7530.75 --15.1%15.1%John WileyJohn Wiley 42.8442.84 35.5835.58 --16.9%16.9%Educational Dev. Corp.Educational Dev. Corp. 5.475.47 3.703.70 --32.3%32.3%PearsonPearson 14.4914.49 9.549.54 --34.2%34.2%AmazonAmazon 92.6492.64 51.2851.28 --44.6%44.6%Reed ElsevierReed Elsevier 53.9053.90 29.8429.84 --45.4%45.4%Courier Corp.Courier Corp. 33.0133.01 17.9017.90 --

45.8%45.8%McGraw-HillMcGraw-Hill 43.8143.81 23.1923.19 --47.1%47.1%Barnes & NobleBarnes & Noble 34.4534.45 15.0015.00 --56.5%56.5%ScholasticScholastic 34.8934.89 13.5813.58 --

61.0%61.0%R.R. DonnelleyR.R. Donnelley 37.7437.74 13.5813.58 --Source: Reed Business Information

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ButButon the Other Handon the Other Hand

Scholastic 1920

Simon & Schuster 1924

Random House 1925

Business Week

(6 weeks before the crash) 1929Fortune(4 months after the crash) 1930

Marvel and DC Comics 1930

FoundedPublisher

Print media has a high survival rateto name a few

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COMING ATTRACTIONS

Increase in readingGood News!Increase in readingGood News!Google settlementGoogle settlement

Massive Spending on Education--Massive Spending on Education--$141 billion$141 billionMobile TechnologyMobile TechnologySocial MediaSocial Media

My SpaceMy SpaceFace Book, etc.Face Book, etc.

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More Americans are reading

LeisureReadingDown

ReadingRates by Race& Ethnicity Up

OverallRates for allage groupsUp

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If approved on June 11, 2009If approved on June 11, 2009

Google willGoogle will

Scan copyrighted books from data baseScan copyrighted books from data baseScan out-of-print books sell adsScan out-of-print books sell ads

Set up a Registry (i.e. ASCAP) at revenueSet up a Registry (i.e. ASCAP) at revenuecost =$34.5 millioncost =$34.5 million

Pay $45 million to rights holdersPay $45 million to rights holders

For full details seeFor full details seewww.googlebooksettlement.comwww.googlebooksettlement.com

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Mobile Technology

More books available on SmartMore books available on SmartPhonesPhones

Readers 1.5 million publicReaders 1.5 million publicdomain books now available fromdomain books now available fromGoogleGoogleProfessional doctors, etc.Professional doctors, etc.School and college studentsSchool and college students

New publishing applications nowNew publishing applications nowbeing developedbeing developedMicrosoft now offers windowsMicrosoft now offers windowsMobile 6.5 and Internet Explorer isMobile 6.5 and Internet Explorer is

in developmentin development

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Social Networks

FoundedFounded : 2003: 2003Owned by NewsOwned by News

Corp.Corp.ValueValue : Unknown: Unknown100 millionth account100 millionth accountreached on August 6,reached on August 6,20062006Now in excess onNow in excess on106 million accounts106 million accountsAttracts 230,000 newAttracts 230,000 newusers/dayusers/day

20

FoundedFounded : 2004: 2004Owned by private-Owned by private-

founded by Markfounded by MarkZuckerberg andZuckerberg andDustin MoskowitzDustin Moskowitz175 million active175 million activeusers worldwideusers worldwide

ValueValue : Microsoft: Microsoftbought 1.6% forbought 1.6% for$240 million$240 millionEstimated value:Estimated value:

about $15 billionabout $15 billion

My SpaceMy Space FacebookFacebook

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Massive Spending on EducationMassive Spending on Education$141 billion$141 billion

Direct Funding for Education $77 BillionDirect Funding for Education $77 Billion$40 billion in state stabilization funds to help$40 billion in state stabilization funds to helpavert education cutsavert education cuts$13 billion for Title I$13 billion for Title I$12 billion for IDEA$12 billion for IDEA$5 billion in competitive incentive grants to$5 billion in competitive incentive grants tostatesstates

$5 billion for Early Childhood$5 billion for Early Childhood$2 billion for other education investments$2 billion for other education investments

21

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Massive Spending on EducationMassive Spending on Education$141 billion$141 billion

College Affordability $30.8 BillionCollege Affordability $30.8 Billion$17 billion to the Pell Grant program$17 billion to the Pell Grant program$13.8 billion to boost the tuition tax credit from$13.8 billion to boost the tuition tax credit from$1800 to $2500 for families earning up to$1800 to $2500 for families earning up to

$180,000$180,000Additional School Modernization (up to)Additional School Modernization (up to)$33.6 Billion$33.6 Billion

An additional $8.8 billion in state stabilizationAn additional $8.8 billion in state stabilizationfundsfundsFinally, the Act provides for states and schoolFinally, the Act provides for states and schoolsystems to issue $24.8 billion dollars in bondssystems to issue $24.8 billion dollars in bondsfor renovation, repairs and school constructionfor renovation, repairs and school construction

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The Old Agenda Item

Started in the DepressionStarted in the DepressionA practice thatA practice that

Needs urgent attention in this recessionNeeds urgent attention in this recession

New

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27.6%

24

Returns

RevenueReturns

$14.5 billion

$4.0 billion

2008 2008

Source: Association of American Publishers

Billion$

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Options for reduced returns

Offer a non-returnable discountOffer a non-returnable discountKeep present discount and set up aKeep present discount and set up a

bonus plan for efficiencybonus plan for efficiencyRead and comment at our blog at:Read and comment at our blog at:

http://cowanliebowitzlatman.blogspot.comhttp://cowanliebowitzlatman.blogspot.com

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Cowan, Liebowitz & LatmanCowan, Liebowitz & Latman