Digital Books for Kids: challenges publishers face

I attended Digital Book World Conference and Expo this year (January 13-15,NYC) as a finalist for the DBA Awards (Yes! Axel's Chain Reaction was shortlisted for the Children's App category), and chose the Kids Launch workshop, in order to participate in the conversation about the current state of digital publishing for kids. There were some interesting examples of initiatives: Bloomsbury's Spark particularly. Two sites, Biblionasium and Bookopolis,  allow children to give their opinion and share their favorite books with other kids, so I hope they'll soon include book apps in their virtual bookshelves.
On the ground floor, and on the stage, I did feel quite a negative opinion in terms of how digital kids books -and apps in particular- are doing. The following recap of the event is being published also on Book app Alliance's webpage (of which I am a member):
During the Launch Kids presentations at Digital Book World 2014 conference  we were told that children’s books are still being bought in store, although online purchases have gained huge market share in the last 5 years. (And we all know at what retailer most of those purchases are taking place).  So there is a move to online, and now in-device purchase. But the general sentiment among attendees and speakers is that digital is still the ugly duckling in children’s publishing, with print being the mainstay of publishing houses. Will it grow into a swan? Many of us –authors, publishers, ebook retailers, and platforms – are impatient with the time it’s taking. There was also a marked contrast in attitude and energy between presentations by small companies, or even new digital initiatives within large publishers, and the tone of seasoned executives with a background in big-six publishers. Who to head? Let’s begin with facts:
We heard some trends from mentioned by Stacey Mathews from Insight Group and Jonathan Nowell  from Nielsen:  the Juvenile category has seen a much smaller decline in sales in print books than other book categories (we’re now at 2007 sales levels) and in terms of ebook share, the US children’s book market has grown a bit. But the problem is juvenile sales are being skewed by young adult titles, which are actually being read by adults, not teens. So that leaves out data about how children’s books for ages 0 - 12 are actually doing. 
In terms of prices paid for print books, there has been quite a large increase in juvenile, except for the price of Young Adult, which has lowered.   ReaderLink Distribution Service sells 1 out of 4 trade books in the US (mostly in chain stores and big box retailers). Their Marketing SVP, Tara Catogge, told us how hard it is to capture customer’s attention to buy books. Licensed product represents 70% of sales in these mass market retailers. She mentioned major movie releases and seasonal books as the largest opportunity for outplacement of books on other aisles (e.g.snacks) in big box stores. So where does that leave all the other writers out there, creating quality stories?. 
Catogge said 40% of the purchase decisions at these stores were made by the child. That’s not such a big surprise for me, considering the behavior of parents and relatives when it comes to buying at these types of stores: it’s more of an impulse purchase, based on brand recognition, and many times due to the insistence of the kids that are tagging along. With immediate recognition of a TV or movie  license being the main driver of the purchase, my educated guess is that most of these are probably happening in the 2 to 7 age range, where TV and movie animated characters still retain children’s passions. (Plus a preschooler’s whine can be so much more nerve-racking than a 9-year-old’s, right?) 
Beware of a behavior that’s been growing these last 5 or 6 years: kid’s addiction to You Tube. Between that, and a growing number of families using Netflix, Hulu, and Amazon Prime, cable TV companies are loosing customers. As grade-school children are watching less and less TV, and more You Tube, the traditional source of licensed characters that promise to be a big hit for publishers changes. Buying a TV property for grade-school kids is not a solution for publishing houses right now.  YouTube is the place where properties are rising, like Annoying Orange (ugh!).  I was amazed at the swiftness with which Simon & Schuster had bought and published a property that went viral on YT for toddlers: What Does the Fox Say?, by Ylvis. That was quick (for what traditional publishing’s usual turnaround times are)!
So the key to grade-school properties now apparently lies not in huge-budget productions by studios, but in going viral on You Tube. And that, as you know, is a pretty uncertain wager in terms of marketing, at least for independents. You might turn out to have just have 200 visitors to your videos.
One category which has still nothing to do with licenses, according to Catogge, is the baby and toddler one, but she points out it’s still the most competitive –albeit the most productive: 50% of revenue of the top 200 kids books are from board book formats.
Although unfortunately PlayCollective’s Allison Bryant couldn’t attend the conference, Jeremy Greenfield read her presentation about their research results: between ages 2 and 13, a year ago 54% were reading digital books at some level of frequency, and now 67% of them were. Now 50% of kids are reading at least once a day, with tablets being the device of choice. If 85% of parents feel  ebooks can make their kids more interested in reading, how does the statement of “we’ve hit and passed the tipping point for digital” mentioned on stage, match underlying message at DBW2014 that publishers are still finding kids digital books aren’t a major revenue stream? 
There seems to be a chasm here, and I’d say basically the problem is that publishers’ and self-publishers’ expectations are not being met in terms of sales and revenue to justify the investment. I can say that in the book app sector this is especially true, and the main problem seems to be parent/teacher awareness about the titles available. With discoverability in the App Store nowhere near to being resolved (and some say it’s not in Apple’s interest to do so), the only way for expensive-to-produce interactive books selling at less than $3 to recover their costs and earn revenues is through volume sales.  And that is just not happening. 
We basically have to tap into behaviors that parents already exhibit with print books:  they buy books on impulse if they stumble upon them by chance, or they buy titles they’ve heard of through recommendations. A topic-based search purchase means it’s a parent who is a conscious buyer of what their child would like or needs. I haven’t met many of those in the three schools my kid has studied in so far, so I’m going to venture a hypothesis: I think those represent the minority of purchases. That’s why large publishing houses are only acquiring very commercial titles, in order for their businesses to survive. 
Hence the Book App Alliance’s mission to create awareness about quality book apps among parents and teachers. For ebooks, Amazon’s platform is still the main avenue for discoverability, while iBooks is offering terrible sales results, from what I’ve heard. The various recommendation sites, platforms, and blogs are still reaching a marginal portion of parents, making individual children’s titles financially unfeasible. In this sense, the digital market is replicating the print market in that only publishers offering bulk see a part of their catalogue compensated.  
I believe that recommendation and sharing platforms for kids’ digital books that become mainstream may well define the key marketing tool for children’s books in the future. But it has to become as big as Goodreads, at the least. 
At DBW we heard about the importance of developing new sales channels, and reach into schools. Meanwhile, digital is on a rocky road into school penetration, both due to technical problems and to educational marketing and sales characteristics that only big players like Scholastic , Pearson, McGraw Hill, HMH and a few others know how to successfully navigate. And as I said earlier, these players currently are not interest in highly interactive books.  Apps gave independents that illusion that publishing was now more horizontal and achievable.   For independents, solving the issue of new marketing sales channels into schools seems to be the key to survival.