The book-plus category may have been born in the spirit of offering greater interactivity for kids, but it has evolved into a broad and deep category comprising everything from craft and activity kits to licensed gift sets for adults to kids' books with a related toy included. Yet while book-plus formats are well-accepted in a wide variety of distribution channels, publishers face a number of challenges. Their margins, always slim, are being squeezed on the one hand by rising costs, price sensitivity, and more competition, and on the other by a demand for continual innovation. The children's segment has been facing particular challenges, including shrinking distribution and additional testing costs. And the situation has intensified in the last year or two.

“I'm not sure if it's a trend or a view from the current economy, but consumers and gatekeepers are looking for more innovation at lower prices,” said Harold Clarke, president of books, music and trade publishing at Reader's Digest.

“You have to be pretty special to nudge your way in,” agreed Carlo DeVito, v-p and editorial director of Sterling Innovation.

Finding the right price has always been an issue in book-plus, of course. “If a product's price caused a slight hesitation in people's minds, it probably was always a bad product, but now it's a horrible product,” said David Borgenicht, president and publisher at Quirk Books, whose titles range from The Penis Pokey Activity Book to MBA in a Box.

Sales of book-plus tend to be gift- and impulse-driven and items often are priced under $20, with the sweet spot around $15. In the kids' market, “If you have a title priced at $20 or $25, that's the stratosphere,” said Jim Becker, co-president of becker&mayer! and president of its SmartLab imprint.

Reasonably priced items still need to pack value, however. Sterling priced Cosmo Steamy Sex Games, which includes 120 game cards and a magnetic holder, for $9.95, and Origami Deluxe, which contains craft materials and papers and is one of the biggest origami kits available, for $19.95. Similarly, Quirk priced its CSI: Crime Scene Investigation Interactive Mystery, which includes removable clues and documents, at $19.99. “It appeals to devoted mystery fans and CSI fans, but we priced it to reach a bigger market,” Borgenicht explained.

A new format for Reader's Digest is a book-with-3D-viewer, launching with How to Train Your Dragon in spring 2010 to tie in with the movie. It sells for a “recession-ready price” of $15.99, according to Clarke. He believes that price is not necessarily the primary consideration for consumers, however. “We've always felt that if you create the 'wow,' then the price will be worth it.”

Running Press, on the other hand, sees opportunity. Based on the success of its licensed and unlicensed mini-kits, it plans to introduce craft kits in the coming years, according to publisher Chris Navratil.

Certain book-plus product lines could be vulnerable to cooling, due to competition, saturation, the economy, or other factors. Take crafts, for example. Craft kits, ranging from embroidery to origami, have long represented an important and natural segment of the book-plus realm, for adults and kids alike. But publishers vary on their future strategies when it comes to this portion of the market. Clarke said that Reader's Digest is not producing as many adult-targeted craft kits as in the past. “That category is harder to publish into,” he noted. “The craft market has cooled off a lot and it's very competitive, with a lot of very good publishers already in it.”

“The question is, can you convey the value to the consumer?,” asked Michael Levins, CEO of InnovativeKids, whose products include Groovy Tubes and eco-friendly Green Start books. “It's the age-old problem in book-plus, but it's more of a problem in these economic times.”

Cost Containment

Last summer, costs for non-paper components soared due to rising wages in China, more expensive oil and therefore plastic, and a weak dollar. Costs have since declined, albeit not to their pre-2008 levels. “The idea of a really inexpensive price is behind us as far as China goes,” said Levins.

A new wrinkle in the profit-and-loss calculation this year, especially for children's titles, has been the increase in testing due to the Consumer Products Safety Improvement Act. Most publishers have been testing book-plus products for some time. But the CPSIA has added to production costs, since it requires separate tests for every component and print or manufacturing run. Testing an art kit containing seven tubes of paint, for example, could come to $15,000 for the paint alone. Production schedules also have lengthened by a few weeks, thanks to the additional tests and the fact that all the paperwork has to be in hand before shipping.

“We were already meeting a lot of the standards, but the new safety testing requirements have made some kits really difficult to do,” said DeVito.

Publishers are testing more adult-targeted items as well, since they have “play value” and occasionally are displayed with juvenile book-plus. “They're perceived as toy-like products,” Navratil said. “The compliancy issues have become challenging. It's very expensive and it adds to the P&Ls.”

Returns are a burdensome cost for book-plus publishers, too, since returned titles often have damaged boxes and cannot be resold. “With our higher cost of goods, returns are a big problem,” Levins explained.

Finally, many book-plus publishers work with book producers, which gives them expertise in packaging and sourcing but also adds another layer to the P&L equation and makes some titles, especially in the children's sector, unfeasible. “The amount [of children's book-plus] is a fraction of what it was five years ago,” said Becker. “The traditional publishing model doesn't allow it to happen. To be really innovative takes a fair amount of investment, and you have to know you're going to sell a large quantity to make that investment. As the quantities get smaller, it gets harder to innovate.”

becker&mayer! addressed this challenge five years ago by forming SmartLab, an imprint for children's science kits such as SmartLab Squishy Human Body, and, a couple years later, ArtLab, for creativity products such as ArtLab Fashion Studio. Through these divisions, the company creates book-plus formats internally and sells directly to retailers, at a lower price since there's no middleman. With sales growing 25% per year, “the model is working well,” Becker reported.

While keeping an eye on costs is critical in book-plus, eliminating the extras is not the answer. “It's more about using our resources in the best way we can,” said Borgenicht. “The gimmick has to be as strong as the book itself. Ten years ago, when the economy was stronger, you could maybe have one or two elements that were strong. Now, every element has to be as strong as every other element.”

Similarly, strong licenses can have an impact, making them attractive for many publishers and retailers, despite the fact that the royalty cuts into the already-slim margin. Running Press's Office Space, South Park, and Big Lebowski kits are examples. “The licenses have gotten us placement,” said Navratil. “These are unique projects that no one else is doing.” Quirk also has introduced licensed book-plus on the adult side, while Reader's Digest and Scholastic are among the publishers who have produced children's titles under license.

Innovation Rules

In this competitive sector, publishers need to stand out. Some are doing so by adding twists to classic titles. Klutz specializes in classic children's games and innovates on those, according to publisher Debra Lande, who noted, “Things we published 30 years ago are still bestsellers for us.” Next spring, for instance, the company is introducing Rubber Band Powered Flying Machines—a new take on one of its all-time bestsellers, The Klutz Book of Paper Airplanes.

Technological innovation is another focus, and it can take many forms. DeVito reports that Sterling Innovation editorial director Pam Horn and her team have integrated lottery scratch-off technology into Hangman books. “The technology isn't being used in books, so it's new and different,” he said.

Reader's Digest has launched a book-plus-voice changer format, which includes titles such as SpongeBob SquarePants Undersea Party, where readers speak into a device and sound as if they're underwater. Meanwhile, Klutz recently won a Family Fun award for Invasion of the Bristlebots, in which a vibrating motor powers customizable toothbrush-like bristles that skitter around the room. It also has had success with Tricky Video, which is packaged in a movie clapboard and helps readers use existing video-editing programs to create films.

Digital extensions are becoming part of the book-plus universe. “It's not replacing traditional book-plus, but enhancing it,” said Clarke. “They're not mutually exclusive in any way.” On the adult side, Reader's Digest's Taste of HomeComfort Food Diet Book has a companion Web site with online recipes and other information. For children, the company offers a Nickelodeon-licensed iCarly book for tweens that includes a collectible with an access code for a gated companion website.

Packaging has become as critical as content. “The book as object, I don't think has ever been more important,” DeVito said. Sterling's Stitchable Journal: Personalized Journal & Decorative Keepsake Box has a laser-cut cover and pages that enable readers to needlepoint right on the book and its box. “It's a combination of a do-it-yourself kit and a keepsake,” DeVito said. “It's very clever and very pretty.”

Perhaps surprisingly given the category's traditional reliance on plastic components, producing eco-friendly titles is another area of innovation. InnovativeKids is one publisher moving in this direction. It is starting to extend its Green Start brand—which launched with conventional board books produced from eco-friendly papers and inks—into the book-plus arena. Initial formats include books packaged with puzzles, books with games, and a stack of board books that can double as building blocks. Reader's Digest also is taking steps to green up its children's book-plus offerings, such as by introducing more formats with extras that do not require batteries.

Changing Channels

On the children's side, a few large accounts have pulled back in recent years. Costco suddenly stopped buying book-plus a few years ago, a significant blow given how well the chain had done with the category. In Canada, meanwhile, it became increasingly difficult to sell hybrid products into Chapters/Indigo, another strong account, after that retailer added toys to its children's assortment. Libraries and schools increasingly shy away from book-plus, since pieces tend to get lost.

The primary distribution for children's product remains bookstores and independent toy and gift stores, where quantities tend to be fairly small. These impulse-driven channels have been hard-hit by the economy, as have catalogs and display companies.

On the other hand, many publishers believe juvenile book-plus formats offer unique value in today's digital world, and position these titles as an antidote to the computer or TV screen. “There's a real trend in parents looking for hands-on, interactive experiences for kids,” Lande said.

On the adult side, book-plus distribution remains stable and varied. Running Press's books are everywhere from Spencer Gift to Urban Outfitters—“anywhere where they embrace irreverent pop culture,” said Navratil, noting that the company's licensed Office Space, South Park and upcoming Big Lebowski collector kits appeal to these accounts.

Whether for adults or children, book-plus can unlock new distribution. “One title opens the door, then those titles are the gateway for others,” explained DeWitt Durham, Klutz's v-p product development. Klutz, which sells everywhere from hardware stores to car washes, made inroads into hair salons with books such as Braids and Bows, first published in 1992, leading the way for non-hair-related titles.

Mass merchants, from Target and Toys R Us to Kroger and Kmart, traditionally have presented a challenge for book-plus, due to price point, lack of display space and appropriate racking, variability in the number of book SKUs they carry, and competition from Hasbro and Mattel.

Some publishers have had success in this channel, though. Running Press creates floor displays for its mini-kits such as Nun Bowling, The Desk Aquarium and The Bonsai Kit, and generates strong sales wherever there's placement. Similarly, Sterling has had mass market success with titles such as its 5- by 7-inch Good Housekeeping Great Christmas Cookie Swap Cookbook and Great Bake Sale Cookbook gift packs. Mass retailers also bring in licensed titles. “If they're supporting a major brand initiative, those decisions are often made storewide,” Clarke explained.

No matter the channel, “value” is the byword in book-plus. “If you can deliver at a $9.95 or $14.95 price point and deliver maximum quality, that's best,” DeVito said. “But it's also about delivering something that's different and new.”