Why The Digital Book Business Is Going To Be Huge, Part 2

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Time (NYSE: TWX) to get my hands a bit dirty. Last week I posted an eBook forecast with a brief explanation of why the book business may complete its digital revolution more quickly than other media businesses have. Turns out this assertion was more difficult to hear than I anticipated and I got some very insistent (and worth reading) comments. The discussion that ensued both on the blog and outside of it was very complex, this is not a simple matter. However, there are parts of it that are very simple that I have to clarify, even though it means rolling up my sleeves a bit.

Allow me to draw into this discussion John Thompson of Cambridge University who gave a very worthwhile interview to the Brooklyn Rail this month to discuss his recently published analysis of the book industry, Merchants of Culture. I will refer to just one of his specific comments:

“There are many people who just love books and they love the ideas that are expressed in books; they love the stories that are told through books and all of it. They’re very attached to it…. They cherish the book. And they believe that this is an artifact that they want in their lives. And some of the technological commentators in this industry just completely miss this point.”

I’ll start by saying that Thompson’s perspective goes far beyond this statement and I welcome his analysis. However, on this point he is both right and wrong, with the difference between the two being very critical to the future of an entire industry.

First, let me confess that I’m a bit weary from hearing people claim that the book industry is uniquely resilient to change. I’ve had three examples brought to my attention recently that supposedly show how the book industry cannot be so easily transformed: audiobooks, CD-ROM books (Thompson invokes this one), and early eBooks a decade ago. Somehow, we’re supposed to believe that these three things are at all similar to what’s happening now with eBooks. I won’t destroy this illusion in this post, but it’s very easy to do so since none of these prior examples provided an easier way to access book content in more places, at more times, and at less ultimate cost, than paper. They were all doomed to be minor players (or failures) from the start.

But one problem that arises from repeating these examples as a hex to ward off evil digital spirits is that people erroneously conclude from them that books are somehow a special artifact (Thompson’s word) that can never be supplanted. This is a mistake. I wish I had a dime for every time someone in the newspaper industry said to me over the past 15 years that you would never replace the daily ritual of reading a paper, that a broadsheet was somehow uniquely capable of delivering news. I have had that conversation as recently as a year ago; I can appreciate how easy is it to slip into that fallacy.

But it is a simple matter to detail how we have forsaken media habits and artifacts time after time (vinyl, anyone?) in pursuit of cheaper, more convenient alternatives. This is true with any physical artifact that humans think they value — including the shift from horses to automobiles or the change from being at Fenway to watching the Red Sox on TV. Both of my examples are illustrative because people still ride horses and pay a king’s ransom to watch the Sox play live. But only a minority of people in motion and a minority of Red Sox Nation do either.

But my examples are weak because they imply a simple act: the replacement of one artifact (or format) with another. Oh, that it were so simple! Ultimately, we’re talking about a change in economics, not formats. In fact, paper doesn’t have to go away or even become the smallest share of revenues to be neutered economically.

In the music business, for example, digital sales still only account for just under 40% of total revenue in the US, but it is very clearly the dominant driver of the business: the music labels design for digital release and use all other aspects of talent management (appearances, endorsements, concerts) to help sell CDs and concert DVDs as follow-on revenue boosters. CDs, though still the biggest chunk, have fallen to a third of what what they were at their peak. Once the industry used to base all of its economic planning on the release of the CD as a tentpole in terms of promotion and revenue, now the CD is just another trinket to sell behind the digital release. It’s a glorified tour t-shirt.

The same thing is going to happen in print publishing. When the dust settles, publishers will think of their eBook strategy first. Paper decisions will be made as an adjunct to digital decisions. Many, many books will be published without paper versions at all, at least until they get enough critical mass to justify going to paper. Bestsellers from proven authors will always get both, launched simultaneously, and certain niches (travel, cookbooks, etc.) will always have heirloom paper editions. We’ll only get to this point once publishers start losing print revenues and are forced to scale back their operations to focus on the more efficient digital market. They’ll edit less, promote less, and generally reduce the luxurious time they used to feel was necessary between when a book was written and when it was released.

This isn’t because they want to make this change, it will be because the whole industry will find itself quite suddenly left with no alternative. Just as what happened in music, when the dominant retailers suddenly find their economic model drying up, they’ll cut shelf space (music did it in 2007 and again in 2008, resulting in 40% less shelf space at major retailers like Best Buy and Walmart not to mention the complete end of Tower Records before that). This will mean an automatic retraction in how many books are printed because publishers won’t get the massive bulk purchases they used to get for as many titles. This means they won’t be able to give as large of advances.

Meanwhile, authors won’t like that advances are going down, marketing spend is plummeting, and royalties are shrinking (especially now that 30% of the eBook price goes to the bookseller in most cases). Suddenly, self-publishing is a real alternative for anybody with even a modest Twitter following, especially when Amazon (NSDQ: AMZN) is offering 70% of the retail price of ebooks — paid monthly, not twice annually.

I said above that Thompson was both right and wrong and I owe him an explanation. He is right that people love books. But what he (and they) really mean when they say that they love books is that they love the ideas that books convey and the feelings they get from reading books. This is where I have news for the industry: those ideas can be delivered and those feelings can be evoked digitally. In some cases even better than before, and in all cases, more cheaply than before. Some readers with a thing for technology will get there first (shifting a majority of book reading to digital, as today’s eReader owners have) while others will take some time to catch up — indeed, large numbers will never read digitally. But they will not have access to the same pool of literature that eBook readers do.

In the end, this dramatic transformation will not be caused by technology nor prevented by love. It will be forced by economics.

James McQuivey is an analyst at Forrester Research, where he serves Consumer Product Strategy professionals. James blogs here.

This article originally appeared in Forrester Research.

4 Comments

Benjamin Wayne

You remind me of a conversation I had with Russell Banks 20 years ago. I can’t verify his statistics, but he said that the average fiction novel sold 75 copies, and that the average book of poetry sold less than 12. Content creation is challenging work, as is marketing and promotion. And the publishing industry is anything but democratized in their selection criteria.

What I think is most intriguing about what you suggest is the following:

– In 2010, book publishing in the US will be $18BN. Compare this to the $15BN for the North American Music Industry.

– While music has experienced a fundamental shift towards digital, the book business is still less than 6% digital.

– Publishing is a combination of a huge-margin business (content) with a terrible-margin business (printing and distribution).

– While traditional publishers are unlikely to successfully make the leap to digital, we’re simply not seeing strong new players in this space.

All the above, as you point out, creates enormous avenues of opportunity that remain untapped. There is an incredible amount of money being made in digital music, but none of these models are translating to publishing in any significant way. This may create one of this single largest digital land-grab opportunities of the next few decades.

jamesmcnally

I loved the first installation, and this does drive it home even more.

“…the ideas that books convey…can be delivered….digitally – In some cases even better than before, and in all cases, more cheaply than before.”

I, as a lover of paper books, can’t deny that this is the case. Thanks (again).

James McQ

Ben, I appreciate the input, especially because I didn’t mean to imply that self-publishing would become dominant in the business — just as successfully going indie in the music business is rare and usually not very profitable. Self-publishing will be a great option for established writers, many of whom will clean up there. But new writers suffer from all the problems you suggest.

Personally, I think most self-published novels on Kindle or elsewhere will be junk. Check out most of what’s there today and you’ll see this to be the case — my favorite is following the self-publishing discussion threads on Amazon where it’s clear some of these people have never really studied the industry when they ask questions like, “I put my book on Amazon last week and it’s really good, but no one has bought it, why?”

Part of me is happy that these people have an outlet and another part of me is expecting that some diamonds will be discovered in that rough. My own self-published novel on Amazon has not had any success, but I haven’t promoted it (perhaps this counts as promotion in which case it’s the first and only promotion I’ve ever engaged in). I mostly posted the novel to get the experience, see how it works, and see whether it’s a process that needs fixing (news flash: it is). But I, like many aspiring authors, find as much satisfaction writing books as I do contemplating their runaway success, so the act of self-publishing might be all most of us ever need, fantasies aside.

Benjamin Wayne

James,

These were both great articles, and you’re clearly an expert in the space. In general, I’m in strong agreement with what you say here, however, I’m not convinced that we move to a self-publishing model, at least for fiction.

The reason for this is relatively straightforward: authors are, for the most part, not good marketers. The largest driver of consumer purchases in fiction, excluding author brand recognition, is cover art. And then there’s all the other forms of promotion that publishers engage in to drive sales. Some authors will become good promoters, and these may become self-publishers. But the majority will still rely on some agency for promotion and distribution. As you point out, this is more likely to be a new breed of publisher (Amazon and Apple?) rather than the traditional publishing houses, but movement to majority self-publishing market seems unlikely.

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