The future of trade publishing in the digital marketplace

Mike Shatzkin
Opinion - Digital 19 Apr 2009

The ebook revolution will be a wild ride for publishers and authors, Mike Shatzkin predicts There's been a lot of very optimistic news on the ebook front since the international book trade last gathered in London. Although it's doubtful that Kindle will be the eventual 'winner' of the ebook wars - and perhaps some question whether it is the leading player right this minute - there is no doubt that an ebook surge started with the Kindle's release in November of 2007. Just shortly before that, Hachette announced that it would be the first to commit to the new epub standard. Having a single standard from which just about all commercial ebooks except Kindle can be readily made has cut conversion costs for publishers just in time to greet this expanding market. There are new platforms for ebooks. Stanza has been the most successful initially, with a huge number of iPhone owners downloading the app the minute it became available. But we also have a new 'shortcovers' platform from Indigo in Canada, and Iceberg, another app from Scrollmotion, shows promise for illustrated books. Last week Publishing Technology announced a new ebook platform and Bloomsbury an ebook bookshelf concept with Exact Editions. There will be a steady drumbeat of new announcements.

Meanwhile, the US's dominant bricks-and-mortar retailer, Barnes & Noble, bought the leading independent ebook retailer, Fictionwise, which delivered them an epub-compliant reading platform, ereader. There are also rumors that B&N will launch a new piece of hardware to compete with the Kindle. Whether or not they do, it has to be good for book sales to get the second leading online book retailer into the game. The old standby, Adobe format, and the other leading piece of hardware, Sony Reader, also continue to grow robustly. And together, since Adobe books will play on the Sony Reader.
Sales comparisons over the prior year are eye-popping. Random House reported during the course of 2008 that sales of ebooks were up 400%. The most recent sales figures from the Association of American Publishers reported an increase of more than 170% from January 2008 to January 2009. More than a doubling each year seems to be the current rate of growth for just about everybody.
Apple's 'app store', making it easy to put ebooks (among other things) on the iPhone, has been a major success. Other app stores are now coming from their mobile phone competitors, including RIM, who make the BlackBerry. Simon & Schuster recently announced that it would be the first to put books into the BlackBerry app store.
And the technology is improving. O Reilly Media recently reported that Kindle could now handle the tabular material that abounds in their books. The halftones are getting better. And every day on the internet there are reports of breakthroughs in screen technology. Such improvements will be constant from now on.
But despite all the good news, there are some sobering realities. The entire market is still infinitesimal. We haven t reached 1% of sales yet in the general trade, despite all the growth that has taken place in the past couple of years.
Epub doesn t solve all the world's formatting problems. Ebook purchasers still often get products that don t do routine things like link back and forth between a footnote and the body text, let alone consistently deliver a well-presented chart or piece of art.
Even with the growth of other avenues to readers eyeballs, there is concern that the Kindle could lock in a chunk of the market. The combination of many titles and instant access is fueled by Amazon's loss-leader pricing and now by iPhone compatibility as well. I can tell you from personal experience that, even though the Kindle iPhone reader isn t as good as Stanza, the combination Amazon and Kindle offer can keep a customer chained to them.
Another big concern is whether ebook pricing will hold up. Amazon is doing its best to make $9.99 a ceiling price for bestsellers. Google has just put 500,000 free titles into the hands of anybody with a Sony Reader. And every day brings a new offer from a publisher to give away an ebook or to sell it very cheap.
Low prices are among the accepted antidotes to piracy, which has not yet proven to be a problem in the book world. A study undertaken by Magellan Media, in conjunction with O Reilly Media and Random House, seemed to suggest that ebook giveaways and piracy - the little of it there has been to date - has stimulated sales, not cannibalized them. But three weeks ago it emerged that there were pirated editions of books showing up on Scribd, a 'YouTube for documents' site that had days before announced agreements with many major publishers. Is this the leading edge of a problem? We don t really know yet.
And it is important to remember that ebooks as currently rendered only really work for narrative reading and, with recent improvements, for charts and tables as well. But a truly integrated book of words and pictures is not yet a good candidate for an ebook. Scrollmotion might change that, but it hasn t yet.
However, even if ebook use keeps growing and even if the margins are maintained, publishers are in for a wild ride.
It has already been established that ebooks can be used to get books to market more quickly. Last August, a small publisher called Chelsea Green used a Kindle and print-on-demand combination at Amazon to deliver a timely book on Obama for the Democratic National Convention, effectively cutting all other retailers out of the early action on the title. And in January, Simon & Schuster published a book on the economic collapse, Dumb Money by Daniel Gross, in ebook form some weeks before the book came out. This is the bleeding edge of what will become standard practice.
And updating of non-fiction will become common too, as soon as the ebook market grows large enough to warrant doing things just for it. Updating is a form of enhancing, and both are a way to keep the price up, either by supporting the price with greater value or by creating an add-on sale.
In fact, one wonders how large the ebook market needs to get before it threatens the notion that products be thought of as 'print first'. Peter Balis, the ebook wizard at John Wiley in Hoboken, talks about the fact that he has to take IP designed to be optimized on a print page and figure out how to make it work on different sized ebook screens. He openly longs for the day when his outputs become the dog and the printed book the tail. He points out, correctly, that it would be an easier workflow for everybody if it worked that way around.
Although running a download business is a significant incremental hassle for an online paper bookseller, it is actually simpler than dealing with paper books. We can expect a future where most websites will offer digital downloads as a standard matter. That will enable distribution of niche material through niche websites even more effectively than the affiliate programmes do today. And it suggests that publishers who develop their own digital download capabilities will have an important tool to increase distribution through those sites before the sites have set up to do it themselves.
It is also much easier to customize a book in a digital edition. Take something like a book about applying for jobs. Large parts of the material might be generic, but being able to target the book by level, by age, by gender, by professional specialty, would be relatively easy in an ebook context but would create all sorts of headaches in the physical world.
Because ebooks are so easily modified, they also lend themselves to adding material from the crowd of readers and commentators that can be gathered around any published work. And when the day comes when screens are as good as paper for most uses and so become a default for most reading, the distinction between today's book publishers and all sorts of other publishers - of games, magazines, or video how-tos, for example - will blur and maybe even disappear.
As the information world becomes more niche, ebooks become an increasingly important tool. The AppStore concept is bound for verticalization. The current categories Apple uses are very broad, so 'books', 'productivity', and 'finance' and 'business' are all categories, whereas a book about taxes and an application to help you keep track of your basis in share transactions would be in separate places. That won t last forever. It won t be many years, and it may not be many months, before we'd expect to see the content formerly known as books and productivity apps and reference material on the same subject all housed together.
When that happens, the apps, or access to them, can be hosted by special-interest sites that have no stake in book-centricity. This will hasten the day, which should have already arrived, when each ebook also becomes a catalogue of related material, books or non-books.
And special sales in the virtual world will require the same opportunistic sales tactics that special sales require in the physical world, reaching out to accounts that don t routinely sell books or content and showing them how it fits into another business to do so. Selling through intermediaries that are set up for you as bookstores are, on land or in cyberspace - is much more routine and accessible to more publishers.
We also expect the business model for ebooks to evolve. Currently, most of them are sold like books, one unit at a time with a retail price related to the book's retail price. Subscription and bookshelf models are not unheard-of, but they re not common. The most successful I know about is O Reilly's Safari, which has been a huge commercial success for them. Now, assuming the settlement is ratified, Google will probably be offering consumers a huge database of orphan books as well. These will also be offered one book at a time, as are O'Reilly's.
As vertical sites grow in importance, we'd expect the Safari vertical aggregate bookshelf model to become more prevalent, but not necessarily with the same level of commercial success O Reilly has achieved with its audience of programmers. But we see the bookshelf becoming an important component of maintaining a vertical community's interest. Bloomsbury has gone to a bookshelf model to sell ebooks to libraries.
There have been various DRM-imposed restrictions on use of ebooks. Interoperability, the ability to use an ebook on multiple devices, has been stymied both by DRM and by formats that are just different. You might with epub be able to reflow text pretty readily to different sized screens, but dealing with art hasn t been so simple. But other restrictions that are strictly DRM-imposed, such as not being able to lend a book, pass it along, or print it might at some point become available at a higher price. Note that iTunes decided to offer interoperable and non-interoperable versions of a music file at different price points.
DRM has been under assault in book publishing for a long time. All our history seems to show that it does almost no good. There's virtually no book piracy anyway. And what there is seems to increase sales. So why bother? We bother because we re now in a world where most people don t want to read books on screens rather than paper. So for many of them, if they get a book on a screen and like it, they just become more likely to buy it in paper. This will not remain true forever. A world in which more and more people are reading books on screens will also be a world where freely distributed ebooks will cut into sales, not spur them.
But in a longer run - a few years' longer run - we'll stop possessing our content on our hard drives anyway and be getting it all from the cloud. When that happens, licenses will be enforceable at the source of content and the argument about DRM will go away. We'll live with it. And, when we do, there will have to be licenses that allow sharing, giving, and passing along somehow in everybody's interests.
I want to enumerate what I see as the biggest challenges, now that a market really seems to be developing.
I touched on the big one earlier: maintaining margin. Free and very cheap ebooks will abound; how seriously that will affect the market for full-priced product, and what 'full-priced' will mean, are critical questions for the industry.
Publishers are going to be dealing with an intermediary landscape that will become more complex than it ever was in the bricks-and-mortar world. The complexity will be driven by the sheer number of potential resellers worth influencing, but also by the number of platforms and product variations that become possible in a virtual world.
As ebooks become more important and publishers work harder at making them good, reconciling that effort with the still-complicated job of delivering a print book will require constant process re-engineering. And that will probably lead to a new publishing model that even the tradiest publishers will have to consider, which is that the constantly changing and evolving ebook should be tied to a PoD version of a physical book, so the printed book can keep up with development. That writes off a big piece of the current market that has its copy waiting for it in a store, but as online sales of books and digital downloads grow, it would seem inevitable.
Let me conclude with a few points about how the digital marketplace changes trade publishing in ways that have nothing to do with ebooks.
Amazon is now the largest account for many American publishers. But it is not the only online retailer of books that is important. One publisher we talked to recently stressed that there are many online booksellers whose accounts are worth 'working', but where most publishers just trust to luck. Not calling on a store isn't a good strategy for a publisher, whether the store sells physically or virtually.
Publishers are also coping with proliferating and fragmenting marketing channels online. There are a growing number of dedicated book sites - LibraryThing, Shelfari, GoodReads, and a recent launch I'm involved with called Filedbyauthor - and there are also sites specializing in genres and market subsets. These create a moving target for publishers and they have to stay on top of developments.
Social networks are another challenge. Publishers are working hard to keep up with Facebook and Twitter, but they're now finding that social networking tools are available on a wide variety of sites. All of these create marketing opportunities that are very labour-intensive, but hard to ignore.
And that will be part of the driver to vertical, making publishers more inclined to stick to niches where they can work the same sites again and again. Getting established in a community takes time. Watch how one's follower list grows in Twitter. That's only making more obvious what is actually happening in many places. Would it make sense for a publisher to start creating new Twitter followers each time they publish a new book? That's essentially what very general publishing programmes require.
The question agents want answered is 'what do I tell my author?' And what they really want is an answer for the author that wants to 'just write' and not be a self-promoter. Unfortunately, the true answer for that author is 'you need ten times the amount of luck you would have needed five years ago to be successful.' Authors must work to build their audiences. A book will help them do that, but they still have to do the work. An author who doesn't want to blog, visit other blogs and comment, and both discover and engage with their audience wherever they can find it, won't succeed in the world we're increasingly living in.
What is the negative impact of the growing market of used books? Several years ago, the Book Industry Study Group tried to analyse this problem and, for some reason never explained, Amazon very uncharacteristically got involved and shared data. That study was not definitive and we all knew at the time that we needed another a year or two later to see how the problem had spread. We never got it and we don't know the details, but we must believe that part of the drop in book sales during the recent recession has been a shift from new to used. Used books are the physical equivalent of the free-and-cheap ebooks that will hobble that market.
And last, on an upbeat note, publishers are beginning to discover that books can drive web businesses. Waterfront Media paved the way some years ago by creating a web-based business around the successful South Beach Diet book. Scholastic has had a big success with The 39 Clues series. And now longtime childrens' book creator and executive Lisa Holton has launched 4th Story Media, which will make book-and-web project series a regular business. This is the next frontier.
The above text is taken from a paper delivered at the Digital Seminar sponsored by BookBrunch at last week's London Book Fair. Mike Shatzkin is founder & CEO of the Idea Logical Company, Inc and co-founder of Filedby, Inc.

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