Saturday, April 28, 2007

The New Digital Economy, Part IV

This is the fourth and final in a series of posts.

Writers have always faced the challenge of juggling finances, not only to cover living expenses but also to permit the time for their art.

For centuries writers--like other artists--depended on the patronage system to provide them with a living. Nobles and wealthy people sponsored painters, writers and composers, giving them the time to practice their art--and also providing opportunities for the noblemen to enhance their prestige.

Midway through the 15th century, the printing press was invented, making possible the widespread availability of books and newspapers. Publishers made capital investments in printing presses, paper, ink and warehouses. They also subsidized writers by paying them to provide content for newspapers, books, and--by the mid-17th century--magazines.

For hundreds of years, publishers have invested in authors, expending large amounts of dollars to distribute their work. In exchange for that investment, the publisher takes the lion's share of the revenue generated--both to recoup the large cash outlays and to make a profit.

Digitization and the Internet are changing the publishing landscape. Economics and ecology will dictate this change. We're far from that point now, but eventually most reading will be done on electronic devices, and physical books will become collectors' items.

Although only a small percentage of the population is comfortable reading books on a computer or an e-reading device today, that will change once an e-reader captures the public's imagination and interest the way the iPod has done for the music industry.

On April 25, Shelf Awareness had an item indicating that 81 publishing houses had reported their net sales for February. Those numbers showed that e-book sales rose by 44.7% with sales of $2.5 million for the period. If we just annualize that $2.5 figure, we're now looking at a $30 million dollar industry. A mere drop in the bucket when compared to the $1.17 billion dollars projected for adult paperbacks whose growth was up 3.2%.

Knowing, at the moment, this is purely an intellectual exercise, on Thursday, I asked the question: In a digitized world, what value does the publisher bring to the table?

In a digitized world, expenses are far less in terms of printing and distribution. E-publishers don't have the heavy manufacturing, shipping and storage costs of a traditional print publisher. The higher royalty rates paid by e-publishers are recognition of this. Currently, e-publishers' royalty rates range from about a third to, in some cases, almost a half of the book's retail price.

The reason writers entered into compacts with publishers in the first place was because the capital outlay required to print books was so enormous. Writers simply couldn't afford to publish their own work. Digitization and the Internet has changed all that. Practically anyone can create an e-book. So how DOES a publishing house justify its existence in a digitized world?

The answer could be in the marketing and distribution chain. While anyone may be able to produce an e-book, the failure of most self-published books is evidence that merely having a book is not enough. I made the argument here that a system for vetting books is still needed. Bookstores and libraries trust traditional publishers to bring them quality written material.

What I suspect is going to happen is that the lines between publisher, distributor, bookstore and author are going to start blurring. Unusual contracts among the different parties are likely to emerge.

Two recent tidbits about Borders provoked my interest. First, the Wall Street Journal (WSJ) reported that Borders will "provide such services as personal publishing" in their new digital centers. The WSJ article grew out of a Borders' press release in which they reported, "The company is also planning to publish exclusive and proprietary books to distinguish the Borders brand and drive high margin sales . . . books that will only be available at Borders."

There is no indication as to whether Borders will act as the publisher or outsource the job. However, the comment about "high margins" makes me suspect Borders is going to dip its toe into publishing. It's possible for a bookseller and a writer to sign a contract, leaving the traditional publisher out of the picture altogether.

E-publishers will continue to proliferate, but there will be more competition in the field. What's to stop a group of authors who already have name brand recognition from joining together to market their e-books?

For publishers to retain their place in the pecking order, they are going to have to either (1) Bring more value to the table, perhaps by setting up virtual bookstores in the social networking communities like MySpace, FaceBook and Second Life. Perhaps they will invest more dollars in young writers by financing book tours, advertisements and promotional opportunities; or (2) Raise the royalty percent paid to authors because, after all, the expense of bringing a book to market is much lower than in traditional printing operations.

I'm willing to bet that, by 2020, the industry will look very different. What do you think?


Ellen said...

With the environmental issues E books would mean less use of paper. I find reading long stories on a monitor tiring. At least with a small(book size) E Book reader many books could be loaded up depending on the gigabites or soon terabites and I can sit in a comfy chair to enjoy a novel. Printed books would become POD for those unwilling to go the E Book route. E books would make it easier to carry school and college texts around. Books getting dusty on shelves would be reduced. I am sure there are many favourite novels one has to hold on to in printed form. Many college instructors are asking for work to be turned in on flash drives, floppy disks or e mailed. A stack of floppys is much smaller than a ton of paper. The complete works of famous writers could be sold like boxed sets of music icons, to be loaded to the E Book Reader.

Maya Reynolds said...

Ellen: I agree. My comment about economics and ecology dictating the future was my way of acknowledging the issues you raise.

As the reading public becomes more comfortable with e-readers (and as e-readers improve), the industry will shift to a digital one.

Remember the microwave oven? Only 40,000 had been sold in the U.S. in 1970. By 1975, there were a million units sold in the U.S. The same thing is going to happen to e-readers over the next ten years.

Laura Vivanco said...

I suspect that the big environmental savings might be the ones around the transporting and storing of the paper and books. If books are printed on paper sourced from renewable forests, then that isn't an environmental problem (in fact, it means that carbon is stored within the books), though water-use, dyes and glues can also be a problem. Penguin say that 'to give a rough idea, a 500-page paperback (such as Zadie Smith's White Teeth) will typically account for around 2.5 kg of carbon dioxide emissions per copy'.

On the other hand, though, electronic devices also have an environmental cost. I suspect that depending on what they're made of and how they're dealt with once they break, that could be quite high. I know there are some rather nasty things in computers (e.g. mercury, cadmium, lead) and they don't always get properly recycled. At the moment books can be easily recycled for use in road-building and, of course, they're recycled when people buy them second-hand. We've also still got to work out how to store ebooks in libraries in the long-term. That's one of the problems with a fast-changing technology. It would be very sad if some books were lost for ever because the technology became obsolete and they couldn't be archived.

Maya Reynolds said...

Laura: Yes there are environmental issues in either direction, which is why the financial issue will triumph. It is simply too expensive to maintain the traditional print system.