Simon & Schuster, Part II

I ended my post about Simon & Schuster last night saying that I believe publishers are going to have to start offering BETTER deals to writers, not worse ones.

Regular readers of this blog will remember that I've talked about this before.

In the traditional business model, the writer provides the artistic talent and the publisher provides the capital to turn the writer's work into a printed book. All the power is in the hands of the publisher since most writers don't have the financial resources to produce the printed book themselves. The game belongs to the publisher.

However, the Internet and POD technology is changing that dynamic. Instead of one publishing business model, the new technologies have splintered the market into three models. I'm going to call them: traditional print, e-publishing and self-publishing.

We already know how the traditional print model works. Let's talk about e-publishing next.

E-publishing is only about ten years old. Compared to traditional print, it is much less expensive to become an e-publisher. An investment in a website and web designer is relatively cheap. There's also no shipping, warehousing, and bookstore returns to mess with. Because of this, the royalties paid to writers are much higher than in traditional print. Writers working for e-publishers expect to receive a minimum of 33% in royalties.

The problem for writers is that the e-publishing market is still new and developing. Attracting enough readers to build a name is the challenge.

E-publishing found its first readers among the sci-fi and romance markets. But e-books are still enjoying double digit increases in sales. In February, 2007, e-book sales rose by 44.7% with sales of $2.5 million for the period.

Still, the lack of a viable e-reading device (inexpensive, easy on the eyes and simple to operate) has slowed the growth of e-publishing. Once an e-reading device captures the public's imagination the way the iPod did for the music industry, I'm betting e-publishing will take off.

Traditional publishers have finally begun to take notice. As more and more people become comfortable buying print books on the Internet, publishing houses began to realize two things: (1) They could market their print books via the Worldwide Web, and (2) Younger readers were beginning to move away from print copies to digitized downloads.

The big seven publishers are actively digitizing their stock and demanding e-publishing rights in their contracts. However, there's a problem here.

The traditional print houses have become so accustomed to "owning the game" that they have not yet realized the Internet and POD technology may mean the end of their control over publishing. The move by Simon & Schuster to demand indefinite rights to books is a perfect example of that arrogance.

Giant printing presses are no longer the key to the kingdom of publishing. The large houses face competition on two fronts: from the Internet giants and from the e-publishing industry.

When I say Internet giants, I'm talking about Google, Amazon.com, Yahoo, eBay and Microsoft. Of the five, I suspect the biggest direct competition will come from either Google or Amazon.com. My money is on Amazon. The biggest dark horse IMHO is eBay.

As I mentioned last night, the Internet companies were the first to realize the power the Internet had to change the face of publishing. Both Google and Amazon started by offering to help traditional print houses market their print books. However, I don't think that either company will stop there. It is not a big stretch from marketing other companies' books to marketing original content yourself.

Amazon already owns a POD company and is developing an e-reading device capable of using different formats. Google already has its search engine for marketing and digitizing equipment. Either one could easily produce both print and e-books.

Remember, the reason traditional publishing gained all that power was because they were the only game in town.

That's changing. In addition to the Internet giants, there are already dozens of tiny e-publishers. While e-publishing is still in its infancy, it's probable that one company will move ahead of the pack.

Moving to electronic publishing offers other powerful financial incentives to traditional publishers beyond merely keeping up with its migrating reader base. E-publishing frees them from costly print runs, warehousing and shipping expenses, and the headache of bookstore returns.

Up until now the big houses have used the Internet only for marketing. But that's already changing. On April 13, I reported that Penguin, Random House, HarperCollins and Mills & Boon have all signed up with ICUE, a British company that can transfer books into mobile phone-friendly content. See here for the story.

I'm not convinced that traditional print publishers understand that, as they continue to move toward e-publishing, they lose their competitive edge and, more importantly, their bargaining power. On the electronic playing field, they face lots of competition. Competition that offer higher royalties.

If the big seven aren't going to offer higher royalty percentages, they need to offer writers other incentives--more promotion, more marketing, more service, more formats. If they don't, they're going to find those writers deserting them for other companies who WILL sweeten the pot. The question is whether those companies will include an Internet giant like Amazon or Google.

The unknown for me in the equation is the impact of self-publishing. In November, 1999, Barnes & Noble bought a 49% stake in iUniverse. Borders is now talking about offering self-publishing services. Other companies are bound to jump into the business.

The two biggest obstacles self-publishing faces are its poor image and the lack of a filtering system. Vanity presses polluted the pool by printing any crap that came along as long as it was accompanied by cash. Until the self-publishing industry develops a filter system to weed out the poorly written stuff, every self-published writer, even the ones writing good material, will bear a stigma.

I've said it before: I suspect the lines between publisher, distributor, bookstore and author are going to start blurring. Unusual agreements among the different parties are likely to emerge. It's possible for an Internet bookseller or marketer to sign a contract with a writer, leaving the traditional publisher out of the picture altogether. And what's to stop a group of authors who already have name brand recognition from joining together to market their e-books?

That's why Simon & Schuster's posturing doesn't bother me. They're standing on shifting soil.

It will be interesting to see what does happen.