The (Publishing) House Is Burning, Part II

Yesterday we talked about James Shein's model for the phases of crisis. I quoted Dr. Shein telling fifty newspaper executives that he wasn't sure they could look at their industry with fresh eyes.

That comment has enormous implications for the print publishing industry.

The thing is that, just like the newspaper execs--even knowing their environment is under attack--the print publishing execs' own cognitive biases will work against them when it comes to reinventing themselves or their industry.

By cognitive biases, I mean the way people tend to respond when it comes to making decisions. Clinical psychology has identified a number of these biases. I am going to list the ones that I believe hold the potential to doom the publishing industry if its executives cannot rise above their instincts:

• Confirmation bias: the tendency to select information that supports the individual's preconceived notions and to avoid information that contradicts those existing beliefs
  
• Conservatism bias: the tendency to be conservative, to wait and see before making a change. A refusal to acknowledge both technical and social change even to one's detriment
  
• Illusion of Control: the tendency of people to believe they can control outcomes over which they have no control
  
• Status Quo bias: the tendency of people to want things to stay as they are, to not change

Earlier this week, a publishing executive for whom I have a lot of respect made the comment that it costs a publisher about $2.50-$3.00 less to publish an e-book than it does to publish a $27.99 physical book.

My first reaction was that this comment was made cynically--in the full knowledge that it was complete nonsense. If you accept that the materials, the printing and binding of a physical book cost $3, the exec's comment still fails to address the costs of warehousing, distributing, returning unsold stock and pulping those bound books.

However, I suspect the truth is that it is more a combination of two biases--confirmation bias and status quo bias. How else can you explain an industry where some execs actually thought anyone would buy an e-book priced $2 MORE than the mass market paperback? I know it sounds crazy, but one of the big six New York publishers actually set its pricing that way--and then lowered it to the price of the physical book a month later after readers complained vociferously.

Readers aren't stupid. They know that e-books don't cost as much as physical books to create. Look at all the e-publishing operations that have sprung up overnight on the Internet, with headquarters in someone's kitchen or den.

On Thursday, I referred my readers to an article by John Siracusa. Now is a good time to quote that article:

. . . most publishers dictated list prices for e-books that were based on the prices of the printed versions. When a book was available only as a hardcover, the list price of the e-book version was the hardcover list price. Later, when the book became available as a paperback, the e-book list price was reduced to match the paperback price. This, despite the fact that the e-book version remained unchanged during this time. Pricing based on cost and demand is all well and good, but it should be the cost and demand of the actual product for sale, not another product with entirely different costs and demand . . .

All of this is to say that the publishers effectively sabotaged the e-book market from day one. The DRM, the pricing, the general treatment as second-class citizens, it all added up to an insurmountable drag on a budding industry.

This makes absolutely no sense until you look at it not as a way to sell e-books, but rather, as a way to ensure that e-book sales do not eat into hardcover sales. That, in turn, makes even less sense, given the comparative profit margins of hardcover books and e-books, but, well, there you have it . . .

The thing is, the New York houses have forgotten the main reason for their hegemony in the publishing world: THEY OWNED THE MEANS OF PRODUCTION. Writers seeking a large audience were forced to go to them and forced to accept the royalty terms they dictated.

Guess what, folks? That isn't the case any more. Digitization and the Internet is democratizing publishing in the exact same way that Gutenberg's press democratized reading nearly six hundred years ago.

It's not too late for the big publishers. They need to look at the services they offer and the things they do better than anyone else and capitalize on those strengths. Pretending nothing has changed is a guaranteed death sentence. Paying lip service to electronic publishing is a guaranteed death sentence. Failing to act and act quickly is a guaranteed death sentence.

Vacuums attract new players. Look at Amazon and the steps they've taken. They are concentrating on vertical integration, owning a piece of every part of the publishing chain of distribution from its publishing arm (BookSurge) to its distribution system (Amazon.com):

Publisher => Wholesaler/Distributor => Retail Outlet => Reader

New technology offers all kinds of opportunities. Look at the deal Lightning Source (a division of Ingram) cut with the people who developed the Espresso Book Machine (EBM). Unlike Amazon, Ingram is focussed on horizontal integration. Many EBMs placed in bookstores or libraries around the country would lead to a hugely decentralized market where there would be numerous distribution outlets.

I think there are going to be more and more unusual partnerships in publishing. Writers and agents and bookstores and publishers are going to begin to come together in new and creative ways.

We'll talk about this some more in my next post on Monday.