The Shatzkin Files


A coming new obsession: how to handle a smaller print-book business


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Here’s a prediction that has almost no chance of being wrong. Every major player in the trade book industry is about to develop a new obsession: how must our business model change when we reach a level of ebook sales that is dynamically disruptive to the print book ecosystem?

This might not be exactly a “tipping point”, since that implies a point at which growth accelerates from some people to most people, or nearly all people. But print publishing will be seriously disrupted long before ebooks are used by “most people.” That’s because print publishing is a “critical mass” business: we need to sell enough to make a sensible print run, to keep the bookstore open, to support the sales organization and the warehouse. Our bestseller lists (with one exception) capture exclusively print sales, our author-publisher contracts and sales terms with accounts are based on the notion that we’re selling a physical object, and the biggest publishers in the land use their scale to perform capital-intensive functions that are, as much as any editorial or marketing expertise, what the authors need them for.

This presents a problem to all the incumbent players. Every powerful company in the print book supply chain: the big publishers, the big retailers (including Amazon!), the wholesalers, and certainly the independent retailers have a huge investment in competencies that revolve around print books. They can design them, jacket them, price them, print them, ship them hither and yon and keep track of each separate ISBN in the package, put them on shelves so customers will find them when they arrive and calculate when to take them off the shelves to send them back. Although there are other skills that these companies have that might port to an all-ebook or ebook-dominant world, none of these do.

Whether the challenges get acute when 20% of the sales of a narrative title are predictably e, or whether the number is 25% or 30%, the day is coming faster and faster. Growth in sales of the simplest kind of ebook — a direct lift of what is published in print — are exceeding the most aggressive predictions. The IDPF just announced that year-over-year ebook sales for August are triple what they were a year ago! Michael Pietsch, Publisher of Little, Brown, reports that 15% of total sales is the level many of their top authors are reaching now.

(Ruminative interlude: it has been my surmise that big authors will have their ebook sales “capped” at a lower level than smaller authors, just because their print books are on sale in so many more places. However, ebook sales are also very sensitive to “brand”; you don’t and can’t “browse” as many titles when you shop electronically, particularly on a device. I know that smaller publishers with less effective total distribution report Amazon sales of 60% and 80% of sales, so their ebook sales proportions are also bound to be much higher. But how the midlist authors of big publishers fare on overall ebook sales relative to the big ones is a question I haven’t asked. I will. Or, I am…)

Meanwhile, ereaders keep improving and proliferating; there have been several announcements of new devices in the past week, including the forthcoming “Nook” from B&N, which will really raise the stakes for Kindle. It will “see” Kindle’s e-ink screen and “raise” one LCD panel for link viewing, plus a 3G connection and Wifi use in B&N stores, all at the same price. B&N has the same power Amazon does to amass a robust list of titles (they have deep contacts with all the publishers) and they have at least as good a skill set for curation and merchandising to make a great shopping experience. And they’re putting their reader front and center in their bookstores (with the free wifi and some special in-store content features) which will expose the concept of the device to many people who don’t shop at Amazon and did not get blasted with a sales pitch every time they bought books.

Barnes & Noble had entertained being the ebook market leader a decade ago, losing interest when the Palm format became the early format frontrunner and wasn’t made available for intermediary distribution (one of the first in a string of futile attempts to install an iTunes device-capture model for book content, and before the iPod, at that.) Then B&N let Amazon get the jump on them in the ebook world with the Kindle; their Nook will be following more than two years later. In the meantime, B&N may have realized what all the big publishers know: that when the customer shifts to ebooks, it threatens all their business models, sunk investments, and longtime marketplace advantages. That, along with the sour experience of trying to lead on ebooks and being frustrated by what was actually a self-destructive policy by Palm, may have fed their apparent disinterest in ebooks until recently.

But it was clear to everybody that the first round of ebook growth shifted power dramatically to Amazon. Publishers have been frustrated and humbled by the Kindle’s rock-bottom, loss-leading pricing of the hottest new titles. And Barnes & Noble had to figure that, recession aside, some of those same-store sales they were missing were from shoppers who stopped coming to them because they had bought a Kindle and were now locked into the Kindle store for their purchasing to use the device.

Incidentally, the sales levels that the IDPF and Michael Pietsch are revealing are for legitimate ebook sales. Nobody knows the size of the pirate ebook market. There are some who guess it is rather small despite the robust number of files available in various hard-to-quell locations on the Internet, but if it includes any significant number of current or recent print-book customers, it only magnifies the impact on the legacy businesses.

There are a multitude of questions facing the industry about the expanding ebook market: how (some, including some highly credible voices, would say “whether”) to use digital rights management (DRM), how to price ebooks, what enhancements or updating can make commercial sense and how to manage them in the marketplace, when they should be made available, and, most important of all in the long run, what the “deal” is for the consumer (and then, based on that, for the author) who is actually licensing something rather than taking possession of something. But the questions about the declining print side are just as acute.

The brick-and-mortar bookstores, led by Barnes & Noble, are going to have to figure out how to keep their stores enticing with might be a smaller selection of print books. Nothing can grow the market for print books in the years to come, but keeping the number of points of purchase as high as possible and the traffic as high as possible are in the industry’s interests. It will require some real creativity to figure out what other activities or product offerings are compatible to keep people coming and how to drive traffic with online activity.

Amazon is not unaffected by this shift, either. Their big early lead in the ebook world was really built on the back of their superior print-book supply chain. From the very beginning, when they put out a database that had out-of-print books in it and then gave the customer a reliable delivery date for what they could sell, they created an unmatched print book shopping experience, provided a) you knew pretty much what you wanted and b) you didn’t have to have it right this minute. Their logistical capabilities are nonpareil but don’t do them nearly as much good with an electronic customer as a physical one. Their grasp on the ebook market really depends on the Kindle remaining a favored device and I think you could get good odds if you wanted to bet on that. Making hardware is not a core competency for them.

As the print business declines, Amazon continues to win if real print book demand falls more slowly than brick-and-mortar availability. But their hammerlock on the ebook market will probably not last; there will be too many better devices and they have to make a concessionary shift to selling the epub format before they can even begin to compete for those customers. They’ll do it someday, and probably soon, but they loosen the grip they have on the Kindle owners the day they do.

Publishers have an interest in continuing to support bookstore survival because the display they get there is great promotion and because being seen by a browser who put themselves at a bookstore section is still a great way to be discovered and bought. And there will still be, for some time, books which are not narrative reading which are simply better in print than in any electronic rendition. Publishers still sell a lot of these books (many of them juveniles) and bookstores, or some appropriate retail setting, are essential to them.

But publishers are going to have to rethink their operations. Sales staffs will probably contract; warehouse space will become redundant; investments in IT systems for the print operation will have to be more rigorously controlled. Publishers will likely combine, of course; the big houses now all gladly take competing publishers into their back office operations to help support them. But downward shifts in scale are not only inevitable, they will probably happen in more dramatic lurches than we’ve known in the past.

Wholesalers and distributors will both win and lose in this shift, but the shape of their business will certainly change. On the one hand, they, like everybody else, will lose sales that they have today because accounts go under and publishers they distribute cease operating. On the other hand, they are in the business of converting fixed operating costs to variable ones, and the number of customers for that proposition will grow as the apparent costs of operations (as a percentage of sales) get out of control at many companies.

Agents and the top 500 authors (an arbitrary number) are most likely to be the biggest beneficiaries of these changes in the short term. Because they themselves are powerful, searchable brands, they could actually sell ebooks themselves off their own websites, keep all the money, and make considerably more than their contracts would give them for ebook sales today even with sales of a quarter or less than the publisher and retailer get for them. (And the sales might not be that low.) I have talked to big publishers about the threat that top authors might just make their ebook deals first (you can cover the market in 4 or 5 stops and branded authors would have their own websites to sell from as well) and offer publishers print-only. Without exception, the big publishers tell me “no way we do the deal on that basis.” But if what is contended in this post is true — that keeping the print business viable is going to depend on amassing volume for it any way you can — they might not actually feel that way when presented with the problem. I think they will be getting the opportunity to make the choice.

I’ve posted on variations of this thought before. I had already decided it needed to be the topic of a keynote panel at Digital Book World. I’ve recruited Ken BrooksMichael CaderLarry Kirshbaum, and Evan Schnittman to join me on stage there to discuss it. Continually rebalancing the business between print and electronic, and maintaining the scale to run still-vital print operations, will be a topic of interest for just about all of us in the months and years to come.

Apologies for the paucity of posts lately. I’ve had a lot of work, been traveling, and had a bout of food poisoning. The food poisoning’s about gone, but the work and travel schedule remain robust for the rest of the month. I should become a more reliable correspondent again in a couple of weeks.

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  • Mike,
    Thanks for the information.
    I'm interested in your take as regards “juveniles and not narrative reading” staying print.
    Are Young Adult, Middle Grade, Chapter Books examples of what you have in mind; how about Comic Books and Graphic Novels?
    I can see your point re: Picture Books, but I'd like more specificity as to which non-narrative species you feel will remain print.

    And have you more *gossip* as to the APPLE TABLET being the best bet for writer/illustrators types should they choose to go the e route?

    Interesting information, interesting times!

    Haste yee back 😉

    • When kids have their own screens and program them, an age that is probably
      now about 10 but which will move toward younger, there becomes the serious
      threat that they'll gravitate to e. As the screens improve, of course, and
      the Apple tablet will just be another step in that direction. B&N's 2-screen
      Nook is a step in that direction.

      I think kids will read narrative stuff fine on a screen when they have an
      always-available screen. It is, indeed, the presentation of art and text
      integrated with graphics that will be slower to port. There are also already
      strong steps in that direction, but it's behind.

      The print books that will have demand the longest have the advantage of
      being a better presentation on larger sheets of paper. They have the
      disadvantage of being relatively inefficient for short run and POD.

      Mike

  • Really interesting post Mike. The big question is how will consumers interested in vertical market books search and find their product in the e-format? Its easy to buy a best seller, or one from the “500” big authors on amazon, or any ebook device, its more difficult if you want a book about art, woodworking, or any other speciality product.

    Of course, the answer is likely, an itunes-type store, which really doesn't exist yet (lots of products displayed, easy to search, easy to test, easy to buy). And I still Apple is lying in the weeds on this one.

    • David, I think the answer to the curation here is in the specialist web
      sites. They have to harness the experts and the crowds to let the masses in
      the niche know what's available. That is an item on my checklist for
      consideration when creating any vortal.

      My personal hunch is that the complex problems of book merchandising will
      never be of interest to Apple. Somebody else may solve it using their tools,
      but I actually think the merchandising issues are a choke point for the App
      Store as a book selling environment. If I read it right, ScrollMotion is
      changing their model in a way that could be interpreted as reflecting
      frustration with the channel as Apple provides it.

      Mike

      • Yes, I agree Mike the vertical community will have a great advantage, I just didn't want to include a commercial for
        artistsnetwork.com or woodworkersbookshop.com, or any one of
        F+W Media's 17 e-stores!

      • And now you have. And since you're the man who dreamed up Digital Book
        World, I'm happy to let you sneak in a promotion to that portion of my
        audience that reads the comments!

        Mike

  • stepbate61

    Hi Mike, good to hear you've kicked the food poisoning and we're really looking forward to your talk at Digital Book World in January.

    At David & Charles, part of the F&W Media Inc. group of companies, we produce illustrated content to help enthusiasts and life-long learners by delivering clear instructional content using detailed step-by-step photography (you know the sort of content I am referring to).

    We are seeing healthy growth in many “how to” related to economic thrift but my sense is that more and more enthusiasts are turning to the Web in search of inspiration and instruction. More and more user-generated-content is available. E-books don't yet offer the capability to duplicate the reader experience of the printed form in this category of publishing (photography, illustrations, legends, cut out boxes, summaries, tips, charts and non linear reading).

    However, video, despite its higher cost of production, is potentially a better asset than photography in the digital world as it can be used for both stills (step-by-step) and the richer in vision experience.

    Can we be as visionary or as sure about e-book transition in the illustrated category of content?

    • Stephen, the short answer to your bottom-line question is “no, we can't.”
      Anything that isn't straight narrative reading is really up for grabs (and
      there isn't any shortage of ideas about how to “improve” straight narrative
      reading as well.)

      And I agree that video needs to be part of the thinking for illustrated book
      publishers going forward. The most significant piece of my take about the
      shift in consumer media is that in the 20th century it was horizontal, and
      not it is becoming vertical. But the other piece is that it used to be
      format-specific, and now it is becoming format-agnostic. The illustrated
      ebooks of the future will have to use video when it can illustrate something
      better than a still picture does.

      Mike

      • Eve Sinaiko

        The potential for illustrated ebooks is great–cheap color, zoomable images, moving images.

        The big obstacle is third-party copyrights (e.g., permission to reproduce an artwork), which are still extremely difficult to obtain for a digital-format publication. This single problem has put art publishing on the slow track for ebooks, just as it has stymied web-based publishing of art books and art textbooks. I'd love to see that particular problem addressed.

      • Eve,

        The problem of rights clearance for art and photography dwarfs the orphan
        problems in book publishing. In the case of art, you have the problem of
        estates of artists controlling the images. In the case of photography, there
        are a ton of “orphan” pictures where nobody knows ownership, but where the
        risks of publishing without permission are deemed to be very high.

        I'm afraid this is a challenge that won't be overcome anytime soon. I wish I
        could give you a better answer than that, and I will appreciate it if you
        tell me if you find a better answer than that.

        Mike

      • Eve Sinaiko

        I can mention a few of the initiatives that are trying to address this problem. For the most part they are not occurring within the publishing industry, but in the legal and arts communities. The book industry has, for the most part, not addressed the problem–presumably because illustrated books are a small sector, and publishers are net rights holders, not rights users. But if the publishing industry doesn't get more active, it will be very hard for illustrated books (especially art books) to make the jump to digital.

        Concern about this problem has crystalized with the news that Google Books is stripping out most, if not all, images from its project, even if the pictures are in the public domain. (I believe they have worked out an exception for some children's books, if the rights holder for the images registers.)

        1. Get Orphan Works legislation passed. Last year I believe that AAP endorsed the Senate's Orphan Works bill, which passed unanimously. A far less practicable bill was developed in the House, and the whole process died with the end of the session. Now, with the Dept. of Justice's expressed concerns about the Google Books project's “capture” of a lot of orphan works, the need for legislation may be back on the radar.

        2. A federal appeals court decision some years ago, called “Bridgeman v. Corel,” established that a copyright cannot be asserted in a photo of a 2D artwork. This means that museums that assert copyright in photos of works in their collections should stop doing so. It would be nice if publishers felt confident in relying on Bridgeman, but they don't, because they value the relationships with museums. Some museums are abandoning copyright assertion in artwork photos, and instead relying on licenses. A Creative Commons license could be useful here, IF it didn't exclude commercial use. That would be a good trend.

        3. Strengthening fair use. There's a good deal of recent case law that supports the idea that reproductions of artworks in books do not violate the copyrights of the artworks' creators, at least in some circumstances. The problem with fair use is that a) it makes publishers feel very uncertain; b) it is only recognized in the US (and to some degree in the UK), whereas book distribution is global, especially ebooks.

        4. Some artists' estates are beginning, sloooowly, to consider blanket licenses and/or perpetual licenses for use of their works. But it's still an enormous burden of paperwork and rights clearance for publishers.

        Since I don't want to see e-publishing become a text-only realm, my hope is that rights holders (especially artists) will begin to recognize the value of having their works circulate–as the iTunes format made musicians happier than it did the music industry, and put pressure on it to accept a new marketing model. Whether that happens before art publishers close up shop is hard to say.

        It may be that the art book will only switch to e-format with the arrival of born-digital publishers (perhaps museum presses themselves).

        But I would like to see the mainstream publishing industry (and Google) take on the problem of images. Not to mention the ebook readers, which seem to have at best very limited capacity for images.

        Regards,
        Eve

      • Eve,

        Thanks very much for all of this. I shudder to think that the “solution” is
        legislative, since most of what the legislature has done in the realm of
        copyright in my lifetime has been destructive (life plus 75 years? Please!)
        And the fact that Google doesn't want to take on the legal challenge is very
        instructive; they are anything but timid and they have very deep pockets.

        This is a serious challenge and I agree with you that it is retarding the
        progress of art ebooks and will continue to. Perhaps museums and artists
        will see this in a different light as art publishers start to disappear.

        Mike

  • Right now, the number one paid-app in the UK iPhone app store is by Jamie Oliver, who is surely one of the top 5 most valuable authors in our market. His app costs £4.99 and, from what I can see, is nothing to do with his book publishers (I invite correction on that point). He made it himself, a la Radiohead. The future that Mike talks about in this article, where top authors go direct, is here today. Jamie Oliver = No.1 author, no.1 app, no book publisher. Of course he'll carry on publishing books – his publisher does a great job – but maybe 20 years from now people will see this as a turning point. I don't believe that his book publisher's would turn down his next work simply because he made an app out of it first.

    I've been developing my own iPhone apps for a while, and as a sideshow I've also offered consultancy to book publishers about turning their apps into books. I get a lot of meetings but not many sales. I thought it would be a slam-dunk, but I've actually been really surprised about how difficult its been to get publishers to turn books into apps. Maybe it's too soon, because the people I meet are smart and committed, and yet their employers shy away from apps because they dislike the price points and investment costs, and they are not sure about where it should sit in the company. Most of all, they find it easier to carry doing what they've always done, which is print product. Meanwhile, their key authors are spreading their wings and learning how to publish apps themselves. I think Mike is right to say that the top 500 are very close to doing it for themselves, and I aim to help them – I'm off to see some top London agents this week!

  • This is the best post I've seen on the problems facing publishers, bar none. Mike hit almost every nail square on the head. Some additional points I'd mention are:

    1. The disruptive role that Apple stands poised to play in the e-reader market. At O'Reilly, we already sell more copies of our books on the iPhone than we do on the Kindle, and if Apple gets serious about offering books in the iTunes store and offers their own bigger tablet to boot, there's a good chance that they, not any existing player, will be the dominant force in the ebook market.

    2. It's worth remembering just how many business models print publishing has supported, and exploring how many of them might apply to ebooks. For example, our Safari Books Online (joint venture with Pearson) is a subscription-based “cloud library” model. While downloadable ebooks are quickly gaining momentum, our sales through Safari are still 4x the size of all downloadable ebook formats combined. While eventually, I do expect downloadable ebooks to surpass subscriptions, looking at Audible's subscription-based share of the audiobook market might well be a good place to get a sense of where it will settle out. Google may play a significant role in the evolution of this niche.

    3. Books themselves will evolve in response to the opportunities in the new medium. New publishers will arise who understand the medium both as a content vehicle but also as a distribution model. Many of them will start out as self-published authors, who will then use what they've learned to help others, gradually turning into publishers. (That's how I got to be a publisher, by the way.)

    4. As the number and variety of ebook channels proliferates, there will be a new kind of distribution intermediary, not only because of the difficulty of many-to-many business deals (in which large distributors want to see small publishers aggregated for them) but also because there will ultimately be benefits to scale (better deals etc.) in ebooks as well.

    5. The biggest issue that Mike didn't discuss is that of discount. Right now, retailers are demanding (and getting) the same kind of discounts that they get in print, without having corresponding costs. They are using those discounts to fuel a price war. Everyone in publishing presumes that at some point, whoever won that war will stop passing along the discount to the consumer and will either bring prices back up or ask publishers themselves to offer the lower prices. (In either case, the powerful retailer fattens its margins at the expense of the rest of the industry.) But there is a counter-dynamic: the first ebook retailer at scale (hint here to Apple and Google) that offers publishers and authors a fair discount and allows THEM to do their own price experimentation (to find the price that drives the most sales) will become the most dynamic and explosive ebook marketplace. Apple's 30% cut on iTunes store application sales is far more reasonable than the 55%+ that Amazon, B&N, and print book wholesalers typically charge, and are trying to carry over to ebooks. With competitive pressure, that retailer percentage should go down, I'm hoping to about 20%. That will shift the competitive playing field from retailers trying to amass scale, to publishers and authors, who are trying to find the right price to draw readers.

    • Tim,

      Thanks for the praise and thanks for every one of your additions.

      On the discount point: I couldn't agree more and I have hit that point with
      a number of posts. I think the big authors's agents will end up forcing the
      point. When ebook sales hit a tipping point, branded authors will be able to
      sell their books themselves and keep *all* the money. That will create a
      very powerful negotiating position from which to make other deals.
      Publishers are trapped by contractual terms with Ingram, Amazon, B&N, and
      others that extend many months, sometimes years, into the future granting
      these terrestrial-based discounts. You're right; it's nuts.

      Your thoughts on Apple open my eyes a bit. I have found the App Store a very
      frustrating place to shop unless I know exactly what I want and can search
      for it. I have heard somewhere that ScrollMotion is changing their model
      with Apple at least partly to enable a better shopping experience. O'Reilly
      is always tricky to analyze from because you have such fantastic power to
      communicate with your audience. If you put out the word that something's in
      the App Store, your customers will find it. Since we've just reached the
      point that there are more apps than iPhone owners, the merchandising IS so
      bad, and the iPhone (like Kindle) is about to get a lot of competition, I am
      not sure I see the Apple dominance for publishers without that marketing
      power that you do.

      But I myself do read narrative books exclusively on the iPhone (B&N Reader,
      actually, most of the time — also Kindle and Stanza and ScrollMotion a
      bit). I agree that the tablet will change the game, but largely by bringing
      in all sorts of “beyond narrative reading” books: illustrated (animated…),
      how-to…

      You are, no doubt, correct that what the ebook is will evolve. As the
      capabilities become more ubiquitous, it enables more people to be creative
      about how to employ the possibilities. I can think of a ton of things that
      would enhance most narrative ebooks that aren't being done, and they're
      informational — not quirky or “creative” at all. Deciding what the
      “product” is (and, sometimes, as you've pointed out, what “service”
      component(s) it contains) just gets more complicated every day.

      Mike

    • dedifelman

      Excellent post, Mike. And great comments from Tim. Re #1 and #3: Earlier this winter I was convinced that Apple could have the kind of disruptive force on publishing–and hence attain the kind of dominant position–that it had on the music industry, especially once the Tablet is released. Now I feel much less certain. In favor: as someone working to adapt nonfiction content to take advantage of the new opportunities afforded by the new delivery medium, the Apple Tablet sounds like the game changer we seek. Apple has the potential to get right what so many others have gotten wrong, esp in re: the provision of multimedia and a truly interactive experience. As Nicholas Negroponte would say, interface design and function are key. Apple probably will be the hardware game changer for content (see the enthusiastic response from the comics folks, among others.) But can Apple be the game changer in re: ebook distribution as iTunes was for the music industry? There I personally feel much less sure. There are already a lot of powerful industry players in the ereader biz (see Nook & Kindle) and as many newer players circling (e.g. Microsoft, Plastic Logic). And as Tim points out, there's a powerful constellation of cross-cutting interests at play here complicating Apple's attempts to become the clearcut distributor of choice. 1) Who will make the most consumer friendly device? 2) Who will make the most content-provider friendly device? 3) Who has the best already established online distribution system for books? 4) Who will offer publishers/authors/content providers the most attractive terms and discounts? 5) How powerful might more vertically-based intermediaries continue to be in re the direct-to-consumer market? 6) Who will share customer information with publishers if publishers decide to make this a priority? 7) Who cuts the best deals in the educational market, a clear breeding ground for adult reading habits (a lesson Apple took to heart from the early days of Mac)? In sum, is this a marketplace that will shake down to one dominant distributor/reader or several? I'm a huge admirer of Apple. But the distribution game in publishing is complex, and a lot of people have learned lessons from the music industry. Whether one player will dominate the field or several will cluster at the top is a question I know we'll all be following with avid interest.

      • Dedi, I think the keys to being a successful retailer are: 1) aggregation,
        2) curation, 3) merchandising, 4) ease of use and purchase. Apple does 1 and
        4 fine; they have no interest in 2 and 3. Now, they might become a platform
        by which somebody else does it. But nothing in the App Store so far suggests
        that they take anything but a Darwinian view as to what succeeds. They have
        a monopoly on merchandising the App Store; you can't buy that stuff anywhere
        else. They won't have a monopoly on ebooks.

        I agree that the iTouch Tablet, when it comes, changes everything for
        illustrated book and children's book publishing. I think the Nook is a more
        sensible advance for narrative reading. And there will be lots of others
        hitting the market as well. The device thing will be sorting itself out for
        some time.

        Mike

  • Good thoughts, and a good/necessary topic to address. I've been thinking about it for years, and having seen a number of “what the future of publishing will look like” posts, I recently analyzed what the axioms are. (I.e. identifying the “for-sure” elements to help in making / analyzing predictions.) Too long to get into here, but if anyone's interested, “Axioms in the Future of Publishing” is at http://critique.org/futurepub.ht

    • Thanks for the link, Andrew. If I'm flying at 40,000 feet, you're at 80,000.
      Either way, we see a lot of changes coming.

      Mike

  • ils

    I dont wanna buy me a book and dont can make a notice in it, I need a printed book for me and my life without a digital notebook or else.

  • marcoferrario

    Mike,

    thanks for this very brilliant post. You've described very clearly the most likely scenario publishers and book retailers (and wholesalers) are going to face in the next years.

    You didn't mention Google and Sony, who are likely to be the strongest Amazon competitors; in my view, if this alliance will work, new partnerships will be possible, including Apple with Amazon or Barnes&Noble. I'm not sure Amazon will be able to repeat the Kindle success outside the US, because they don't have the same power to build up such good libraries in different languages in such a short time: a jv between the Kindle Store and iTunes on ebooks, with a kindle3 realized in Cupertino would make a lot of sense, if you look at the market from a non-US perspective.

    A question: do you think there will be space in some European markets (France, Germany, Spain, Italy) for local players to get dominant positions (like in Japan), or it's just a global game played by the big mentioned players?

    • Marco,

      I concede nothing to anybody, including Apple and Amazon, at this point. The
      ebook market isn't 1 percent old; the product itself isn't really defined;
      the overall profit propositions are defined; the verticals that are going to
      dominate don't really exist yet. And all the big companies — Google and
      Sony, which you mentioned, and Apple, which Tim O'Reilly brought up — have
      agendas of which books are, at best, a part, and often a pretty small part.

      Nothing Apple's done suggest they have any particular corporate interest in
      the book business. Google has its interests and are bound to be an important
      player, but they're most likely to be a pipe for all content producers and
      less intrusive in the publishers' own value chain than Amazon has been.
      Here's the difference. I imagine the day is around the corner when big
      authors will see what they can do to make direct deals with the ebook
      marketplace to disintermediate the print publishers and get more of the
      ebook royalties. When that day comes, I can much more readily imagine Amazon
      or BN.com making a deal — guaranteeing a certain level of sale, or paying
      an advance, probably to secure certain “rights” (perhaps to windows of
      exclusivity). I'd be really surprised if Google got into the game at that
      level. Or Apple. Or even Sony.

      Because the amount of content will be so great, the act of curation (there's
      a post on the site on it) will be as important as aggregation. That will
      give real opportunity to local entities to be the merchandiser of choice for
      geography-specific or language-specific customers. Yes, that opportunity
      should be there. It's another version of “vertical.”

      Mike

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  • Kim Johnston

    Really interesting post & comments. I'd agree that existing models of distribution and selling don't neatly fit with ebooks.

    But in a small market such as Australia, we've got complicating factors. A recent Productivity Commission report has recommended moving to an open market situation – fiercely resisted by a publishing and distribution industry dominated by multi-nationals. However the report I think made a fundamental misjudgement in basing its pricing comparisons upon recommended retail prices. Individual consumers from Australia are accessing online suppliers, sourcing books at much lower prices than certainly Australian RRPs but also UK or US standard retail prices.
    http://www.fileden.com/files/2007/5/22/1103390/

    Ebooks are still insignificant in the Aust. market and both publishing and retail are flailing about trying to develop selling platforms. What is somewhat ironic is that ebooks offer the chance to re-impose territorial rights in a way that the individual consumer will be unable to bypass as they currently do when buying printed books online.

    url recognition techs are available now, and suppliers of ebooks do make solid efforts to uphold territorial rights (not withstanding Amazon's debacle with 1984). The lack of a ebook delivery platform for both Aust. and overseas territories for Australian published books is of concern. Lack of access increases the likelyhood of piracy, further makes Australian book retailing irrelevant particularly for academic titles, and will hold back the rise of POD as a symbiotic partner of the ebook.

    Book prices in Australia are higher partly because of duplication in the supply and marketing chain as well as freight costs, but I also think that most RRPs (particularly academic titles) are based on “what the market will bear” – it has only been in the last 10 years that Aust consumers could easily buy from overseas suppliers; a brave new world distributors, publishers and retailers have been appallingly slow to take on board.

    Shambolic access to Aust ebooks and territorial availability and the likelyhood that prices will be too high against overseas prices may offer a depressing case example of how NOT to develop one's ebook market.

    • Kim, thanks for your post. I visited Australia a little over two years ago
      and was struck by how your geographic isolation actually muted Amazon and it
      was a bit shocking to see the number of apparently healthy bookstores *and* the
      prices of the books inside them.

      The prevailing theory is that all books are available in pirated editions
      and that the size of the illicit trade is influenced by the pricing and
      availability of the legitimate trade. Presumably the purchaser locator
      identification technology works for people who want to use it, but your
      geographic isolation doesn't protect you from Pirate Bay any more anyplace
      else.

      Mike

  • B&N and Borders are already downsizing book sections and adding games, science project kits, stuffed animals. They are becoming wal-mart.

  • andrewdugas

    Another great post on the industry. You allowed Flatmancrooked to reprint previous posts. We'd like to reprint this one too. Let me know!

    • Andrew, yes “Flatmancrooked” can reprint this post, with a credit to me and
      a link to the post. Thanks for your interest.

      Mike

      • andrewdugas

        Great! I'll pass it along to Kaelan. Best – AD

        PS: Send along your email. Communicating on blog comments is awkward.

    • Chris, they will both have to get rid of a lot of books and add a lot of
      underwear and groceries before they actually turn into Wal-mart. But the
      point is well taken.

      Mike

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  • Facts 101

    Fact 1 : Averagely, only 1 in 50 bother to read a book (novel, non-novel).

    Fact 2 : Out of that swarm of 1 person's in a group, 92.5% (survey of approximately 1,500 bookworms) do not wish to read their books 'digitally'.

    Fact 3 : The book industry and music industry do not co-exist ecologically. What's happening in the music industry now will not necessarily be repeated in the book industry.

    Fact 4 : Out of 800 people surveyed reading books digitally (mobile phones, book readers, PC's), 94% of them never get past the 1st chapter (mean average of 8.5 pages).

    Profits for book retailers will shrink, but only slightly whilst e-books will grow very slow paced.

    Nothing else we didn't know people. So why raise the flag?

    p/s My research is based on 5 continents (Asia, South America, Africa, Europe and Australia) … no North America sorry due to immense hatred for the Bush administration.

    • Well, you have a lot of authority behind your research. On the other hand,
      ebook sales tripled, year over year, this August.

      Time will tell, but I just think you're wrong (except for the part about the
      record business and book business not having much in common…)

      Mike

  • Mike,

    Right on the money and something that has been worrying me for some time. You have as per usual though, put it together in a very clear and understandable package!

    Very good reading indeed!
    Eoin

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  • Daniel Menaker

    For some years now, I have not understood why ten (say) huge-selling writers do not band together into a consortium, outsource editing, marketing, publicity, and promotion, and publish their books only in e-form and keep all proceeds but the outsource payments–a scenario Mr. Shatzkin envisions here. (The text would have to be un-print-outable and unforwardable, I think. Is that possible? Probably not, but I don't know.) I actually asked Malcolm Gladwell this question a couple of years ago, and he said, “I like books,” clearly meaning the printed kind. Interesting, then, that he did a cameo at the Nook announcement at Chelsea Piers in New York last week.
    Actually I think I do know why writers haven't done this–at least not yet. It's because they're (um, we're) writers. As they have had to learn to do a great deal of their own marketing and publicity and promotion in recent years–to leave their fugitive and cloistered virtue behind, of necessity–they will someday, sooner or later, learn to get together and do their own e-publishing, is my bet.

    • Your scenario might well play out, as will others. What I think is more
      likely more often and sooner is that, when ebook sales reach a somewhat
      higher level than now, say 25-30% of sales, an agent will make the four or
      five stops necessary to get most of the ebook sales (Amazon, B&N, Ingram,
      Sony, and, perhaps, Shortcovers) before they shop the book. They'll secure
      revenues of 2, 3, 4 times what a publisher would pay on those sales and then
      they'll offer publishers print rights. But the consortium of writers to pay
      for admin for an ebook publisher also makes sense.

      No, you can't make ebook files secure. You can't even make them secure by *not
      publishing* an ebook. There are pirate ebooks available of Harry Potter
      which has never been published as an ebook.

      Mike

      • iliad1954

        There are pirated e-books of HP, even though HP books have never been officially published in e-book form. Isn't piracy going to sink this let's-keep-it-all scheme by the brand name authors? When they release their own e-books ahead of print editions, those will be pirated immediately.

        Many kinds of publishing have little to fear from piracy, but textbooks and brand-name authors are liable to piracy on a scale that resembles the music business.

      • You don't have to issue an ebook to get pirated. Pirated editions exist of
        books that have never been published electronically (Harry Potter) and I'm
        told that many pirated ebooks actually come from *manuscripts*!

        I agree that textbooks and big brand authors are the ones with the most to
        fear. The problem will eventually go away when we have true cloud computing,
        but for the next five or ten years, it's going to be a real issue.
        Fortunately, most of the book business is still transacted with older people
        who would be less likely than those younger to visit a pirate site (might
        get a virus…) but that doesn't change the truth of what you say.

        Mike

  • Kim Johnston

    Thought this might be of interest:

    http://bbb-bernice.blogspot.com/2009/10/pssstt-

    • Nice piece, but I think it lumps in the concept of “curation” with
      “aggregation.” They're separate things. The way the author visualizes the
      aggregation by independents is actually as much an act of “curation” as it
      is “aggregation.

      Mike

  • danbloom

    Do we need a new word for “reading” on screens? MAYBE? and what might
    that word be?

    ever think about this? can you blog on this one day, pro or con?

    danny in Tawian
    http://zippy1300.blogspot.com

    Danny Bloom says he's on a crusade to find a new word for “reading”
    on “computer screens and Kindle and Nook screens” — other than
    “reading”, that is! — and so far he's met nothing but opposition and
    roadblocks along the way.

    But that has not stopped the lone blogger in Taiwan from his quixotic
    quest. He says he's pushing forward with his public crusade, step by
    step, despite the many setbacks, adding: “Sometimes I feel this is
    like pushing a heavy stone up a steep hill, only to have it roll back
    a few feet every time we advance a few inches.”

    “Very few people in the education and technology fields agree with me
    on this novel idea, but I remain determined,” Bloom says. “In fact, a
    few experts and forecasters around the country have told me privately
    that this crusade is worth it, if only to start a national discussion
    on the future of reading and the future of E-readers.”

    Reading on screens is a whole new ballgame, Bloom contends, and he
    believes the culture needs a new word for this new human activity. “It
    is more than just reading,” he says. “On a screen, you scroll, you
    link, you see photos and videos, you use a mouse or buttons on a
    Kindle, and then of course, you read. This is uber-reading. This is
    reading-plus-one. So I feel we need a new word for this, although I
    have no idea what that word will be in the end, because as many people
    have told me in the past year, new words happen organically and
    naturally, when the time is right, and when the need becomes more than
    apparent. So this is all just to jumpstart the discussion.”

    Bloom, a 1971 graduate of Tufts in Boston, is in his 60s now, and says
    he reads on both paper surfaces and screens every day, and he loves
    both. One is not a priori better or worse than the other, just
    different, he adds, echoing the words of futurist Paul Saffo in San
    Francisco, who told him that in a recent email.

    Some people online have suggested such words as “screening” and
    “screading”, Bloom says, adding: “Who knows which words we will adopt
    for this or when? I have no idea. I just like thinking about it now,
    and when the time is right, the new words or terms will come. One
    blogger told me we might even need two words for this, one for reading
    on computer screens, which are backlit, and another for reading on
    e-readers like the Kindle or the Nook, which use E-Ink for the
    screens.

    Bloom said he's open to all suggestions for the new words, and says
    he's patient while at the same time steadfast and committed to this
    seeminly impossible crusade. “Patience is my middle name,” he says,
    with a chuckle.

    Suggestions for this lone name-crusader in Taiwan? All ideas are
    welcome, Bloom says, who says readers may send in their nominations to
    him at [email protected] on his email connection.

    • Dan,

      I'd say that reading on a screen *can* be qualititatively different than
      reading as we have understood it, but does not necessarily have to be. I've
      read narrative book-like material almost exclusively on screens for ten
      years and I am seldom distracted by links. I focus on the text, particularly
      with ebooks. But I know what you mean; different experiences are certainly
      possible and are becoming widespread and it is something different than what
      we have always called “reading” when you use a basic text more as a jumping
      off point than as a narrative.

      Mike

      • Mike,
        Very well said, and thanks for taking my offtopic message above on the blog, I didn't know how to reach you direcetly by email, but I heard about you from the blog of Thad in Vancouver. I think your blog is one of the top ten in the world, according to the Guardian. Nice! And more nice!

        re: “Dan,

        I'd say that reading on a screen *can* be qualititatively different than
        reading as we have understood it, but does not necessarily have to be. ……I know what you mean; different experiences are certainly
        possible and are becoming widespread and it is something different than what
        we have always called “reading” when you use a basic text more as a jumping
        off point than as a narrative.”

        Very good points. You are right, too: in one way, reading on paper and reading on a screen is the same: same same. Reading is reading, deciperhing and decoding a text. But what I wonder about, and it's just mere speculation and wonder on my part, is: does the brain process, digest, analyze, observe, retain and critically think about the information we take in on paper differently from the way we do it on screens. As an old school boy hitting 60 with one foot in the past and one foot in the future at the same time, I have a *hunch* that reading on paper is better for deep reading, feelings, empathy, processing, retention, and most of all, regarding the text as a whole and doing good and insightful critical thinking about same. So I feel it will be real important to keep paper book reading (and paper newspaper and magazine reading) alive for as a long as we can, because screen-reading just does not CUT IT in terms of deep reading and empathy reading and analysis reading. For info gathering and hunting, can't beat the screen experience, I love it. But I feel if we had a new word one day, maybe in 10 to 20 years, to explain the differences between p-readiing and e-reading, it might help scholars and neuroscientists better study the brain scan MRI chemisty of all this. My hunch is that different parts of the brain light up when reading on paper than when reading on screen. I am sure of it. But so far it is only a gut hunch until the neuroscientists at UCLA prove me right or wrong. So a new word like “screening” or “screading” or “_________” (suggest one?) might help in all this. But for the general reader, no need for a new word, i agree: reading is reading. Can you read my mind?

        Cheers,

        Danny in Taiwan

      • danny

        btw, Mike, did you see lit agent Richard Curtis' blog post on this last week, titled “It that a vook you're screading or are you Kindling?”

        it's online on his blog at ereads or somwhere? Know him?

      • danny

        Marc in Australia tells me:

        RE: ''Do we need a new word for reading on screens?''

        Dear Danny
        “I think it more likely that, seeing as in the future we probably will read more often from a screen than from paper surfaces of books or newspapers or magazines…probably what will happen is that some word or term will evolve to encompass the action rather than the action evolving a new word, and a retronym will arise for its superceded equivalent (think “acoustic guitar” or “film camera”). …..Thus, reading will still be “reading”, but reading a paper book may be…oh, I don't know, but likely as simple as the examples given…something like “pbook reading” or “paper reading”. …….I guess we can hypothesize about future words, but I suspect we'll no more control or even steer it than we do most developments and evolutions and contributions to language – it just happens. doesn't it?”

        [WELL SAID, SIR. — Danny]

      • Danny,

        Yes I do know Richard Curtis and have for a long time. He's really part of
        the digital avant garde.

        Mike

      • Danny,

        Thanks for the compliments. You'll understand that I don't want to host any
        continuing dialogue on the subject which is, clearly, higher on your
        priority list than on mine.

        Mike

      • danbloom

        Mike, re: “Thanks for the compliments. You'll understand that I don't want to host anycontinuing dialogue on the subject which is, clearly, higher on your priorty list than mine.”

        Fully understand, and thanks for hearing me out, too. I won't post anymore here. Thanks again. This is not only high on my pri (or) ity list, it's my life's work now. More later. No, I mean, no more from me on this. Thanks for hosting me this far, Mike, and cheers! I used to be a foot messenger for Empire Messenger Service in NYC, back in the day, 1972 or so. $1.85 per hour.

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  • This is definitely going to be an interesting time. I see this moving in the same direction as the music industry(with the notable exception of the fact that people will pay for the books).

    Most books are going to be digital, which will cause everyone to scale back workforce(but they will need a lot of new people in new positions), and they are going to continue making books for a long time because people will still want them. Then at one point they will have something almost like an “art book” for fans. It will be hardcover and everything will be high quality. It will be very much like the vinyl market is today-just something for the real fans.

    • The “book as an object” idea is one a number of people imagining the

      publishing future have had, most notably Richard Nash with his new company,

      Cursor.

      The question is how all these things add up in relation to the revenue

      streams we see now.

      Mike

  • Harrizfaith

    Thank you for posting Mike.
    Theres nothing else I can say other than to agree with you. It's a threat for the book printing industries about the boost of Ebook industry.

    Ella Faith Harriz
    Vendor Finance

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