Book publishing is still very much in a time of changing conditions and circumstances. There are a host of unknowables about the next several years that affect the shape of the industry and the strategies of all the players in it. But as publishers, retailers, libraries, and their ecosystem partners prepare for whatever is next, it becomes increasingly evident that — from the perspective of trade publishing at least — we have already lived through the biggest period of transition. It took place from sometime in 2007 through 2012.
At the beginning of 2007, there was no Kindle. By the end of 2011, there was no Borders. And by the end of 2012, five of America’s biggest publishers were defending themselves from the US Department of Justice. The arrival of Kindle and the exit of Borders are the two most earthshaking events in the recent history of book publishing and its ecosystem. The Justice Department suit first distracted and then ultimately strait-jacketed the big publishers so it was both difficult to focus and then difficult to react to further marketplace changes.
Paying close attention to what we then called “electronic publishing” started for me in the early 1990s, with a conference other consulting colleagues and I organized for Publishers Weekly which we called “Electronic Publishing and Rights”. This was before Amazon existed. It was when the big transition taking place was from diskettes to CD-Roms as the means of storage. And it was even before Windows, so the only device on which you could view on a screen anything that looked at all like a book was a Macintosh computer, which had literally a sliver of the market. The most interesting ebook predecessor was the Voyager Expanded Book, and it could only be used on a Mac.
In this speech I gave in 1995, I put my finger on the fact that online would change all this and that publishers shouldn’t spend too much energy on CD-Roms.
The period from then until when it was clear Kindle was establishing itself — the awareness that it was for real slowly dawned on people throughout the year 2008 — was one where the inevitability of some big digital change was generally acknowledged. But dealing with it was the province of specialists operating alongside the “real business” and largely performing experiments, or getting ready for the day when it might matter. There was a slow (and inexorable) shift from store-purchasing to online purchasing. And the online purchasing almost all went to Amazon. But even that wasn’t seen as particularly disruptive. Neither ebooks nor online purchasing called for drastic changes in the way publishers saw their business or deployed their resources.
The first important new device for books in 2007 didn’t start out as one at all. It was the iPhone, first released in June of that year. Although Palm Pilots were the ebook reader of choice for a big chunk of the then-tiny ebook community, they lacked connectivity. The iPhone was not seen as an ereader when it came out — indeed, Apple head Steve Jobs still believed at that point that ebooks were not a market worth pursuing — but they could, and did, rapidly become one when it was demonstrated that there was a market. And they vastly expanded the universe of people routinely paying for downloaded content, in this case music from the iTunes store.
Then Kindle launched in November of 2007. A still unannounced number of Kindles sold out in a few hours and Amazon remained out of stock of them for several months! Because the original Kindle was $399, it was only a “good deal” for the consumer who read many books on which they could save money by buying electronic. What this meant was that Kindle owners bought ebooks in numbers much greater than the relatively small number of devices placed would have suggested. Throughout 2008, the awareness dawned on the industry that ebooks were going to be a significant business.
And that awareness rapidly shook loose a raft of competition. Barnes & Noble saw that they had to compete in this arena and started a crash program to deliver the Nook, which first appeared almost precisely two years after the first Kindle, in November 2009. Months earlier, Amazon had released the app that put Kindle on the iPhone. Meanwhile, Jobs had become persuaded to take ebooks seriously, and, anyway, he had a store selling content downloads to devices like crazy. Now, about to launch his new tablet format, the iPad, he had what looked like the perfect vehicle with which to launch ebooks. The iPad and the iBookstore debuted in April 2010. A month later, Kobo entered the market as a low-priced alternative with their first device. And by the end of the year, Google reorganized and rebranded what had been Google Editions into Google eBooks. The original concept was that they would populate the readers that were using epub, which meant Nook and Kobo at that time.
All of this change within three calendar years — 2008 through 2010 — created a blizzard of strategic decisions for the publishers. Remember, before all this, ebooks were an afterthought. Amazon had applied pressure to get publishers into the Kindle launch in 2007. Before that, no publisher that I can recall made any effort to have ebooks available at the time a book was initially launched. There were workflow and production changes (XML FIRST!) being contemplated that would make doing both print and digital editions a less onerous task, but they were seldom fast-tracked and doing ebooks meant taking on and managing a book-by-book conversion project.
During the period when Amazon was pretty much alone in the game (the pre-Amazon market leaders, Sony and Palm, faded very quickly), they started pricing Kindle titles aggressively, even willing to take losses on each sale to promote device sales and the ecosystem. This alarmed publishers, who were seeing small Kindle sales grow at what were frightening rates and raising the spectre of undermining their hardcovers. It didn’t hurt that the retailers with whom they (still, then, though not now) did most of their business were also alarmed. Nook arrived and Barnes & Noble would never have been as comfortable as Amazon with selling these new products at a loss. But B&N also worried about the impact that cheap ebooks might have on more expensive print book sales. Amazon didn’t.
So when Apple proposed in late 2009 and early 2010 that there could be a new way to sell called “agency” which would put retail pricing power for ebooks into the publishers’ hands, it met a very receptive audience of publishers.
And that, in turn, led to the Department of Justice’s lawsuit against the big publishers which was instituted in April of 2012.
Coinciding with and enabled by all of this was the huge growth in author-initiated publishing. Amazon had bought CreateSpace, which gave them the ability to offer print-on-demand as well as Kindle ebooks. The combination meant that a huge audience could be reached through them without any help from anybody else. When agency happened (2010), they started to offer indie authors what amounted to agency terms: 70 percent of the selling price for ebooks. This was a multiple of the percentage an author would get through a publisher.
Agency pricing fell right into Amazon’s and the self-published hands. Getting 70 percent on the ebook, the indie author got $2.10 pricing at $2.99 and $2.80 pricing at $3.99, royalties comparable to what they’d get from full-priced print. Many bestselling indie ebooks were priced at $0.99. The very cheap ebooks indie authors would offer juxtaposed against the publisher’s agency up-priced (many at $14.99) and undiscounted branded books created a market opening that allowed the Kindle audience to sample (aside from the free chapter that is standard in ebooks) cheap ebook authors for peanuts. Suddenly, names nobody had heard before were on the map, selling millions of ebooks, and taking mindshare away from the industry’s output. And it also handed the publishers’ authors an alternative path to market that could only have the effect of improving their negotiating position with the publishers.
Meanwhile, Borders sent the most persuasive possible signal that the shift in sales from stores to online, accelerated by the ebook phenomenon, was really damaging. They went out of business in 2011. That took the account that sold upwards of 10 percent of most publishers’ books, and a far greater percentage of the bookstore shelf space for backlist, off the board. Or, viewed another way, publishers went from two national retailers who could place a big order and put books in front of the core book-buying audience to one.
So the authors’ negotiating position was stronger and so was Barnes & Noble’s.
And all of those events — the devices, the ebook surge, the introduction of the agency business model, and the Department of Justice suing most of the big publishers, a very noticeable rise in successful independent publishing, and the increased leverage of the trading partners with whom publishers negotiate their revenues and their costs — were head and body blows to the titans of the industry. Every one of them threatened the legacy practices and challenged the legacy organizations and resource allocations.
During this period, Random House (the number one publisher) merged with Penguin (the number two publisher) and created a super-publisher that is not far from being as big as the four remaining members of what were called “The Big Six” in 2007. If you are viewing the world from the perspective of HarperCollins, Simon & Schuster, Hachette, or Macmillan, that might have been the biggest development of all.
Compared to the sweeping changes of that era, what has happened since and what is likely to happen in the next couple of years is small beer. There are certainly clear trends that will change things markedly over time.
Amazon continues to grow its share, and they are around 50 percent of the business or more for many publishers these days.
Barnes & Noble is troubled but in no immediate jeopardy and is still, by far, the number one brick-and-mortar account for publishers. But the optimistic view is that their book sales will remain flat in the near future.
Independent bookselling continues to grow, but even with their growth since Borders went down, they are less than 10 percent of the sales for most publishers. It is true that ebook sales for publishers have flattened (we don’t know the overall trend for sure because we don’t really know the indie sales at Amazon, and they’re substantial) and don’t seem likely to grow their share against print anytime soon.
These things seem likely to be as true two years from now as they are now. Nothing felt that way in from 2008-2012.
Digital marketing, including social network presence, is an important frontier. The industry has a successful digital catalog, called Edelweiss, which has obviated the need for printed catalogs, a cost saving many publishers have captured. And another start-up, NetGalley (owned by Firebrand), has organized the reviewer segment of the industry so that publishers can get them digital advance copies of books, which is cheaper and much more efficient for everybody.
Owning and mining email lists is a new skill set that can pay off more each year. Pricing in digital seems to offer great opportunity for improved revenue, if its effects can be better understood. International sales of American-originated books are more accessible than they’ve ever been as the global network created by Ingram creates sales growth opportunities for just about every publisher. That should continue and requires new thinking and processes. Special, or non-traditional, markets increase in importance, abetted by digital marketing. That will continue as well.
Audio, which has been one of the big beneficiaries of digital downloading, will continue to grow too. The problem from the publishers’ perspective is that Audible, owned by Amazon, owns most of that market. So they have a sophisticated and unsentimental trading partner with a lot of leverage controlling a market segment that is probably taking share from print and ebooks.
And with all of this, what will also continue to grow is relentless margin pressure from the publishers’ two biggest accounts: Amazon and Barnes & Noble.
But the challenges of today aren’t about change of the magnitude that was being coped with in the period that ended five years ago. They’re more about improving workflows and processes, learning to use new tools, and integrating new people with new skill sets into the publishing business. And there are a lot of new people with relevant skills up and down the trade publishing organizations now. That wasn’t so much the case when things were changing the fastest, 2007-2012.
It isn’t that there aren’t still many of new things to work on, new opportunities to explore, or long-term decisions to make. But the editor today can sign a book and expect a publishing environment when it comes out in a year or two roughly like the one we have today. The editor in 2010 couldn’t feel that confidence. The marketer can plan something when the book first comes up for consideration and find the plan will still make sense six months later. And while things still very much in flux in sales, a blow comparable to the loss of Borders isn’t on the
Of course, there could always be a black swan about to announce itself.
This post explains why, among other reasons, I will no longer be programming the Digital Book World Conference, as I did for seven years starting with its debut in 2010. At its best, DBW anticipated the changes that were coming in the industry and gave its attendees practical ways to think about and cope with them. Future vision was a key perspective to programming although we always strived to give the audience things they could “take back to the office and use”.
It has been harder and harder over the past couple of years to find the big strategic questions the industry needed answers to. The writing was on the wall last year when most of the publishers I talked to felt confident they understood where books were going; they wanted to hear from other segments of the digital world. That was a sign to me that the educational mission I had in mind for DBW since I started it was no longer in demand.
To their credit, the DBW management, as I understand it, is trying a new vision for the show, more focused on the immediately practical and the hands-on challenges of today. I wish them the best of luck with it.