I had breakfast last summer with one of the titans of 20th century publishing who is now in his senior years running his own smaller operation. He’s a notorious non-techie.

When we talked, he was trying to come to grips with what the problem for publishers was with this digital transition. From his perspective, publishing just gets cheaper (no books to print) and there should be room to lower prices, pay good author royalties, and still make a profit under something pretty close to the traditional model.

Well, I said, that would be true, but the problem is you’re going to face a lot more competition. Demand may go up and costs may go down but if supply in competition with publishers’ outputs rises too fast, there could still be a very difficult period in front of the industry’s legacy players.

That is: it could get increasingly difficult to get consumers to give you money.

Of course, increased competition from anonymous authors — many of whom would have been filtered out by the curation activities of agents and editors in the past — didn’t scare him. But, I pointed out, it won’t be limited to that. Do you think ESPN, for example, with all its content and all its market reach, will need a publisher to do a book or book-like thing? Or CBS News? Or The Museum of Modern Art?

When I shifted the conversation from stray authors he would have rejected as a big publisher to brands he sought deals with, the point had more impact.

Then, earlier this week at Digital Book World, David Nussbaum’s panel of publishing CEOs and presidents took up a related subject: ebooks being given away for free as a promotion. Brian Napack of Macmillan expressed a concern I’ve felt previously (and wrote about a year ago): that if there are enough free books around out there being distributed to promote an author or series, many readers will just choose from what’s free and stop buying books. Jane Friedman of Open Road declared on the same panel that “free is not a business model; it may be a marketing model, but it isn’t a business model.”

What the CEOs were focused on was what their company policies were and what they hoped others would be. Everybody’s learned that giving away a free book can serve as a promotion for other books by the same author, particularly if the book given away is the first in a series. But if enough people are promoting, that can generate a lot of free ebooks for any consumer to choose from any day of the year.

In a presentation of consumer data the following day, both the joint effort from BISG and Bowker (who were surveying the ebook consumer) and the research from iModerate (who were surveying readers who use multi-function devices) revealed findings that suggested that half or more of the ebooks being read these days are being obtained for free! How much of that is public domain material, how much of it is unknown authors promoting themselves, and how much is branded content from major houses is not yet known.

These two things — non-publisher brands and entities competing with publishers to deliver content and free content competing with content for sale — connect in a painful way at the publisher’s balance sheet. And there isn’t a lot publishers can do about them.

This morning comes the report that the New York Times is tackling the question: “How do you monetize the content when it is not news anymore?” Would you be surprised to learn that the answer is “publish an ebook”?

Their new ebook, “Open Secrets”, further amortizes the large volume of work they did to comb the wikileaks material. The ebook is available for $5.99 in most places ebooks are sold. Will there be more of this? You bet there will! Jim Schachter, the paper’s associate managing editor, is tasked with making sure there will.

The same approach is being tried by a newer brand with similar content, the independent journalism farm, ProPublica, which heretofore has teamed with various newspapers, including the Times, to deliver their investigative journalism to the public. Their entrant is “Pakistan and the Mumbai Attacks: The Untold Story” by Sebastian Rotella and it is available only from Amazon through their new singles (short works) program for $0.99.

Ten or fifteen years ago, “Open Secrets” would have been an “Instant Book” from a major publisher (if it were anything at all.) The Times could have an opportunity like this 10 or 20 or 30 times a year. They provide themselves with brand extension, revenue, an opportunity to give more exposure to their reporters and their reporting, and total flexibility without the need for the complexities, including contracts and corporate interactions, that arise when getting a book published by somebody else.

According to Richard Tofel of ProPublica, their goal is primarily dissemination of the information. After all, they’re a mission-driven organization to begin with. So they seem quite happy selling high-quality, curated content for 99 cents. Not free, but if you’re a publisher trying to sell content at prices that make commercial sense, not much better than free either.

These two unrelated realities — consumers being diverted from purchases by free ebooks and sources of content being diverted from publishing contracts by alternate paths to the market — make it clear that traditional publishing faces challenges both upstream and downstream from where they sit.

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