Sometimes something seems very obvious to me, but other people — smart people I respect — don’t see it that way and it makes me wonder if I’m missing something.
What I’m thinking about that way today is the future of “open territories” in the ebook world.
When English-language rights are sold to US and UK publishers, some territories outside the home markets are “closed” and others are kept “open.” Closed territories are reserved to the publisher who owns them; in open territories a US edition and a UK edition can both be legitimately sold.
For most of my career in publishing, Europe was an open market. Both the American and British editions of a book would be available there. Although currency fluctuations came and went and could temporarily change these things, most times the US edition carried a lower cover price (when converted to the local currency) but the UK editions were usually more widely available. Sales reps from the UK tended to call on the once-small but persistently growing number of bookstores that carry English-language books. British publishers had warehouses that were closer, shipping costs that were lower, lead times that were shorter, and customer service groups that were more comfortable dealing with Europeans.
With the coming of the EU, British publishing has moved to formalize and make contractual what was previously just their natural advantage. British publishers pointed to the fact that once an American edition was sold in Europe, EU rules would allow its importation into the UK itself! So unless the European market were closed to US editions, Britain itself was not closed to US editions. And that, quite naturally, was not a situation that British publishing could accept.
Of course, for an American edition to wind up on a British shelf would require two trips across the water: one from a US warehouse to Europe and then another from Europe to the UK. It might seem that this double-shipping would wipe out any presumed US pricing advantage, and I don’t recall any evidence of US-published imports showing up in any number. Nonetheless, for the past several years, UK publishers have succeeded frequently, if not universally, in excluding the American editions from Europe.
As with all things in publishing this subject is being revisited as publishing adjusts to ebooks.
As we know, the ebook market started to take off in the US in late 2007 and has grown to be a solid double-digit percentage of publishers’ sales with much higher numbers, often 50% or more, of the units sold in the opening weeks for major titles. In the past few months, British ebooks have started on a similar, perhaps even more accelerated, growth trajectory. So ebook revenue is squarely on the radar screen of the English-language publishers who are increasingly cognizant of English’s position as the world’s leading second language. Nowhere is this effect more evident or the future sales expectations greater than in Europe.
Right now, the European ebook market is still miniscule. Germany, one of the countries with the most advanced local-language digital infrastructures, recently reported ebook sales of one-half of one percent of the market. But it is not uncommon for German bookshops to see double-digit sales percentages of English-language books in their shops so we know there’s an English-language market there. English-language publishers, with the experience of explosive growth in their home markets under their belts, have good reason to expect the same thing to happen in Europe and for them to be among the principal beneficiaries.
But there’s a problem. Or, at least, I think there’s a problem.
The open-market competition for print books is waged primarily around service. The reps that call on the stores tend to take business away from the companies that call less often. The advantages of proximity and familiarity favor the British; sometimes the advantage of price can favor the Americans. But no trade publisher in either country tries to create cheaper, locally-priced editions of trade books for the European market.
In the ebook market, the competitive factors that prevail in print are moot. If a store sets up to sell ebooks, it will list every one in the catalogs it offers. As the ebook market matures, that will mean that, if the territory is open, both the UK and US editions will be available to the consumer. And with no other basis on which to make the decision of which to buy, the customer will almost certainly choose the ebook edition with the lowest price.
The logic of this seems inexorable to me. As the market grows, as the publishers become more aware of it, and as the consumers learn more about what is on offer, offering a lower price will be the only effective way to grow share in an open territory. This is damaging to everybody except the ebook consumer, who will get windfall price cuts. The publishers will gain share, but lose revenues. The authors, operating on a piece of the sale price, will lose revenues. And the lower prices for these English-language ebooks will further erode local-language sales and further undercut brick bookstores.
(European bookstores are extremely vulnerable to sales erosion as the market shifts to digital because the English-language selection they offer will look increasingly paltry compared to what will be available online.)
But some very smart agents seem to see something different from what I see. At our “eBooks Go Global” conference at BEA last week, Simon Lipskar of Writers House specifically declined to insist on closed markets and celebrated the virtues of “competition” on behalf of his writers. In another BEA session, Stephanie Abou at Foundry was quoted by one reporter saying “our goal to get authors the best shot at being published the best way. what that means is we have this fight to keep Europe non-exclusive.”
Of course, timing is everything in life and in dealmaking. There really is no European market for ebooks to speak of yet. There are structural impediments to growth. A panel including Google, Kobo, Ingram, and OverDrive at “eBooks Go Global” spelled out some of the complex local compliance issues that make it take time to set up a store in each new country. My concern about a “race to the bottom” assumes a much more developed market than we have today, with both US and UK editions made ubiquitously available in a European ebook market that resembles what we’re seeing today in the UK, if not in the US. That may be two years away, or even more.
So maybe Simon and Stephanie do see what I see but they might also see it as far enough away not to be relevant yet for deals they’re making now. But maybe our difference is more fundamental. They both referenced “competition” in expressing support for open territories. It is precisely my concern about the effects of price competition that it seems to me they’re ignoring.
It feels to me like I must be missing something somewhere. Not only do I think the agents should be moving to close markets in the interests of their clients, I think publishers in both New York and London should be moving to close markets because they’ll ultimately make no money on the books for which the markets are open. I’d say it is better to control a closed market for half your list (or even a third of it!) than have an open market for all of it.
This subject is of great interest in the US but it is existential in the UK. Sales made in Europe are already critical to UK-based publishers, on titles where Europe is open as well as on titles where they control it contractually. Since UK publishers are already trying to close the market in their favor for print, one can hardly expect them to be less zealous about closing it for digital books. But their leverage to close Europe, for digital or print, is primarily based on their ability to sell print in the UK. Those are the sales they can make that nobody else can. And those are the sales that finance serious advances that nobody else will pay.
But will that leverage vanish as bookstores diminish and the sales of print become less important?
The panel that will explore this subject at our “Global Perspective on Digital Change” conference in London on June 21 will be my next chance to be enlightened on this subject and shown the flaw in my thinking if open territories for ebooks are not a race to the bottom. We’ll have publishing CEOs Richard Charkin of Bloomsbury and Toby Mundy of Atlantic Books and agent David Miller of Rogers, Coleridge and White discussing this topic with Philip Jones of Future Book moderating. I’m sure this panel, along with many others on that day, will be opening some minds. Mine is lined up to be among them.