From the conversation at various recent conferences and from the data produced in this survey, it is pretty clear how consumer publishers today view their world and how it is changing. There does not seem to be a great divergence of viewpoint among the major players.
They see electronic formats, particularly e-books but really all of them, very much as potential format changes for their existing businesses. They project the belief that the new technologies present no significant threats to their current business practices; that all that is required is that publishers be prepared to deliver in the new formats when the time comes that consumers decide they want them.
That view is behind the most visible manifestations of what digital initiatives there are in the consumer segment. Of the established global consumer publishers, three – Random House, HarperCollins and AOL TimeWarner – have created e-book ‘imprints’ to move into the space. At this writing, March 2001, it looks as if those initiatives have been put in place primarily to enable publication of titles in e-book form that are not offered on their regular printed lists. (We expect that emphasis to change, perhaps even in the few weeks between now and when this report is published, to place greater emphasis on e-book editions of these publishers’ regular publishing lists.)
Indeed, AOLTW’s initiative, housed within a larger infrastructure called iPublish, was conceived and announced as an ambitious ‘writers’ community’ undertaking, where both the new material and the publishing infrastructure to improve and market it were to be developed through an entire network that did not previously exist.
What are the most evident concerns? Well, rights is a big one. Publishers want to be sure that whenever the market is ready for e-books, they have the rights to publish e-books for the titles they have already established in the print format. Piracy is another. Despite scattered anecdotal evidence that full and free text availability on the web actually boosts print sales in today’s environment (see Doug Clegg, Seth Godin and some pre-Pearson claims from Dorling Kindersley, among others), there remains a great fear that popular texts will be passed around for free for e-book reading, cutting the publisher and author out of a big share of their rightful market.
It is different for consumer publishers
The digital transition is much more mystifying in the consumer channel than it is in professional or educational publishing, where users tend to gather institutionally and use the books, or the nuggets of information contained in the books, in largely predictable ways. There is more ‘pull’ from these segments for digital products. There is more logic to the notion that the book (or journal) may not remain the main organizing principle for sale because fragments have real value. So the investments in XML tagging, digital object identification, digitizing legacy print content, and web-enabling direct relationships with end users make more intuitive sense. And they have a more obviously imminent payoff.
Indeed, there is still widespread skepticism in the consumer book community as to whether this whole digital transition will make much difference at all. Can reading on a screen really replace the hallowed book? And with author advances paid by publishers such a crucial enabling factor in the creation of so much of today’s consumer book output (arguably more important than publisher advances in other segments of the industry), how could the titans of today’s consumer book business be toppled by technology that is clearly suffering from multiple barriers to adoption?
The hidden threat?
But what if the threat isn’t where the publishers think it is? What if the digital revolution can lay waste to the traditional publishing model without actually successfully selling e-books to the public, or perhaps, simply before e-books become generally accepted? What if the reason print publishers must adopt a new economic model is not that their new electronic competitors establish a successful one, but that the time-honored one simply won’t work anymore and something must replace it? These are the possibilities we will explore in this chapter, and which today’s consumer publishers ignore at their peril.
At two recent conferences in New York, consumer publishers were in remarkable agreement about many aspects of the changing marketplace. All observed the return of previously ‘dead’ books into the marketplace, through e-book and print-on-demand technologies which require no inventory investment and, perhaps more importantly right now, through a web-enabled used book business that, through Amazon particularly, directly competes with new book sales. It is generally agreed that certain kinds of information quests, such as when somebody needs to find a hotel room in Paris or the latest thinking on a medical condition, are now better conducted through the web than in a book, and consumers are making the switch.
All seemed to agree that online purchasing of books would grow from its present estimate of about 8 percent of the market. That estimate is, of course, an average and therefore a dangerous number to use in the analysis of any particular situation. It is certainly not 8 percent across the publishing board, or even across the consumer books board. Indeed, one smaller consumer publisher commented in the recent public forums that, for his deep backlist, online sales constituted a principal avenue to the market, helping immeasurably to keep those books in print. This publisher doesn’t have the selling muscle of the big boys, so it is likely that in pre-web days, his backlist wouldn’t be competing as hard with everybody else’s books. Indeed, one hidden problem for consumer publishers is that online sales outlets enable competition from publishers in other segments who could not ever before have attempted to compete for a consumer sale.
Now these are facts with serious implications that were not explored in these conferences and which might have, but did not, come out in the research contained in this volume. The reason they did not come out is not the fault of the questions that were asked, but instead reflects the current state of mind of the respondents. The implications have not surfaced because they are apparently not ‘top of mind’ to consumer publishers or to the observers of the consumer publishing business.
Disappearing shelf space
There is at least one other critical change taking place in consumer book publishing in the US today that is only partly technology-driven: a fairly sharp and likely-to-continue contraction in the shelf space available for consumer books in the marketplace. This follows years when the same benevolent investment markets that financed overgrowth of the dotcom economy also financed excessive growth of bookstore shelf space. The movement of sales to the Internet is obviously one factor causing the current contraction, but the rapid expansion in the number of superstores might well have been over-ambitious even if online sales had never happened.
The disturbing implication of the consensus trends is this: each and every new book coming into the marketplace has a steeper path to success than it would have had five or ten years ago. Although there may not be figures to support this contention, it stands to reason that the new titles issued are getting a smaller and smaller share of consumer book spending, which itself is negatively affected by web information that comes in non-book forms.
Indeed, the flow of titles, which many, including this author, believe will shortly become a flood, published in no-inventory forms outside the traditional consumer publishing business, is growing. As the consumer publishers in the e-book world know, each one sells a pathetically small number of copies. But, collectively, they are taking a larger and larger share of the flat or dwindling market for new consumer books. Consumer publishers today are not being gored by their bestsellers being passed around for free; if that is a threat, it is a future one, not a present one. But they are being bled by a million pinpricks. An ever-larger chunk of the mindshare and readershare they once controlled for the (relatively) limited number of titles that could be printed in pressrun quantities and effectively distributed to consumer outlets is now being dispersed, almost atomized by millions of web sites and mushrooming numbers of e-book titles.
Fragmentation of attention
There is a fairly recent analogy that might be instructive here in the US TV business. Until the 1970s the three major networks controlled more than 90 percent of the viewership in the United States. They had the distribution and nobody else really did. Then came cable TV, opening a path for a whole range of new offerings. Now, four large and some smaller national broadcast networks control about half the television viewership (and even that erosion is understated, since the share percentages do not include people watching recorded material on their TV screens). Network TV, once a license to print money, has become a very tough business. The economic formulas have had to change completely.
Large consumer book publishing enterprises, which have actually never been mistaken as licenses to print money, must now struggle with a number of critical mass requirements. That fact is very evident to publishers on the macro level, driving the continuing consolidation through acquisition that has created such a dense and small pack of companies at the top of the consumer pyramid. More volume flowing through warehouses, the ability to consolidate, the buying of more paper and more printing, the marketing leverage of controlling more of the top titles, the clout with the also-consolidating retail marketplace that comes from a continuing flow of must-have titles – all of these advantages of bigness are behind each acquisition.
Reaching the break-even point
Critical mass requirements also exist on the micro level. Regardless of largely arbitrary overhead calculations which poison the legitimacy of the ubiquitous ‘title P&Ls’ calculated at most publishers, a book must sell a certain minimum number of copies to be a commercially viable exercise. The more broadly (and deeply) pre-printed copies of a new title must be distributed, the higher goes the hurdle of breakeven sales.
Publishers are finding it harder and harder to make those breakeven numbers, however they calculate them. How do we know that? Because so many publishers, even those acquiring more volume through acquisitions, are public about their desire to reduce their new title output. It makes superficial sense: if you’re finding it harder and harder to make new titles profitable, to get them to the minimum sale that they require, then become more selective about what you do.
There are two problems with this ‘solution’. One is that it runs foul of the macro critical mass requirement; fewer titles ultimately mean lower volumes, leaving acquisition as the only way to maintain the critical mass of volume to preserve margins in warehousing, printing, and dealing with powerful intermediaries.
But the more important problem is that it is not really a solution, because it does not address the problem. If consumer publishers are losing market share because the proliferation of titles is bleeding off sales, then the antidote would be to increase the title output, at least trying to maintain the big houses’ relative contribution to new titles published. But to do that would require a sea change in publishing technique to enable lower average sales volumes on new titles to be profit-generating instead of loss-making.
The impact is already being felt
By this analysis, digital technology is already having a profound effect on consumer publishing, even though sales to consumers in new forms, e-book or online content, might still be trivial in dollar terms. The old formulas applied by publishers to calculate their sales expectations of new books coming out of the chute are increasingly unreliable, and these changes in the marketplace are the biggest reason why.
Before we discuss what the consumer publisher of today should do to survive into the future, there is one more marketplace factor to consider, the very real and increasing tendency of communities of interest to form on the web. With more than half the US population regularly online, a whole array of rapid-response consumer activity now takes place on the web. The reaction to a personal piece of news – an inheritance, a medical diagnosis, a job transfer to a new city – which in years past would have caused a visit to a bookstore to do research, now drives many people to the web. Soon it will be most people. In less than five years, it will be practically all people.
This movement of people to web communities is almost certain; while anybody’s estimate of e-book sales in the coming years is highly speculative.
Developing a roadmap for the future
We have observed in other forums that in order to plan for the future, one must have a view of the future. It is this speculative view of the e-book future, that it will someday (and could someday soon) become large and that protecting content from piracy when it does is among the most urgent priorities, that is driving consumer publishers’ digital initiatives today, such as they are. How might strategy change if publishers instead focused on the much more certain propositions that web communities will become increasingly important and that the existing models can suffer serious erosion even without, or certainly before, widespread e-book adoption?
The view of the future we would suggest has these components:
· The web, and, by extension, email, will increasingly become the primary tool to reach content consumers through their communities of interest;
· For file piracy to become a serious revenue threat, e-book sales would have to become a serious revenue source. Until that time, the most important aspect of e-book distribution is its ability to spur word-of-mouth, and therefore boost print sales. That is the foreseeable future; anything else is in the speculative future.
· Assets that publishers now possess or could develop have a certain role in the future. These include the – suddenly cherished – rights to do e-book editions. They also include databases of web sites organized by community interest, corresponding databases of email addresses, and databases of clustered readers, like those in reading groups all over the country. And they contain the most precious brand commodity of our time: the ability to deliver an online address (URL) through offline media (books) directly to targeted audiences.
· If the erosion of the current print-and-distribute model is inevitable, other models, both complementary and freestanding, will be a necessity to preserve large-scale consumer publishing businesses. Discovering and managing those models – subscriptions of various kinds, instance charging for web-based content, offering customized products and advice – will require preparation. Only experimentation can provide it. The day will come when alternate means are necessary and only the prepared will survive.
A consumer publisher today who accepts these tenets as a reasonable speculation about the next few years, would be undertaking a strategy that would contain the following elements:
· First: insofar as it is possible, all books should be published as e-books, prior to or simultaneously with print publication. This is ultimately essential to preserve e-book rights, morally and probably legally and, most importantly, commercially as well. It is also critical as a word-of-mouth tool to drive current sales and as a learning tool to be comfortable with the environment of the future.
· Second: until real evidence changes this perspective (and someday it might) e-books and web activity should be seen as a spur to print sales, not as a threat to them. This suggests that both pricing and piracy controls be minimized in the near-term future.
· Third: databases of web sites, virtual and physical intermediaries, and readers, all organized by subject matter with increasing precision and sophistication, must be seen as the critical assets they are, now and in the future. All publishing and marketing activity should revolve around them; creating and managing them is mission-critical. Every interaction with a consumer or intermediary should be seen as an opportunity to build these databases.
· Fourth: every consumer publishing house, no matter how ‘general’ its orientation or its historic positioning, must become increasingly niche-sensitive in its editorial selection and marketing. Books must connect directly to the audiences for others published previously and each book published must be seen as building the capabilities of the house for those to be published in the future.
Hard advice to take?
All of these elements describe what we believe would be a productive path to tread, not a destination. Saying one should publish e-books to spur print sales, for example, suggests an attitude but not a plan. Building niche-oriented databases of readers who will accept emails creates a tool; only experimentation (and probably evolved publishing practices) will discover the best ways to use it. This is hard advice for a results-and-profit oriented CEO, particularly in a publishing community that remembers the disaster of CDROM investments in the past decade and which sees, in the current marketplace, precious little evidence that readers will switch in significant numbers to digital reading devices anytime soon.
But those who pay attention to the warning signs in their current businesses, who acknowledge that making the numbers seems to get more difficult, title after title and list after list, should be encouraged to connect that fact to the digital information world. Whether dotcoms or e-books are up or down at any particular moment, the digital information world is growing and becoming more obtrusive on old models every day.
You don’t have to be able to predict the future to believe that.