Unbound, undone, and unplugged: Publishing in America

You can always count on The Economist for a cogent and succinct analysis of an important trend or development that promises to change the way either producers or consumers act. In last week’s issue, they turned their attention to the U.S. book publishing industry, with a piece covering Jeff Bezo’s announcement at BEA that Kindle sales now account for 6% of sales of the 125,000 titles available in both print and electronic versions.

None of the handful of e-book manufacturers will divulge sales figures. First-quarter sales of mass-market e-books in America have tripled since the same period in 2005, but they were worth just $10m. But Kindle and its kind are merely the first generation of a product that is sure to evolve quickly in the coming years. Eventually, e-books point the way towards a cleavage of content from platform, threatening publishing with the wholesale change that has hit the music industry. It is a familiar story: fearing piracy, publishers are already adopting various mutually incompatible security technologies that are sure to annoy readers—although ePub, a new standard backed by many big publishers, may clarify things.

This paragraph zeroes in directly on the essence of the threats and opportunities facing the publishing business. First, until recently, miniscule sales, a fact which is largely explainable by the myriad of confusing and conflicting formats to present the content, and by the fact that:

Unlike digital music or video, digital books require consumers to change their consumption habits.

http://www.economist.com/business/displaystory.cfm?story_id=11504752

This is a pivotal distinction: except for consumption of live music or performance, consumers have used some sort of electronic device (albeit not necessarily a digital one) to enjoy their music and video for decades. But the book, as we all know, has survived in a very analog format for more than 500 years. As Bezos himself remarked: “It’s hard to out-book the book”. So there is naturally a fair amount of resistance to changing one’s ingrained habits to adapt to a piece of new technology. The benefits must far outweigh the costs of switching and breaking old habits. Convenience is one compelling feature: downloading almost any book you can think of in under a minute is one that comes to mind – but only if you’re a voracious reader. (just as having 500 channels to watch is not a strong attraction to someone who never watches TV.)

Just as with all new technology, the early adopters pay the premium for what’s essentially a beta release. Prices must drop significantly for the device to reach mass acceptance.  And mass acceptance is what it will take in order for Amazon to be successful with the Kindle. That’s what will drive demand for e-books, which is really what they’re after. Let’s face it: Amazon is not a hardware company; they sell content, and high volumes of consumption of content drive their margins higher. How sane would it be for a company like CBS to start manufacturing TV sets to facilitate distribution of their programming content? Shareholders would shout “Stick to your knitting-let someone else provide the hardware.” But Bezos recognized that no one had come up with the ideal device to consume digital books on, so he created one.

By offering the Kindle, Amazon has jumpstarted the whole e-book market, and shaken up the moribund publishing industry yet again. But in order for this effort to be successful, they will need to get the price point down to a level where it’s a no-risk proposition for the late-adopter. That means around $99 or so. Bezos might think about the approach another tech visionary is taking with his game-changing gadget. Just this week Steve Jobs announced the new and improved version of the iPhone will drop in price from $399 to $199.  This strategy is no doubt a recognition of the benefits of subsidizing the development of the overall ecosystem, which drives greater overall demand for content offered on the device, (see iTunes) or for other, much higher margin products, like Macbooks.

If some Taiwanese manufacturer came up with a sub-$100 e-book reader with color touch screens and a Gig of storage, I predict Amazon would cede the device business to them. Then they could concentrate on selling more e-books, and continuing their gradual domination of the book selling business.

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The Kindle at BEA: “She moved through the fair…”

I just returned from Book Expo America, a confab of 25,000 book publishers, sellers and authors, which wrapped up Sunday in LA. One of the highlights was an address by Amazon’s chief, Jeff Bezos. If Bezos was to choose a song to describe the Kindle’s debut at BEA, he might adapt the lyrics of the traditional Irish folk song “She Moved Through the Fair”:

She stepp’d away from me and she moved through the fair,
And fondly I watched her go here and go there,
Then she went her way homeward with one star awake,
As the swan in the evening moves over the lake
.

Few tech gadgets have had such a low signal to noise ratio as the Kindle at Book Expo. The debate surrounding global warming is like a playground tiff compared to the FUD (fear, uncertainty and doubt) swirling around the Kindle and the effect that e-books are predicted to have on the publishing business. “They’ve only sold 10,000 – no, they’ve sold 100,000 – No, it’s going to be a $2 billion business by 2010.” “They’re losing money on every e-book they sell, but in five years, there’ll be no more books – no, actually nobody really wants to read anything on a screen”. (Of course, to Steve Jobs, it’s all much ado about nothing, since “nobody reads anymore anyway.”)

The NY Times summarized it nicely yesterday:

But excitement about the Kindle, which was introduced in November, also worries some publishing executives, who fear Amazon’s still-growing power as a bookseller. Those executives note that Amazon currently sells most of its Kindle books to customers for a price well below what it pays publishers, and they anticipate that it will not be long before Amazon begins using the Kindle’s popularity as a lever to demand that publishers cut prices. Amazon sells most Kindle books for $9.99 or less. Publishers say that they generally sell electronic books to Amazon for the same price as physical books, or about 45 percent to 50 percent of the cover price. For a hardcover best seller like Scott McClellan’s “What Happened,” the former press secretary’s account of his years in the Bush White House, that would mean that Amazon appears to be selling the selling the book for about 25 percent below its cost.
Yet, in a textbook case of clinical denial, the publishers are circling the wagons to protect their margins at all costs. The Times article continues:

 Electronic readers have nevertheless gained many fans in the publishing industry. Random House and Penguin, among others, have equipped their entire sales force with electronic-book readers, allowing them to avoid having to lug around as many preview editions of books. Editors at many of the larger publishing houses also use the devices to read manuscripts submitted by agents and authors.

http://www.nytimes.com/2008/06/02/books/02bea.html?pagewanted=1&ei=5087&em&en=16d43579fc53efb0&ex=1212638400

Now I doubt that i’m the only one that sees the cruel irony here. But this development strikes me as strangely similar to the case in the early 1960s of the Gestetner company using Xerox machines for its own internal correspondence, all the while heralding the virtues of the stencil duplicator to its customers, because that’s what they sold. When was the last time a stencil duplicator has been seen, outside a museum of office automation? 

Let me see if I can get this straight. The publishers feel they are entitled to the same margin on a product that consists entirely of digital bits, with no costs incurred for printing, shipping, warehousing or retail display. And their own employees see the benefits of the electronic versions over their dead tree counterparts. Have they tried to find a door-to-door Encyclopedia Britannica sales person in the last five years? That’s because there aren’t any. The only customers remaining for the hard-bound version of EB are libraries. That’s why EB is about one tenth the size it was before Wikipedia came along. Maybe Simon & Shuster’s CEO should send out a memo to her employees accompanying her triumphant announcement of 5000 more titles available on the Kindle this year. It would suggest they take their blinders off and read the writing on the wall. Maybe it should be mimeographed for more effect.

For another example of resistance to new technology, one need look no further back than the inventor of the modern printing press Johannes Gutenberg, and what he had to deal with. According to his Wikipedia entry:

In the decades after Gutenberg, many conservative patrons looked down on cheap printed books; books produced by hand were considered more desirable. At one point the papal court debated a policy of requiring printing presses to obtain a license, but this could not be decreed.

http://en.wikipedia.org/wiki/Johannes_Gutenberg

So to close on a somewhat sombre note, I quote from the very text that Gutenberg first produced for “mass consumption”. While I doubt the author was referring to the book publishing industry, it somehow seems befitting, if just a tad dysphoric:

The mountains will be overturned, the cliffs will crumble and every wall will fall to the ground.

Ezekiel 38:20

Happy Earth Day. Save a tree – read an e-book

In keeping with the theme of Earth Day, it seems appropriate to examine the carbon footprint of the book publishing industry. Every year about 20-million trees are cut down to produce the virgin paper for books sold in the United States alone. Here’s an interesting commentary on this topic:

College students purchase about a tree per year in textbooks

Purchasing your textbooks will not only burn a hole in your pocket, but it will also destroy the environment. According to the Green Press Initiative, over the past three years the U.S. book publishing industry has consumed an average of 20 million trees per year to print books sold in just the U.S alone. Publishing companies have become a top contributor to the destruction of forests world wide.
“The global impact of this is rather mind-boggling,” says treehugger.com. For instance, if a publisher sells a million copies of a 250-page book it will take 12,000 trees just to produce the necessary amount of books for this one title. By producing new editions of Textbooks every year publishers are destroying the environment to fatten their pockets. Just think about the amount of trees killed to produce enough textbooks for every student at every college & University. It gets worse…
The Green Press Initiative estimates that nearly 40% of the materials found in landfills are paper products. As this paper degrades, it produces methane—a greenhouse gas with 21 times the heat trapping power of carbon dioxide that eats away at our atmosphere. Each time a student buys a new book they are contributing to these numbers. It’s time to make a difference.
Chegg commits to planting a Tree for every textbook rented from us. http://www.chegg.com/EcoFriendly

A company called ecolibris (http://www.ecolibris.net/) aims do something similar to offset book purchases. Their tagline reads: “Every book you read was once a tree. Now you can plant a tree for every book you read.” Basically, the concept appears to be that you send them money, and they arrange for some trees to be planted in several developing nations (10 trees for $10 U.S.) They then send you some Eco-Libris stickers to put in the books you own (presumably one for each book read and tree planted). Other than that, there doesn’t appear to be any particular connection to books; it could easily be, “plant one tree for each gallon of gas you buy”, “each KWh of electricity you consume,” etc. But the thought process at least gets people thinking about the environmental impact of paper consumption.

If one really wanted to have an immediate an measurable impact on the carbon footprint of the publishing industry, one could simply migrate all book purchases to e-books. Just like that, we could save 20 million trees a year. Not to mention the cost of fuel to ship thousands of tons of paper across the globe. Think of the effect on the Amazon rain forest (not to mention on the other one, founded by Jeff Bezos).

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