How the Publishing World Acclimated to the Digital Revolution (Part 1)
Posted Wednesday, December 19, 2012 7:13 AM
Like the record industry before it, the publishing industry is changing dramatically. Of the Big Seven publishers (Random House, HarperCollins, MacMillan, Penguin, Simon & Schuster, Hachette Book Group (Little, Brown & Co, et al), and Scholastic), six of them–all but Scholastic– have proven to be too big to change their business strategy in a rapidly changing marketplace. As with the record industry where changes to the labels were presaged by the demise of beloved chain stores (Sam Goody’s, Tower Records), the book industry saw the bankruptcy of Borders/Waldenbooks shutter nearly 1250 stores from its high point in 2003, when the last Borders stores closed on September 18, 2011. Both major record labels and these major publishers have slowly changed how they do business, while smaller, niche labels and publishers have sprouted around them, and artists (both musical and literary) have opted for the control that self-releasing their work allows.
The culprit in both instances was a combination of the predatory sales practices of online retailers (particularly Amazon.com) and changes in the media (MP3s in the case of the music industry; ebooks in the case of the book industry). New changes, for instance being able to access such media on non-dedicated devices–smart phones and tablets now have “reader” apps as well as the ability to serve as your MP3 player– mean that there are more ways for consumers to access their books and music, sometimes making the traditional ways of conducting business seem quaint.
These changes are indisputable. In June of this year, the Association of American Publishers announced that for the first time, ebook sales surpassed hardcover sales (excluding children’s books) in the first quarter of 2012. Business reporter Lauren Indvik of Mashable notes that, “The proliferation of ereading devices, from tablets and smartphones to dedicated ereaders, has a lot to do with it. Research published by Pew in April found a strong correlation between the spike in sales of ereading-capable devices and ebook adoption over the holidays.”
Mike Barnes, who’s worked in printing for over 25 years, isn’t surprised by the changes, and says he has seen it coming for a long time. Media is changing, but not the art of reading; he sees people reading “books” all the time: “the book is not dying, I was walking through the factory at lunchtime, I saw a guy a couple of years from retirement sitting at his workbench eating a sandwich and reading a book on his Netbook. One of my immediate staff reads her Nook at every available opportunity; she is in her 60's. I read books almost exclusively using apps on my iPad, the digital version is just so much more convenient. If I have a free moment and I don't have my iPad with me, those apps sync on my phone, I can pick up my ‘book’ where I left it at any time. A printed book will not fit in my back pocket, my phone does.”
Such anecdotal evidence has been corroborated by the Pew Research Center’s Internet & American Life Project, which in a study of library usage noted these two pertinent tidbits:
Among Americans who read e-books, those under age 30 are more likely to read their e-books on a cell phone (41 percent) or computer (55 percent) than on an e-book reader such as a Kindle (23 percent) or tablet (16 percent).
Overall, 47 percent of younger Americans read long-form e-content such as books, magazines or newspapers. E-content readers under age 30 are more likely than older e-content readers to say that they are reading more these days due to the availability of e-content (40 percent vs. 28 percent).
Barnes’s mention of the iPad and Pew’s use of Amazon’s Kindle as its example of an e-reader emphasizes the new big players in the distribution of books these days: Amazon.com and Apple iTunes.
Amazon.com built its business on books, and although it now seems like the world’s leading seller of everything, it still is thought of primarily as a book seller. Its Kindle is synonymous with e-reader, and it made its business by underpricing brick and mortar by stealing a strategy from WalMart’s playbook. Amazon declared how much it would pay publishers for their books (45 percent of cover price)–this gave it the means by which to underprice its competition while simultaneously having less overhead and more stock.
When I lived in a small town in northern Michigan, Amazon was a lifeline to civilization–particularly for a reader of poetry and niche fiction. The nearest bookstore was 50 minutes away, and it didn’t sell much poetry. Now though, I live in a town with a small, independent bookseller that employs neighbors and friends. Special orders can arrive in a day or two without paying expedited shipping. And despite attempts to virtually reproduce this experience, Amazon doesn’t allow the opportunity to browse through a book because its cover interests me.
By setting the price it was willing to pay for merchandise, publishers in turn raised cover prices. The rise of e-books led to more confusion as Amazon willfully set the price of e-books for its Kindle reader low and maintaining a proprietary software for its e-books that prevent readers from buying titles from any other source. Once you have a Kindle you can only buy e-books from Amazon; the Kindle app on most phones and tablets works the same way. In response to this, many of the big publishers worked out with Apple an “agency” (as opposed to wholesale) model to make titles available through its iBookstore. Apple spokesman Tom Neumayr says: “The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon’s monopolistic grip on the publishing industry.... Just as we’ve allowed developers to set prices on the App Store, publishers set prices on the iBookstore.”
Author and book blogger Nathan Bransford points out that the agency model wasn’t necessarily designed to make the publishers more revenue, rather he claims “publishers left money on the table to have more control over pricing and so more e-booksellers could compete with the elephant in the Amazon.”
The change in business models between Apple and the publishers seemed like price setting and led to a Department of Justice suit against the parties, saying they had violated the antitrust provisions of the Sherman Act. The DoJ complaint claims that “publishers saw the rise in e-books, and particularly Amazon’s price discounting as a substantial challenge to their traditional business model...and they conspired to raise retail e-book price and to otherwise limit competition in the sale of e-books.” Although three of the publishers have settled with the DoJ, Apple, MacMilan and Penguin continue to fight the charges with the case set to go to trial in June 2013.
Although many suggest that the low price of Kindle books is good for the consumer, rival bookseller Barnes and Noble noted that the DoJ case might lead to “higher overall average e-book and hardback prices and less choice, both in how to obtain books and in what books are available.” Author’s Guild president Scott Turow commented on his blog that “The irony bites hard: Our government may be on the verge of killing real competition in order to save the appearance of competition.” Turow’s comments echo the unheralded player in all this–the role of the author and how the author gets fairly compensated for the work of writing the book.
In this way the comparison to the music industry remains analogous: What is the value of the maker’s effort and energy? How do they get compensated when profits to the publishers are reduced? This is particularly true in a business in which making money as an artist is particularly difficult and where the profits made for a publisher by name authors (James Patterson, for instance, or J.K. Rowling) support the publication of less mainstream writers. I remember one literary fiction writer I taught with at a writers conference saying that her books were published by the good graces and good sales of Stephen King, after telling me she was still paying off the advance for her previous book as well as her most recent book.
For now, at least two of the Big Seven are looking at mergers to help them to become bigger: Penguin and Random House have announced a merger about which Pearson (Random House) Chief Executive Morjorie Scardino said, "Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers.”
Meanwhile, NewsCorp owned HarperCollins, which earlier tried to acquire Penguin, is now in merger talks with Simon & Schuster. The Big Seven may soon be the Big Five. If the results of the record label mergers of the previous decade are any indicators, this may not have the desired results. Steve Gottleib of The Huffington Post has already written that “Mergers among record labels were decidedly not good for the ‘ecosystem’: not for music discovery, not for artist development, not for sales, not for artists and certainly not for the bottom line of labels. They did not enable the surviving majors to do any better in pushing back against the dominant retailer, in that instance, iTunes. And competition from other online retailers like Amazon...”
It’s no doubt the changes in technology and the “bargain hunter” economy of the WalMart era, as well as the democratization of the Internet, the number of independent publishers, and the ease of self-publishing (yes, Simon & Schuster is looking to collaborate with the largest self-publisher/vanity publisher Author Solutions, to go head-to-head with Amazon’s self-publishing arm) are all changing not only how we read but also what we read and by whom.
The good news is the numbers are in. According to Pew Internet and American Life Project, about 20 percent of U.S. adults have read an e-book in the past year. E-book users tend to read more books than those who read only print material. A typical e-book user read 24 books in the past year, compared with the 15 books reported by typical non-e-book users. A third of those people who read e-content say they read more than they did before e-books. Of course, people are listening to more music, too.
Gerry LaFemina, a contributing writer at Highbrow Magazine, is the author of a book of stories (Wish List), two books of prose poems, and six books of poems, including Vanishing Horizon (2011, Anhinga Press). He directs the Frostburg Center for Creative Writing at Frostburg State University. He divides his time between Maryland and New York.
Photos: Goxunu Reviews, Design Continuum (Flickr, Creative Commons).