On The Certain Economics Of Relegating Paper Books To The Margins Of The Business

James L. McQuivey
Vice President, Principal Analyst
November 16, 2010

Time to get my hands a bit dirty. Last week I posted an eBook forecast with a brief explanation of why the book business may complete its digital revolution more quickly than other media businesses have. Turns out this assertion was more difficult to hear than I anticipated and I got some very insistent (and worth reading) comments. The discussion that ensued both on the blog and outside of it was very complex, this is not a simple matter. However, there are parts of it that are very simple that I have to clarify, even though it means rolling up my sleeves a bit. Allow me to draw into this discussion John Thompson of Cambridge University who gave a very worthwhile interview to the Brooklyn Rail this month to discuss his recently published analysis of the book industry,  Merchants of Culture. I will refer to just one of his specific comments:

"There are many people who just love books and they love the ideas that are expressed in books; they love the stories that are told through books and all of it. They’re very attached to it…. They cherish the book. And they believe that this is an artifact that they want in their lives. And some of the technological commentators in this industry just completely miss this point."

I'll start by saying that Thompson's perspective goes far beyond this statement and I welcome his analysis. However, on this point he is both right and wrong, with the difference between the two being very critical to the future of an entire industry.

First, let me confess that I'm a bit weary from hearing people claim that the book industry is uniquely resilient to change. I've had three examples brought to my attention recently that supposedly show how the book industry cannot be so easily transformed: audiobooks, CD-ROM books (Thompson invokes this one), and early eBooks a decade ago. Somehow, we're supposed to believe that these three things are at all similar to what's happening now with eBooks. I won't destroy this illusion in this post, but it's very easy to do so since none of these prior examples provided an easier way to access book content in more places, at more times, and at less ultimate cost, than paper. They were all doomed to be minor players (or failures) from the start.

But one problem that arises from repeating these examples as a hex to ward off evil digital spirits is that people erroneously conclude from them that books are somehow a special artifact (Thompson's word) that can never be supplanted. This is a mistake. I wish I had a dime for every time someone in the newspaper industry said to me over the past 15 years that you would never replace the daily ritual of reading a paper, that a broadsheet was somehow uniquely capable of delivering news. I have had that conversation as recently as a year ago; I can appreciate how easy is it to slip into that fallacy. But it is a simple matter to detail how we have forsaken media habits and artifacts time after time (vinyl, anyone?) in pursuit of cheaper, more convenient alternatives. This is true with any physical artifact that humans think they value — including the shift from horses to automobiles or the change from being at Fenway to watching the Red Sox on TV. Both of my examples are illustrative because people still ride horses and pay a king's ransom to watch the Sox play live. But only a minority of people in motion and a minority of Red Sox Nation do either.

But my examples are weak because they imply a simple act: the replacement of one artifact (or format) with another. Oh, that it were so simple! Ultimately, we're talking about a change in economics, not formats.  In fact, paper doesn't have to go away or even become the smallest share of revenues to be neutered economically. In the music business, for example, digital sales still only account for just under 40% of total revenue in the US, but it is very clearly the dominant driver of the business: the music labels design for digital release and use all other aspects of talent management (appearances, endorsements, concerts) to help sell CDs and concert DVDs as follow-on revenue boosters. CDs, though still the biggest chunk, have fallen to a third of what what they were at their peak. Once the industry used to base all of its economic planning on the release of the CD as a tentpole in terms of promotion and revenue, now the CD is just another trinket to sell behind the digital release. It's a glorified tour t-shirt.

The same thing is going to happen in print publishing. When the dust settles, publishers will think of their eBook strategy first. Paper decisions will be made as an adjunct to digital decisions. Many, many books will be published without paper versions at all, at least until they get enough critical mass to justify going to paper. Bestsellers from proven authors will always get both, launched simultaneously, and certain niches (travel, cookbooks, etc.) will always have heirloom paper editions. Subject to such reduced fortunes, books will no longer dictate industry process or outcomes. We'll only get to this point once publishers start losing print revenues and are forced to scale back their operations to focus on the more efficient digital market. They'll edit less, promote less, and generally reduce the luxurious time they used to feel was necessary between when a book was written and when it was released.

This isn't because they want to make this change, it will be because the whole industry will find itself quite suddenly left with no alternative. Just as what happened in music, when the dominant retailers suddenly find their economic model drying up, they'll cut shelf space (music did it in 2007 and again in 2008, resulting in 40% less shelf space at major retailers like Best Buy and Walmart not to mention the complete end of Tower Records before that). This will mean an automatic retraction in how many books are printed because publishers won't get the massive bulk purchases they used to get for as many titles. It also means they won't be able to give as many large advances. Meanwhile, authors won't like that advances are going down, marketing spend is plummeting, and royalties are shrinking (especially now that 30% of the eBook price goes to the bookseller in most cases). Suddenly, self-publishing seems a real alternative for anybody with even a modest Twitter following, especially when Amazon is offering 70% of the retail price of eBooks — paid monthly, not twice annually.

I said above that Thompson was both right and wrong and I owe him an explanation. He is right that people love books. But what he (and they) really mean when they say that they love books is that they love the ideas that books convey and the feelings they get from reading books. This is where I have news for the industry: the ideas and feelings books provide can be evoked digitally — in some cases even better than before, and in all cases, more cheaply than before. Some readers with a thing for technology will get there first (shifting a majority of book reading to digital, as today's eReader owners have) while others will take some time to catch up — indeed, large numbers will never read digitally. They will not have access to the same pool of literature that eBook readers do, but they won't care. Does this seem a dreary future? Not to me; I see a world with more books, more ideas, and more feelings available to more people, more easily than ever before. And yes, it will hurt to get there.

In the end, all this sturm und drang will not be caused by technology nor prevented by love. It will be forced by economics. 



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