EstablishedOn Ebooks
This week’s Entertainment Weekly features a doom-and-gloom Op-Ed by Stephen King on the future of pop culture. He fears the changes occurring in the book, radio, TV and film worlds and wonders how great content will be produced under the new price-points that electronic media dictates and how the public will discover and drive high quality content. By and large, King’s article accurately portrays the current obstacles facing media industries but there is a tone of potential catastrophe that assumes the new will be worse than the old.
We need to start a discussion on media’s future – its economics, its institutions and its creators. This kind of discussion is my bread and butter.
This will be the first in a series of 4 short articles covering each area of pop culture that King touches on. Let’s begin with books.
King points out that while ebooks currently represent only 1.5% of the market, they are the future of the industry. As much as book lovers are hesitant to give up the rich texture and readability of print and paper, the convenience of ebooks in terms of portability (carry as many as you want simultaneously in a format smaller than a single book) and availability (purchase wirelessly directly from the device) trump these quality benefits. And the quality of ebooks will only improve over time.
ASIDE: I think there has been a misassumption that quality of format is the primary driver in customer adoption. This idea was mainly fueled by the extremely rapid growth of the high quality DVD format. I would argue that while customers definitely value a high quality format, overall it is a secondary concern to convenience. Convenience is the ultimate driver of adoption. We saw this in the MP3 format for music. It experienced rapid growth despite it being a lower fidelity format than CD. The high quality audio formats the labels created (DVD-Audio and Super Audio CD) have basically been DOA except to audiophiles. The convenience of MP3 was far beyond anything available up to that point. This is not to say users don’t care about quality, it’s just that convenience comes first. So make your product incredibly convenient to use and then add as much quality as is feasible.
So if we assume that ebooks becoming the largest segment of books is something of an inevitability, then we need to understand what the book industry will look like. The biggest issue is the price disparity between ebooks (~ $10) and hardcover (~ $25). The components of book pricing are covered better than I could hope to in a great article here: Book Cost Analysis – Cost of Physical Book Publishing
In short, everybody will be forced to take a haircut if we stick with the $10 price point. To me, that price feels right based on the value a reader sees in a non-loanable, non-resalable, non-physical product. When distribution and production is near-free, it is hard to justify to readers the high price of a hardcover in an ebook. But even when you remove the physical production costs, the price point is still too low to support the system that is in place. Currently, the system is basically author->publisher->distributor->retailer->reader.
The three vendors in the middle will be hit most of all. Let’s start with distributors. That is a business that is going away. Not only for ebooks but for any digital content. When the logistics of moving physical goods around the world is removed, distributors add very little value to the system. I wonder if they see the writing on the wall.
Retailers. Certainly Amazon is the big player in ebooks right now and has the potential to dominate just as iTunes dominates music. I want to dig more into this in a later post but in short, physical book retailers are in trouble and Amazon is in a great position to reduce its costs and further strengthening its position.
Publishers. With downward price pressure on their products, publishers are going to become increasingly conservative in terms of taking risks on new authors. In publishing, the hits fund all the misses and with hits generating less money due to the low ebook price, there will be less budget for launching untried properties. Also, budgets will be cut across the board meaning that fewer resources will be dedicated to extensive marketing campaigns for all but the most well-known authors. Cuts will also be made to the entire editing and product design processes.
So where does that leaves us? I believe that new authors will be much more likely to self publish. There will be less money for advances from increasingly risk-averse publishers. Without the need for physical distribution, authors will be able to publish Kindle compatible ebooks directly to Amazon. Readers will find content based on reader reviews at Amazon.
More well-know authors (and authors who gain self-publishing success) will be able to work with publishers. These publishers will mainly provide marketing services to help authors reach broad success.
So the future of ebooks is a much more simple diagram: author->etailer->reader.