A couple of recent articles got me thinking again about the current revolution in ebooks and related subjects.
First, the New York Times in The Bookstore’s Last Stand took a look at Barnes and Noble’s attempts to stay competitive in the current environment, focusing on B&N’s creation of the Nook and on its current CEO, William J. Lynch Jr., who joined the company three years ago after working at IAC/InterActiveCorp, the parent company of the Home Shopping Network. Lynch ran both hsn.com and gifts.com there. Surprisingly, Lynch, who considers himself a technology guy and even claims that Barnes and Noble is a “technology company” told the Times that “the idea that devices like the Nook, Kindle and Apple iPad will make bookstores obsolete is nonsense.”
For those who follow book technology this yet another statement in an old argument. Today, traditionalists hope that some balance point will be reached and that print books and ebooks will both be available for the foreseeable future, perhaps even with some consumers purchasing ebooks in stores.
That last part makes many ebook promoters laugh. The most radical of prognosticators in favor of ebooks foresee the collapse of the current industry as consumers shift en masse to the “obviously superior” ebooks. They see this happening in a very short window, often in less than 5 years.
This view may be influenced by the product cycle in technology, which is used to seeing this kind of transition. It is exactly this kind of change that Harvard Business professor Clayton Christensen (who is LDS, I can’t help but mention) looked at when he wrote his groundbreaking book, The Innovator’s Dilemma
Does this apply to book publishing? It certainly seems like it should. I doubt anyone would disagree with the idea that ebooks are a revolutionary technology. But there are elements of the market for books that argue against applying Christensen’s theory, at least for book publishers. Retailers are another matter.
First, books are not all the same — i.e., one title can’t be substituted for another. While that seems obvious, it isn’t true in other technologies. An SD card from one manufacturer can be used just as easily as one from another manufacturer. But in book publishing, the content isn’t the same in each title. You can’t substitute a Frederick Forsyth novel for a John Le Carré novel, let alone substitute it for a Daniel Steele novel. Where buying one SD card means you won’t purchase one from another manufacturer, buying the Forsyth novel doesn’t mean you won’t buy the Le Carré novel, and, in fact, it may even mean you will (or are more likely to) buy a second Forsyth novel. In terms of Christensen’s theory, this means that you can both purchase books as ebooks and as physical books — making it harder and slower for the new technology to supplant the old in this case.
Second, books usually benefit from the copyright law, which gives authors, and through them publishers, an advantage. At least for most authors, publishers license almost all rights to a book, including all print rights and all ebook rights. This means that the only “manufacturer” of each title is almost always the same for both the old technology and the new technology; thus the old technology “manufacturer” doesn’t face competition from new technology manufacturers.
Now, I am not suggesting that this alone means that print books will survive. It doesn’t. What I’m saying is that ebook technology won’t by itself put publishers out of business (print book retailers are another question). Instead, print books will remain one way to read a book as long as there is enough demand for books in print formats. And with the prevalence of print-on-demand technology, demand for print formats doesn’t have to be very high to make keeping books in a print format attractive — in many cases publishers will only need to sell a few hundred copies of a print edition if they are also selling the ebook edition of the same book.
My prediction is that the larger publishers will struggle with the likely inevitable shift of the majority of book sales to ebook formats. But in the end these large publishers will probably survive and will likely continue to be the largest publishers of books in all formats.
The biggest challenge that publishers face in this transition is what this shift from print to ebooks does to the distributors, wholesalers and retailers. If anyone faces the difficulties that Christensen outlined, it is book retailers like Barnes and Noble. As much as I like shopping in the environment that B&N provides, its hard to see how the company survives as more and more consumers shift from purchasing print books to purchasing ebooks. Other retailers, wholesalers and distributors, who generally do not have a presence in ebooks, appear to be doomed, IMO. Barnes and Noble’s investment in ebook technology is its best hope, and, under Christensen’s model, its survival depends on whether it can downsize or eliminate its investments in physical books and the resources needed to sell them fast enough to keep their costs from overwhelming its investment in selling ebooks.
How fast B&N will need to move depends on how fast the shift of sales from print to ebooks happens. A slower transition may make it easier to survive. And there is some reason to believe that the transition may take a while—ebook technology isn’t perfect, and not all readers like it at the moment. Nor are ebooks as inexpensive as many predicted (editorial costs, which usually can’t be eliminated, must still be covered in ebook prices). Its not hard to see this transition lasting decades. And even then, I believe print versions of many books will still be available to the few that want them. But they most likely will have to purchase them from an Internet retailer instead of from a local bricks and mortar store.
And what of authors?
So, where do authors end up in all this? Writing in the Guardian, Ewan Morrison claims that we are in a self-publishing bubble, which will eventually burst. He believes that so many authors are producing so many books that prices will eventually tank, destroying the market in the process. While there is clearly a problem, it is not a bubble, and Morrison’s explanation relies on a hackneyed attempt to force the facts into the model promulgated by economist Hyman Minsky.
There are, in fact, many reasons why the market for books doesn’t fit Minsky’s model at all. In general, prices haven’t risen substantially faster than inflation. There also isn’t any real expansion of the market for books — yes we have seen a stunning expansion in the number of authors and the number of titles available, but book sales overall haven’t risen substantially. The increase in ebooks isn’t due to widespread speculation, like you see in a bubble. Instead it is due to the adoption of the new technology, which, in part, comes at the expense of print books — consumers are switching formats, not buying every book they can get their hands on as you would expect in a bubble.
So what is going on then, if it isn’t a bubble? What we are seeing is adoption of a new technology, with the accompanying winners and losers. The new technology makes it easier to self-publish — the barriers to entry (as economists call it) have been lowered, not just by ebooks, but also through print-on-demand and the Amazon-led adoption of retailing the long-tail. Unlike in a bubble, these are real and more or less permanent changes to the market. When it is easier to enter the market, more people do, and short of building new barriers to entry (a dubious idea), everyone makes less money — with new authors in the market, consumers spread their money over a much wider number of titles, which means each individual title sells fewer copies and makes less money.
Now, while it isn’t quite clear from Morrison’s article, he may be talking not about the demand for books, but about the demand for having your book published. In this market, prices might be represented not by dollars paid, but by the effort put into writing and trying to get a book published. The falling barriers to entry certainly has made that price rise. Is that a bubble?
Reading Morrison’s article in this light, he may have a bit of a point, but its hard to see exactly what form a “crash” when the “bubble bursts” will take. Will authors simply stop putting effort into new books, therefore making it more difficult to attract new authors? If so, then where is the damage that happens in a crash?
I wouldn’t call this a bubble, but I do see the equivalent of a “market correction” as authors become more disillusioned with self publishing—which for most authors is more difficult and time consuming than expected and much less rewarding than they hoped. But this assumes that many authors will stop writing simply because there isn’t a pot of gold at the end of their rainbow. I suspect that most will write anyway. The rise in self-publishing happened because the barriers to entry fell, and the barriers will, I think, remain down. And if you are compelled to write, why wouldn’t you go ahead and publish what you have written? Perhaps you will sell a few copies. And, best of all, you receive a kind of reward in having your book out there for sale.
Unfortunately for authors, Morrison is wrong about this being a bubble. Unless large numbers of authors decide its not worth it and stop writing new books, the expansion in self-publishing is more or less permanent. Authors with a need to write will continue to write—and once they have written a book, they will want to see it in print.
