The Rise, Fall and Eventual Rise Again of eBooks

ebookIt was only about five years ago that the world – and me – decided that print books were going the way of vinyl records. In the mid 2000s, the technology that make e-ink screens possible was finally viable for mass production.

Soon after, Amazon released the Kindle, and ebooks went mainstream. Between 2008 and 2011, ebook sales rose 1,260 percent in the US alone. Game over. Independent bookshops, chains and printers stood in fear, waiting for the final death call.

But it never came. It was a close-run thing. Sales were skyrocketing, and in the US, the collapse of bookstore Borders (which filed for bankruptcy in 2011) seemed to signal the very end.

Then the numbers went the other way. Since then, paper-based books have slowly moved back into the mainstream. By this year – 2015 – people like me said ebooks would overtake sales of print. But it didn’t happen. There was something of a plot twist to this story, that I never saw coming. Book stores – including those independent chains – are stronger and more vibrant today than any time before 2010. The American Booksellers Association says they’ve got 1,712 members stores today, compared to 1,660 in 2010. Today, ebooks occupy about 20 percent of the market. That’s about the same market share in 2012. What happened?

I’ve heard a lot of publishers (and authors who have bought this line too) say it’s simply because readers prefer “real” books. And so digital is at 20 percent, and will stay at 20 percent. The market has spoken. I don’t quite buy this. I think there were two reasons why ebooks sales have slumped: one short(er)-term reason to do with a temporary technology disruption from another market, and a longer-term reason to do with corporatism on behalf of the big traditional book-publishing industry.

Let’s look at the first of those. The first mainstream ebook reader in the US, the Amazon Kindle, cost hundreds of dollars when it was first released in the American market. But it sold well. As is pretty much always the case with technology, the prices quickly went down and the features improved. But it’s just an e-ink screen right? So the improvements were incremental. The real push is to lower the cost. Today in the UK, the basic Kindle, (which is much better than the first generation model ever was), will set you back just £59. Adjusted for inflation, that’s a heck of a drop compared to the first model released in 2008. Most ebooks were usually cheaper than their hardback versions, and paperback editions too. Makes sense really. I mean, there’s not a lot of cost involved in the mass-distrubtion of a file that’s typically only a couple of megabytes big, compared to the printing and distribution of a paper-based product. Amazon made big gains with its cheap $9.99 price guarantee for bestsellers (which, because publishers didn’t have the big costs associated with mass printing and distribution, meant that they also actually made more money from the sales of the cheaper ebook versions).

Then a bit of marketplace disruption occurred. In 2010, Steve Jobs revealed Apple’s iPad. “The Kindle’s been great,” he told the enthralled audience at the keynote speech, revealing the tablet to the world for the first time, “but now we’re gonna take it further.” Stephen Fry upon recording his first impressions of the iPad, couldn’t help but write “…poor Kindle.” Tablets had been around for decades, but the iPad was the first tablet computer that captured the imagination of the mainstream. It was a big success, and dozens of rival manufactures brought out their own tablets (including Amazon, with their Kindle Fire range).

Suddenly, in 2010, millions of customers faced a choice. Buy a Kindle (or other e-reader) for, say, $250, or an iPad for $399. Yeah, the iPad is more expensive, but it can do a lot more an a e-reader, which is after all, a uni-tasking device. And the iPad can read books too. Jobs gave a demo of iBooks, and even Amazon produced a Kindle app, so you could read your purchases on the device. Most people, at the time, weren’t going to buy both devices given the prices, so they bought one. And that was the iPad they bought. Or, other, often cheaper Android/Microsoft-based rivals.

But there’s a problem. Reading a book on a bright computer screen – like an iPad – is not the same as reading it on an e-ink screen. The e-ink screen looks like, well, a page. Just printed text on paper. A regular screen is like staring at your laptop. After a while, holding a bigger, heavier, glaring screen to read a text-based book (like a novel or biography) just put people off. So they stopped buying ebooks, and, rather than buying an ebook reader, moved back to paper-based medium. Once bitten, twice shy.

I think this is a short-term issue. But, judging by how slowly the book industry moves, short-term might be 15-25 years. Based on current pricing, I think that the business model of the Kindle could end up being that Amazon will release it for free (“get a free e-ink Kindle for every 5 ebooks you buy!”). So people can have loads of them, all over the house. If you drop one or leave it on the bus, no matter. You can get another for next-to-nothing, and remote-wipe the one you’ve lost/damaged. This ‘free’ ubiquitous attitude will slowly bring people back to ebooks. The rise of people – some of which are very talented – self-publishing on the Kindle Digital Platform, through Barnes & Noble’s platform, Google, or iBooks through iTunes Producer, can also play a part as we see more and more cheap and readily available work. Think about it, the beauty of this, is even if you’re a first-time self-published author, the fact that you’re able to sell as many books (with no upfront risk or cost) as John Grisham is a really exciting and revolutionary thing. Getting it noticed by the public, especially with lots of people releasing utter garbage remains a challenge.

The second problem I see is a trickier one, that could stop things moving forward for a century or more. This is corporatism on the part of the major book publishers. Once the ebook reader arrived, they could see that with nimble, smart, savvy new writers (think E.L. James et al), soon, publishing a book just by yourself could become the “done” thing, even for well-established writers. If Stephen King publishes a book as a hardcover for $19.99, he could see $3 of it. If he were to publish it himself (paying for an editor, cover designer, etc. himself), he could sell it for, say $5, and still make the same $3 off every sale, regardless of how many copies sell, with no risk of doing an overly-ambitious print-run. And at that price, he’d shift many more books.

The big book publishers saw this as a scary future, one to be avoided if possible. Amazon’s $9.99 Kindle bestsellers deal in the US is over, and the publishers are in charge again now. And they’re charging much more for their ebooks than they were a few years ago, (making them less competitive and attractive to readers) while also doing all they can to lower the price of print-book production through innovations and economies of scale. Hachette boosted their Indiana warehouse by 218,000 square feet last year. Penguin Random House have coughed up $100 million to expand and update its wearhorse operations, with 365,000 square feet added in 2014 to its (already huge) warehouse in Crawfordsville Indiana, doubling its size. The boys and girls at Simon & Schuster are set to do the same to their distribution facility in New Jersey: it’s going to be 200,000 square feet larger.

Why the big investment? Because they can put a stranglehold on this business. At the moment, if people mostly buy print books, then big publishers will remain in charge as the gatekeepers, getting their percentage for every copy sold. Because of these expansions and distribution improvements, it’s now often cheaper to buy a paperback version of a book than the ebook version.

I hope this doesn’t last, but I’m not optimistic. I really like publishers, especially the one’s I’ve mentioned above. But I don’t like what they’re doing here. I envisaged a future for big publishers as representing new talent (and established talent), using their incredible editorial, marketing and promotional skills to be champions of quality. Just because “anyone” can self-publish wouldn’t mean they should. There would be a big market – a demand – for publishers who burrow and forage, looking for the best talent out there, and bringing it to our attention. Yes, the margins could be lower for publishers on a per-book basis, but not having to guess what sort of a print-run etc. they have to do would mean the risk is lower too. And they could invest more time not in building ever-bigger factories, but in nurturing more and more talent.

They’d be so important in this brave future. But I fear (and hope I’m wrong) that they could keep things the way they are for the next century and more, before the number of talented self-published writers tilt the playing-field.

 

But don’t forget, you can buy all of my books – both in print and digitally – here! (Sorry, couldn’t resist the chance to cheapen this article with a plug!)

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In the Land of the Free, Disruption is King

Robot ArmThere’s a very human fear of technology ruining our lives.

“It’ll replace us,” we say, when a new-fangled bit of technology comes along. But is there any real truth behind that anxiety?

It’s our instinctive reaction. But that doesn’t make it the right one.

When I was young, I can still recall a (serious) news report, commenting – with furrowed brows – how, shock horror, some children as young as 8 “had access to the internet.”

That was it. It wasn’t that they were doing something wrong, or even that they were unsupervised. It was the fear that they were using new technology. I posted a great video here a while ago featuring the founder of Wired Magazine, who says that in the early/mid 90s, mainstream newspapers were still writing articles about the web as “The Internet – Threat or Menace?” and, though that precise type of hysteria about the web has died down, general fear-peddling about new advances hasn’t ceased at all.

The truth this, technological change is part of an observed phenomenon I’ve written about before: “creative destruction”.

In my great-grandparents day, there used to be someone who’d ride down the road on a horse and cart, selling blocks of ice, so the local housewives throughout the city could preserve meat and other things for longer. Eventually a bunch of clever American and Japanese people came up with an electrical device called a refrigerator, which has become a feature of pretty much every house everywhere.

Now the ice-block salesman’s job has gone. Indeed, so has the job of the people who made the ice. But seriously, are we worse off because of it? Furthermore, are they? Did those people who found themselves out of work lose out long term?

In the short term it must have been hard, but surely with their expertise in the freezing business, they were well-placed to sell and support those buying the new appliances. And today: well, those people are long gone, and their descendants are just like the rest of us – with better jobs, better (inflation-adjusted) wages, more buying power, higher standards of living, and even more leisure time than their great-grandparents could have dreamed of.

The smart and thoughtful Roger Bootle has raised some interesting points related to robots and artificial intelligence in the workforce. His article in the telegraph, though too negative for my money, is nonetheless well worth a read.

We can’t begin to imagine the hardship of living in an early hunter-gatherer society. Where the life expectancy is around 25, things were, to put it mildly, pretty hard. The agricultural revolution must have rendered thousands of hunter-gatherer “jobs” redundant. But everything got better. The industrial revolution must have rendered millions of agricultural jobs redundant. But everything got better.

This technological revolution is, well, yes, rendering many jobs redundant. But the wisest among us shouldn’t worry too much about it. I’ve been made redundant. It’s an awful feeling. But for those of us who do find themselves out of work, the stats show that it virtually always leads to better things. And the world gets more efficient, and the standard of living of the people globally continues to rise.

In the land of the free, disruption is king. Long may it last.

A Look at the Past, a Peek at the Future

Nick Gillespie from Reason TV sits down with the smart, engaging and inspiring Louis Rossetto – founder of the brilliant Wired Magazine – to look at what changed in the twenty years since the publication started, and where things will go next.

As always with anything made by the boys and girls at Reason, this video is well worth 15 minutes of your time.

In 1971 Rossetto co-authored a piece in the New York Times Magazine describing libertarianism as the next great social/political movement for young people, tired of the centralised zero-sum game currently played.

It’s great to see he’s still unrepentant in his outlook. And the evidence is on his side.

The Future of Written Journalism

I don’t know why I’ve thought about this quite a bit recently. I’m a huge fan of the blogosphere, and I’m really excited by the possibilities of the new digital journalism steps being taken by the main newspaper organisations (like the extract replica e-editions of newspapers, available to buy on a very cheap subscription basis). I also love the new contributors to the scene, who have arrived perfectly placed to take advantage of the digital sphere, like The Daily and the longer-running Daily Beast, which of course merged with Newsweek.

But there are problems. What’s the best business model for these new outlets? How many people are embracing them? Journos are losing their jobs in droves, how do we stop this decline? And indeed, should we be concerned with stopping this decline?

Lots of questions, issues and anxieties. People way more knowledgeable and smarter than me have weighed in on this topic, and I wouldn’t bother contributing unless I thought I had something useful to contribute myself. I’ve got a couple of ideas about the best business models the print world could adopt, and I lay them out here, knowing full-well that I’ve probably missed something out really significant, but I haven’t heard these suggestions made before, so what the hell – here it is, see what you think:

I want to reference two different types of print media: newspapers and magazines. I’m defining magazines are anything that comes out periodically, but not daily. So a monthly, fortnightly or weekly release. Newspapers are (obviously) defined as anything that comes out daily. Clear? Great.

Okay, magazines first. Mags make money partially from advertising revenue, but given the lack of frequency of release (once a week, or once a month), and the lower circulation figures, advertising revenue doesn’t pay a magazines way. Magazines, by and large, make their money from the actual sale of the magazine.

So if you’ve got a magazine that costs £5 say, then about 50p goes on the printing costs (it’s obviously more expensive than a newspaper, all that glossy goodness), about 20p on the distribution, and I’ll guess a £1.30 commission for the newsagent. That means that the average £5 magazine makes about £3 for the publisher, and another 30p per magazine in advertising revenue.

So to create an equivalent digital version for iPads and other tablets, is pretty simple (assuming you don’t put all your content for free online. If you do, then you’ll have to follow the newspaper business model, see below for that). Basically, if you charge about £4.25, then minus Apple’s (or whoever) 30% commission, it’s still £3 per copy purchased, and you could charge the same for the ads, thus making the same amount of money for the dead tree magazine version.

But there’s a vital difference. Typically, newspapers charge a CPM rate for online adverts (Cost Per Mille, or cost per thousand readers), that’s 2.5 times higher than the ads in a dead-tree model. That’s because the ads can be dynamic, they can be more tailored and animated to suit the audience, and crucially, when someone wants to find out more about that product or service, they can just click or tap on the ad, and they can go to a website or video or virtual shopping cart or whatever.

So you can sell ads and generate 75p for the same ads in the digital version. So if you sell the magazine that retails in a dead tree version at £5, (which gives the publisher £3 + 30p = £3.30), you can sell the digital copy that’s exactly the same for just £3.65 and make the same money. (£3.65 minus the digital distributor’s 30% commission = £2.55 + 75p for ad revenue = £3.30 per magazine bought). And you can charge even less for the magazine and sell more which increases the ad and sales revenue further and makes use of an economy of scale.

Newspapers have a totally different problem. The toothpaste is out, and you can’t get it back in the tube. Without understanding what it really meant, the editors happily let the reporters and columnists at all the local and national news outlets publish their content for free online. They had to in a way, competing with all the amateur bloggers, etc.

So now the content is free online. No going back. The ad-revenue per thousand is better than a newspaper ad, but people dive into a news site, see a few pages, and leave. That means they’re only seeing a few ads, even if it makes the news organisation more money per ad.

With a newspaper, a client has to pay upfront for the total estimated circulation to see the ad, whether that was 100,000 people or ten million. And everyone who buys the paper, probably sees all 50-70 ads that are published in the edition.

Digital app-based versions can fix this. When you buy a copy of the electionic paper, it’s a really good and delightfully accessible version, and the purchaser will see all those ads, and those ads are more ‘valuable’ (ads you can tap on them and go to the company website, etc) but…

…But why would you buy it? Sure, they can sell them way cheaper than the paper versions, but all this content is mostly free online, and if you hide it behind a paywall, your listenership will just ditch you and go to your competition.

I think that the best thing to do is dramatically increase your circulation by making the app-delivery totally free. Now that means that lots of people who download the paper each day won’t necessarily treat the paper with the same reverence, but they’ll be way more of them, and they’ll see a hell of a lot of those ads. Let’s just (probably very inaccurately) go over some example figures:

A dead-tree newspaper sells for, say, 55p. Once you buy raw materials, (paper, ink, plates, getting all that stuff delivered to the printers), get the paper printed, get it distributed, and account for the commission from the newsagent, the paper makes about 5p. Obviously, you can’t sustain a newspaper on 5p, (especially as less and less people buy them – why when you can see it all online?), so they need advertising revenue to make ends meet. The average paper generates, say 50p of ad-revue per purchased copy.

Now each ad can be charged at 2.5 times more on a digital tablet edition, and even if someone doesn’t read each ad because they just browse (as it’s available free), you still negate that by having a huge increase in circulation, which will only grow as the paper versions vanish.

So if for a typical circulation, a paper that costs 55p generates 55p of ad/sales revenue. If the current circulation is a million say, that’ll be £550,000 of revenue per day. But if the average person only sees a third of the ads in the paper on the digital version, based on a 2.5 increase in CPM price and a conservative increase in circulation from one million to two million, you’ll see revenue of 40p per download. That means over 2 million downloads would give you £800,000 per revenue per day.

There’s probably a million things wrong with this long, inarticulate badly-written rant, but I can’t help feel that creative destruction will solve the current problems that written journalism is facing. And while amateurs and Twitter will now always be the first with breaking news, professionally produced and written journalism will still provide the high-value contextualisation that we crave. There’s a need for it, and I’m sure there will be a business model that will make it work.