An entrepreneur's view of ebooks and the publishing market

The economics and business model of ebooks has caught the attention of entrepreneur Luke Johnson who runs the private equity firm Risk Capital Partners. He’s also a NED at publisher Phaidon so is well placed to reflect on this fast moving market – though he acknowledges that Phaidon – art, cookery, illustrated books may be less affected by this technological and market change for the time being. He has also recently written several books and where content is time sensitive, as for example with business books, waiting a year from manuscript to bookshop is ‘ludicrous’. Here are some of his reflections, predictions which can be found in full on FT.com Wednesday May 11, 2011.

- In the US, digital sales are at least 20% of large publishers’ revenues and growing fast.

- Authors generally receive 25% royalties on ebooks (15% for print) – given the much larger gross margins of ebooks, publishers need to start sharing more of this revenue with authors – in the meantime publishers such as Penguin are recording huge profits by maintaining ebook price points close to or at the level of print.

- Publishers could be missing a trick – the huge number of English speakers and readers who do not currently buy books but who might if prices were right – in other words a volume opportunity around much lower price points.

- There are of course challenges – piracy is a fear , as is the disappearance of high street bookstores; the increased dominance of Amazon; growing use of devices such as Kindle and iPad and other ebook readers; and decreasing importance of libraries will all contribute to an urgent need to re-think publishing business models and skills (e.g. SEO - Search Engine Optimisation).

- Good publishing brands (perhaps series too) can find success – Johnson cites the Dummies series where a reader is unlikely to know an author’s name but will likely own several copies of the series.

- Overall, he sees huge opportunities and threats as well as consolidation and upstarts coming from nowhere.

- Comment – an interesting perspective and good to see a concise update on some of the key issues from someone with broad business experience, not just of the publishing world. I think I would question the longer term viability – as he sees it – of illustrated books over other genres - it will be very interesting to see if the high quality format of illustrated books will be replaced by digital.. seeing how comfortable particularly younger readers are to read magazine content and view images online, am not sure the illustrated book is as safe as Johnson suggests. The opportunity is to consider how digital can enhance further the beauty, look and feel of illustrated print titles.. take a look at Touch Press titles to see what can be achieved...

Digital sales outstrip hardbacks for first time in US

Amazon US says it has sold 143 digital books for every 100 hardbacks in the last three months.  

Read this article from the Guardian about the growth in ebook sales via the bookselling giant Amazon

This announcement might come as just the sort of bad news that lovers of books (physical objects made of paper with print and a cover) were dreading. Amazon said sales of digital books have outstripped US sales of hardbacks on its website for the first time.

The rate of change is also getting faster: Amazon said that in the most recent four weeks, the rate reached 180 ebooks for every 100 hardbacks sold. Jeff Bezos, founder of Amazon, said sales of the Kindle and ebooks had reached a "tipping point", with five authors including Larsson, author of Girl with a Dragon Tattoo, and Stephenie Meyer, who penned the Twilight series, each selling more than 500,000 digital books. 

Key points and notes of caution:

·         While the volume of sales is impressive and the rate of adoption of ebooks perhaps faster than expected, the value of the books sold in digital format is not equivalent yet to that of their physical format version. Some titles in the Kindle top 10 were selling for as little as 75p.

·         Are ebook sales damaging those of physical sales? Not yet it seems – heardback sales are up 22% this year in the US.  Ebooks now account for 6% of sales in the US consumer book market. 

·         In the UK, the percentage is smaller and the consumer sales (£5m) are still dwarfed by sales of digital content in the academic-professional sector. Total digital sales were c.£150m. There are fewer titles available in the UK.

·         Many people are still waiting for the price of e-readers to come down before making the investment and waiting to see what the impact of the iPad will be on Kindle and book pricing.

E-Book Price Differentials Confusing for Consumers

Here is a link to a Telegraph blog lamenting the pricing structure of ebooks and that there does not appear to be obvious price competition between the formats  and e-readers offered by Kindle and iPad. 

This is something I have blogged on earlier this year and the potential for a captive audience tied to one device being stuck with higher prices than those offered to owners of similar but different devices.  The blog claims that Apple’s iBooks are more expensive – it takes the example of Sebastian Junger’s War. ‘On amazon.co.uk, the hardback is available for £8.49. On iBooks, the ebook costs £9.99...on amazon.com’s Kindle store, it’s available for $11.74, which I make to be about £7.80’.  At least the author takes some solace in the availability of a Kindle app for the iPad allowing access to what he says would be lower priced books but read on the iPad.

Other laments which must be puzzling many potential and actual users of e-readers and ebooks:

·         How could an ebook cost more than the real physical print version of a book?

·         Why should there be such price differentials between Kindle and iBooks?

·         Why can’t it be made easier to share ebooks?

The iPad, the Kindle and the Future of Digital Publishing

Reading books on the iPad

Apple’s iPad is giving ebook downloads a huge boost – 300,000 iPads were sold on the first day of its launch and more than 250,000 books were downloaded.  Apple’s Steve Jobs said "iPad users, on average, downloaded more than three apps and close to one book within hours of unpacking their new iPad."  The iPad will be available in UK at the end of April and there is huge speculation as to its impact on the ebook and e-reader markets.

Pricing models and agreements with publishers are known unknowns right now and not all publishers will have digital content available via Amazon unless they can reach agreement with the online retailer. On the positive side for ebook buyers, some commentators say the expected intense competition between Apple’s iBookstore and Amazon might help keep prices down, though this may not logically follow as not many people are expected to own both an iPad and the Kindle – the strong competition may help improve the performance of e-readers but  may in the short term help the alter the price points of ebooks  - it may be of more commercial benefit to publishers.   

Apple’s store currently offers  c. 90,000 titles (30,000 of which are available free of charge) whereas the Kindle has about 450,000 – this imbalance will change over the coming year.  The key point among all these figures is that the volume of e-reader sales (including the iPad) and ebooks for sale would strongly suggest a good future for digital publishing.

British Library ebook project

More than 65,000 19th-century works of fiction from the British Library’s collection are to be made available for free to the public. Amazon Kindle users will be able to read well known works by writers such as Charles Dickens, Jane Austen and Thomas Hardy, as well as works by thousands of less famous authors.  The library’s ebook project is another important event in the book world where the influence and longer term effects of ebooks on the publishing market is an unknown quantity. It is funded by Microsoft. Other online services, such as Google Books, offer out-of-copyright works for free; users of the British Library service will be able to read from pages in the original books in the library’s collection.  Most downloadable books on the Kindle are by contemporary authors because they are the most profitable for publishers. The jury is still out on what to charge for out of copyright works.  The British Library ebooks will be free of charge and will include works by Dickens and Hardy.  It will also be possible to purchase printed copies from Amazon which will have the original typeface and illustrations. Whether this will ‘revolutionise access the world’s greatest library resources’ as the library’s chief executive claimed is another matter – it may be that the real value is not in the availability of works which are already easily accessible at low or zero cost through other means – local libraries, bookshops, people’s own bookshelves – but in the digital versions of those works which are rare, or to which access in the British  Library is difficult for researchers outside the UK.  The library intends to continue its digitisation scheme by scanning books out of copyright from the early 20th century.

Warnings against Kindlemania...

Christmas Day ‘09 saw ebooks outstripping sales of print books on Amazon.com as eager recipients of the Kindle went shopping online for content (books..) - John Naughton’s Networker column in The Observer warns that the current exuberance about the Kindle (and eReaders generally) may be irrational - he refers to a study of people's use of paper to understand which uses might conceivably be eliminated by electronics, and which might not - he says the Myth of the Paperless Office should be 'required reading for anyone showing the early symptoms of Kindlemania' ! By the way, it's available in print and, according to Amazon.com, Kindle format.

While Amazon has a head start with its ebook reader and ebooks aplently on offer, Apple is expected to be hot on the Kindle’s heels this year with the Tablet eReader device – aka iPad, iSlate, iTab... Naughton expects Amazon and its Kindle to be the next target for what he calls Apple’s ‘distinctive brand of creative destruction’ and predicts Apple’s superior product development and design to come out on top in the long run.

Big Brother’s Little Brother - Doctorow and Digital Dystopia

The year is 1949 and a friend has lent you a copy of the recently published Nineteen Eighty-Four – you’re cautiously pessimistic about this fictional future and its oppressive, omniscient dictator, Big Brother - it’s all such a long way off.... Now, jump aboard your time machine (DeLorean recommended) and bypassing the real 1984, travel back to the future to what some might call the digital dystopia we inhabit in 2009: ubiquitous CCTV, surveillance, identity theft and loss of privacy - all standard features of our brave new world. As, increasingly, are, ever more sophisticated mobile phones, PDAs, ebook readers and ebooks themselves: according to the Association of American Publishers, year to date (August 2009) ebooks sales were up 149.3%, and June 2009 saw the highest ever ebook trade sales, $14,000,000 in total. Internationally more than a dozen new eBook readers have been either released or announced, and more are on the way (Barnes & Noble's Nook was launched last month). We’re already well into the next chapter in the history of the book, and how we buy and read them.

Nothing too sinister in this publishing revolution surely?

No, at least not until earlier this year when e-tailer Amazon assumed the role of Big Brother in the now well documented decision to remotely delete Kindle versions of Orwell’s Nineteen Eighty-Four from customers’ ebook readers, earning them a lot of bad publicity. Amazon took the action after the edition was added to Amazon’s catalogue without the rightsholder’s permission (note: for the uninitiated, the Kindle is Amazon’s ebook reader device which connects readers/book purchasers remotely to the online store.. and, apparently, Amazon back into the customer’s device..). Amazon apologised and acknowledged the error of their ways, but given their Big Brother-style action to remove the Big Brother novel, I was left wondering if it hadn’t all been a most brilliant guerrilla marketing campaign to attract attention to their device and ebooks more broadly. If it wasn’t then we can at least smile smugly at the ironic symmetry of it all.

The episode attracted a lot of media interest and comment, including that of sci-fi novelist, blogger and journalist Cory Doctorow, whose recent novel Little Brother features tales of surveillance and digital intrusion in a near future San Francisco. Publishing industry magazine The Bookseller reported Doctorow saying that publishers who use DRM to tie readers to one ebook device are the ‘real pirates’, contrasting this model with the ownership of a print book and the ability to share it amongst friends and family who in turn recommend it to their friends: word of mouth... the tried and tested approach to get people talking about a book and drive sales.

It’s worth taking a closer look at Doctorow’s unorthodox approach. I interviewed him earlier this year after ‘publishing’ a version of Little Brother in the YUDU format using his Creative Commons License - this also spells out the Doctorow philosophy in more detail. To begin with Doctorow’s view of copyright appears mainstream – it allows him to sell rights to publishers and prevents them taking his stuff and sell it without his permission. But he’s pro the sharing of books and is turned off by the idea that readers have to get involved in the legal end (license agreements etc) which should remain the domain of agents, publishers and authors; a school classroom, for instance, shouldn’t have to talk to a publisher’s lawyer to put on a school play of one of his books. He also draws on the example of the music business in the digital age in which he claims ‘the biggest pirates are also the biggest spenders’ ie the biggest fans are likely to be the biggest downloaders, but they’re also the ones going to concerts, borrowing music from the library, buying bootleg and, yes, legal versions of their favourites bands’ music and other merchandise.

Doctorow’s views on lending of books and ebooks goes something like this: if he could loan out all his books without giving up possession of them, then he would; the fact that he can with digital files he views as an excellent feature rather than a bug. He’s nothing if not passionate – the following verges on preciocity.. but the man is in love with books and wants to spread that love around..‘By making my books available for free pass-along, I make it easy for people who love them to help other people love them.’ I think we get the message.

He does however have a sense of humour about all this: ‘the number of people who wrote to me to tell me about how much they dug the ebook and so bought the paper-book far exceeds the number of people who wrote to me and said, "Ha,ha, you hippie, I read your book for free and now I'm not gonna buy it." ’. He thinks that many publishers are in fact amenable to a different model – his own editor, the leading sci-fi editor Patrick Nielsen Hayden being a good example, and it may surprise some that Harper Collins allowed a free digital version to be shared in parallel with the for-sale print. At this stage in the market he understands some publishers’ scepticism: ‘time spent in ebook meetings compared with ebook sales is a poor return on investment’, but is keen to stress that the free ebook approach is ‘not an ideology thing’ – it just makes sense to use the technology that way – ‘Ebooks are verbs, not nouns. You copy them, it’s in their nature..’ - and in any case, free things, for example software, ‘are often much better’. So rather than pronouncing a clear position in favour of ebooks and ebook readers, he is prepared to voice his scepticism, particularly about the restrictions and limits they impose: ‘imagine a book made to be read under only one kind of light’. He admits that at this stage they are ‘a marketing tool more than anything else’. I assume that this opinion will be revised if ebook sales continue their upward trajectory.


A critical question is this: if everyone shared their ebooks with each other, how would authors and publishers make any money?


Doctorow’s answer is that ebooks help to sell print books. While the experience of reading a book on a screen remains unsatisfactory (on a computer) – with a variety of programs running in the background to distract us – then the print version, he claims, will remain the preferred option and so a sale will result. In this sense he feels the ebook may simply be 'a complementary good’.

What happens though once we’ve moved beyond the early adopter stage of ebook readers, when prices come down and the market matures – would there have to be a stage at which only digital extracts were made available rather than the whole book, or just scrap the whole model and charge for all digital versions but allow sharing? New business models will need to emerge if Doctorow’s dream of a world without DRM is to be realised, especially if he is right about a future where ebooks are not just marketing tools:

'In the final analysis, more people will read more words off more screens and fewer words off fewer pages and when those two lines cross, ebooks are gonna have to be the way that writers earn their keep, not the way that they promote the dead-tree editions’ - http://craphound.com/ebooksneitherenorbooks.txt

Doctorow may think that's a long way off..in the meantime 3 million ebook readers will be sold in 2009 - Forrester Research - so publishers are going to have to start thinking more creatively about this now. They may not need to focus on working with the current ebook reader providers either. The ebook reader critics who complain that the devices are one-trick ponies are not necessarily advocates of the print as remaining the long term solution. They’re simply saying that devices such as the iPhone will end up catering for an increasing range of activities including reading, even if – in the case of the iPhone – Apple had previously not expressed a strong interest in the book market.

When I ‘published’ Cory Doctorow’s last novel Little Brother last year in the YUDU format, I had neither met nor spoken with the celebrated author-blogger-activitst, and I wasn’t and am not particularly a sci-fi fan. My background in book publishing – which includes a period with O’Reilly ( they run the Tools of Change for Publishing TOC events ) – and subsequent work for internet companies , meant I was aware of Doctorow and his unconventional views on copyright. I had just recently read about his anti DRM stance and of the Creative Commons License accompanying the digital version of his novel Little Brother, allowing people to re-use and share digital versions of the work, partly with the aim of promoting the print version (published by TOR and Harper Collins UK). As I was in the middle of helping to launch YUDU’s digital publishing website for creating digital books, magazines, brochures etc., I thought we’d get some marketing mileage by creating a YUDU format ebook of Little Brother and placing in my YUDU Library of content. I also knew it would be instructive as well as interesting to go through the process of making this book available for sharing online via its Creative Commons licence, adding to the now more than twenty formats in which you can find Little Brother – all these of course in addition to the print version you can buy from bookshops.

So what effect did creating a digital version in a new format have?

As an ebook available for anyone to read on the YUDU website, this version Little Brother has been viewed or read 3,213 times at the time of writing (a fair amount of traffic for an ebook – not least for one item in a library of millions of documents). What I can’t measure or track is how many of these people went on to buy the print version – or for that matter how many didn’t buy the print because they read the ebook. On the other hand, what is undeniable is that all these people will have browsed the book – if not actually read it in its entirety – learned something about it and its author, and ultimately helped spread the word and got people talking. Cory Doctorow kindly thanked me for publishing the novel in the new format - by the way, he wasn't paying me – at the time YUDU.com was, and so I like to think there was a quid pro quo in publishing the YUDU format of his book as it helped drive more people to the website, to browse the huge library of digital content and publish some of their own.

As for Big Brother and the UK in 2009.. EU Telecoms Package, speed cameras and government’s handling of sensitive data aside - we're living in interesting times and witnessing the exciting changes in the publishing industry. Celeb authors and heavy discounting of books by big retailers (Wal Mart etc..not just traditional booksellers) are as pressing issues right now as ebook content licensing. For now I’d be quite sympathetic toward publishers and booksellers who restrict consumers' usage of ebooks – at least to start with – but I'm hoping some brave, new models emerge to keep the industry not just afloat, but growing. You can understand why Amazon and the competition want to protect their investments at this early stage - they’re prepared to stick their necks out and take risks and so they deserve some credit, but they shouldn't ignore the trail being blazed by Doctorow and others with radical and disruptive ideas.

Rumours of Apple entering the eBook Reader market

There appears to be some excitement at the prospect of Apple entering the ebook reader market proper… 'proper' because although they’re already in the market – a lot of people are using their iphones for this purpose - the iphone could be improved on as an ebook reader. And do we expect Apple to bypass the opportunity to take some of market share from Sony, Kindle and Plastic Logic?

The rumours are discussed in an article on www.thestandard.com

Some say if you've got an iphone you don't need a Sony or a Kindle reader. Actually, this discussion is not so new:
Is the iphone the ultimate ebook reader.. from way back in 2008..

but it's fair to say a bigger screen, easier on the eye and comfortable size for holding like a book would be better than the iphone.

A user's decision to buy a reader in addition to their iphone may also depend on the type of content they're reading.. if it's work, professional, travel and reference related stuff with a lot of links then iphone is more convenient.. if it's novels and e.g. biography then a 'proper' reader would be good and Apple can probably be relied on to create something good..web browsing capability should be part of the offer.