It has been two years since I prepared some reflections on the extent of digital disruption in the U.S. book industry for a presentation I gave at the Editech conference in Milan. Looking back at those reflections, I am struck by how many of the tremors I identified in 2012 continue to rumble in the U.S. book industry in 2014, some more loudly and ominously than others.
The trend to consolidation that was visible then, both in retailing and in publishing, continues to be an important feature. Amazon’s dominance in book retailing has intensified as its competitors, old and new, have either faltered or failed to make the competitive impact they hoped. The recent merger of Random House and Penguin was the first step in what many have been predicting for years: inevitable consolidation among the larger trade publishers to achieve the scale necessary to get in shape to compete with the likes of Amazon. Will we see more of this? Probably, but not necessarily at the expense of smaller publishers, because one of the remarkable features of the U.S. book industry in the last two years has been the talent for reinvention and the adaptability of some of the smaller and mid-sized publishers.
The blurring of responsibilities between players in the traditional supply chain has continued. Amazon’s move into publishing has intensified and we have seen several leading literary agencies start their own (mostly digital) publishing operations. Self-publishing in the past two years has become an established feature in the industry landscape, propelled by some prominent bestselling titles and by the growing popularity of highly successful platforms such as WattPad. None of this, however, has caused the old value chain to disintegrate. It’s still the case that book publishers mostly still focus on book publishing, booksellers on bookselling and writers on writing. The extensive and radical disruption by technology of traditional roles predicted by some has not happened, though the rigid divisions of the old value chain will never come back. We have seen a large number of new entrants into the industry, including many start-ups. Few have yet to make a significant impact and some have disappeared quickly, but the industry as a whole has been energized and enriched by the ‘digital natives’ in publishing and retailing.
Copyright continues to be under pressure in various places around the world. Transformations in the way content is produced, distributed, and used, most of them stimulated by the growth of the global digital network, have had the effect of making copyright, once the exclusive domain of attorneys and academics, front-page news. Legislation that many see as profoundly hostile to the interests of rightsholders has been passed (in places such as Canada) or is expected elsewhere (such as Brazil), and there have been equally damaging judgments coming out of courtrooms in various parts of the world.
Although all the tremors I identified two years ago continue to be felt in the industry, it’s worth noting how few of them have had truly destructive consequences. It’s possible that it’s too early to see the full effects of these unsettled conditions, but another explanation is equally feasible: that our industry and its players, large and small, show a remarkable capacity for resilience and reinvention. Publishers have learned to become adept at managing disruption, as they have seen every facet of their businesses transformed by technology. They have adapted as old sales channels have contracted and old partners have disappeared. They have learned to produce, price, promote, market, and sell products in ways that were unthinkable and unnecessary just a few years ago, all in response to the global digital network and to a revolution in the ways their customers expect to discover, acquire and use content. For retailers reinvention has been much harder and there have been many casualties in physical and digital bookselling, but there are without questions signs of resilience. In many American cities there are community bookstores that are re-energized and re-focused on their mission to serve local readers. Few can be said to be thriving, but they are surviving and that’s an achievement in itself when economic conditions have been so challenging.
I concluded my reflections in 2012 by predicting ‘survival and prosperity in the long-term future may prove to be very difficult indeed for some of the established players in our industry’. Just two years on, we have not yet arrived at the ‘long-term future’, but nearly all the established players are still in place, fighting to stay relevant and striving for greater efficiency. Let’s see what the next two years have in store for us.
Michael Healy, March 2014
Publishing in hazardous times: trends and lessons from today’s U.S. book industry
Michael Healy’s presentation @ Editech 2012
There can scarcely be a publisher in this room (or indeed anywhere else) who doesn’t have at the top of his or her agenda how to adapt themselves and their companies to the transformed circumstances in which they now operate. I want to begin by rehearsing some of the key features of those transformed circumstances. My point of reference here is, of course, the U.S. book industry – the market I know best, but the circumstances that I am about to describe apply, to some significant extent (I suspect), to every developed book industry around the world.
First, a large proportion of the reading public is reading differently. Angela Bole’s presentation will illustrate this fact very well. Sales of digital books now typically make up something like 30% of the total sales of trade publishers (that figure is, of course, much higher for new releases and major front list titles), and most publishers expect those numbers to climb. Bear in mind that the first Kindle was launched on November 16, 2007 and you will get a sense of what has happened in four short years. Second, the book retailing landscape in the U.S. has undergone a degree of consolidation and change that was unthinkable a few years ago. Amazon dominates online book retailing to a degree that many publishers think is unhealthy. I learned recently from one of the leading U.S. trade publishers that Amazon accounts for 50% of all his company’s online sales of printed books, and more than 60% of his e‐book sales. Only one nationwide bricks-and‐mortar bookshop chain, Barnes & Noble, has survived the upheavals in retail, and almost everyone expects the number of their stores to decline significantly in the coming years as more readers and reading move online. The independent sector, in apparently terminal decline but stubbornly resistant in some areas, looks set to suffer further as independent booksellers find it so difficult to get a safe and reliable foothold in online retail. The so-called ‘Big box’ retailers (such as Wal‐Mart and Target) are announcing plans to stock fewer titles. Consolidation in retailing is profoundly threatening to many publishers, and there is disappointment among some of them that Apple’s and Google’s arrival on the bookselling scene has yet to make significant impact on Amazon’s dominance. Faced with these turbulent and threatening market conditions, it’s little wonder that trade publishers felt obliged to replace the traditional wholesale terms with the so‐called agency model for the sale of e-books, a change confronted by the Department of Justice worried by what it saw as collusion on pricing and anti‐competitive practices.
So, these are uncertain times. Traditional sales channels are contracting, replaced by an uncomfortable degree of consolidation and market dominance by a very small number of powerful interests. Previously profitable product lines such as hardcover fiction are in steep decline and categories such as cooking and travel books are being hard hit by easy access to high quality, free content on the web.
All of this would be threatening enough in itself, but what is much more concerning is the fact that affordable, ubiquitous and easy to use technology has put within reach of everyone many of the functions performed traditionally by publishers and this is leading many to question their value and future relevance. A value chain developed and refined over more than 200 years and built upon certainties and upon a spirit of cooperation is now threatened by uncertainty and competition. When technology makes it not only possible but easy for authors and agents to be publishers, when your dominant retail partners announce their own publishing plans, when new service companies emerge offering publishing solutions, the old certainties start to look shaky and uncomfortable questions about relevance and value start to be asked. Here are just a few of the most uncomfortable ones.
- What is the enduring and inimitable value of the publisher in this changing situation? Does the future look much like the past – i.e. is the main role of the publisher to perform all those functions that authors are uninterested, unwilling, or unqualified to perform? Or will publishers increasingly divest a wide range of previously ‘core’ functions (warehousing, production, sales) to trusted 3rd parties in order to focus on a much narrower range of functions?
- Conversations about the future value of publishers always focus on the role of the publisher as ‘curator’, ‘tastemaker’, ‘arbiter of quality’. Is their future secure on this basis alone? Hasn’t the network disrupted the whole idea of curation? Doesn’t the network encourage the creation of micro-communities gathered around particular interests and enthusiasms, communities that appoint its own tastemakers and curators, and are publishers well positioned to take on these roles?
- I heard someone recently justify the value of scientific publishers on the basis of three important roles: validation (peer review), filtration (supporting discovery) and designation (the brand value to authors of publishing in a world‐renowned journal). Are these distinctive values likely to persist if academic publishing continues to embrace Open Access?
- Can anyone see a long‐term future for the idea of the ‘general trade publisher’? Can any single publisher, regardless of its size and resources, maintain a leading position as the curator of numerous communities?
- Shouldn’t we all just get used to a future in which everyone has lower revenue, lower costs and higher margins?
- Can today’s large, established publishers (in any sector) make the transition to smaller, more lean, more focused organizations, or does the future belong to today’s start-ups – companies that are ‘digital natives’, technologically aware, without legacy print businesses to worry about and protect? Or is the future secure for today’s larger publishers because they have the resources with which to experiment and the relationships that the start-ups lack?
- Book publishing has always been a collaborative industry and much of the cozy, collegial atmosphere has been attributable to a clear delineation between the roles and responsibilities of the players: author, agent, publisher, bookseller, librarian etc. Technology is breaking down these roles and traditional certainties, and tension and suspicion has entered as a result.
- When booksellers behave like publishers, when publishers want to be booksellers, when agents want to be publishers, when authors can be whoever and whatever they want, is the industry overall enriched by this fluidity and uncertainty in traditional roles, or has something important and irreplaceable been lost?
- Is the creative economy weakened or strengthened by the consolidation we have seen in bookselling? Has this consolidation made it a better or worse world for authors, agents and publishers? Will the network opportunities to sell books (via social media, blogs, websites) ever compensate for the decline and consolidation in traditional bookselling?
- Many of the largest and most influential forces in publishing today – Amazon, Google, Apple – have no ‘pedigree’ in publishing. Has their emergence as important forces in the book industry been a positive development overall and have their backgrounds (in consumer retailing, search, and consumer electronics) been a help or a hindrance so far?
- The relationship between publishers and libraries appears to be more strained than ever, especially with many major trade publishers withholding their e-books from lending programs. Is this strain a temporary phenomenon or is there something more serious and enduring at work here that calls into question the future value of libraries?
- The network encourages and facilitates the dissemination of content in peer‐to‐peer communities without traditional intermediaries. Whether it’s the Open Science movement or the emergence of web-based communities of interest, does the easy discovery and movement of content offer the prospect of a much more marginalized role in the future for intermediaries of all types?
- How do authors see the future? In the trade publishing sector, is it still all about the advance (and the publishers’ willingness to invest and ability to spread their bets around a large number of titles)? We have seen some big-‐name authors willing to forego large advances to take a risk on self-‐ publishing. Is this a trend we’re likely to see intensify? We’ve also seen a small number of literary agents “eat their way back up the food chain” and establish their own publishing operations (digital and print). What’s the motivation for this and is it a trend that’s likely to accelerate in the future?
- What is the academic and educational author’s view of the future of intermediaries? Does the traditional publisher still play a valuable role in the scholarly communication process?
- Traditional business models are increasingly subject to disruption and we are seeing more and more experimentation in how products are offered and priced. The move to agency pricing was a very significant (and contentious) change when it was first introduced. Who were the beneficiaries of the move and who will benefit now that the model has been modified as a result of the DOJ investigation?
- Business model experiments such as content rental and limited-time free access to content (to stimulate sales) are starting to be seen. Are they likely to grow in importance over time?
- To what extent is there evidence that piracy of digital content is a serious issue for publishers? It’s clearly not happening on the scale we saw with recorded music or film and TV content, but is still a serious issue. Is there any evidence that DRM helps reduce piracy?
- Copyright is under great pressure. Digital technologies are essentially about copying, so copyright has become the regulator of those technologies, a function it was never designed to perform. The development of technology has been so rapid, and its adoption so widespread, that the legislative framework in almost every country has failed to keep pace with the advances it is expected to regulate. Legislation that in some cases is more than 40 years old cannot be expected to regulate technology and practices for which it was never designed. A piece of legislation such as The Copyright Act, enacted in 1976 (the year incidentally that Steve Jobs and Steve Wozniak set up Apple), was prepared in a world so fundamentally different from today’s that it is unreasonable to expect that it could address the challenges posed by a global, continuously connected content network. This is not just a US problem; it’s a global one, and the most serious consequences of the failure of legislators to address it have been that infringement has become widespread, understanding of the law – even among the well intentioned – is at a low level, and business models in the content industry are under severe strain. And it’s probably not an exaggeration to say that over the past 20 years, it has sometimes looked as if the very idea of copyright as a protected source of income to creators is under threat, swept away in a philosophical tide which proclaims a world wide web which is open, unmanaged and essentially the domain of free speech and ‘free’ goods.
Each of these questions is serious and difficult to answer, but it’s the fact that there are so many questions and that the questions themselves are so fundamental that is the significant thing here. Taken together, they represent a kind of indictment or at the very least a challenge, a requirement for the community of traditional publishers to stand up and state clearly and publicly – ‘This is what we do. This is the value we add. This is why we matter. This is why we will endure’. That represents one of the biggest changes that has taken place since I first got involved in the publishing industry: the questions about relevance and value that are being asked with increasing urgency, not just by critics, but by publishers themselves. These would have been unthinkable, 30, 20, 10, or even 5 years ago. Today they are commonplace. I don’t think those asking the questions expect publishers to disappear any time soon. That’s not the agenda or motivation. There’s no shortage of good will towards publishers, no suggestion that they add nothing to the new value chain. But there is a challenge implicit in these questions. The challenge to re‐invent the publisher for a new world, the challenge to re-define the publisher’s value, the challenge to isolate what makes the publisher distinctive, unique and irreplaceable.
I ought to qualify at this point the expression I just used – ‘a new world’ because the invigorating, and challenging and maddening thing about the new world is that it never stops getting newer. It’s not like a new car that ceases to be new the moment I drive it from the showroom. The new world just keeps getting newer, and getting newer at a dizzying pace, with more innovations, more innovators, more experiments, more questions. The only commodity in short supply is certainty. There are very few certainties around. If you like these conditions, you’re going to have a lot of fun. If you don’t, things are tough and about to get tougher. And that reminds me of something I heard Tom Peters, the management guru, once say at a conference maybe 20 years ago and which has stuck with me ever since: ‘if you don’t like change, your going to like being obsolete a lot less‘.
But our craving for certainty is strong and so is our determination to manage and minimize risk, so it’s important for us, whether we’re leading an established and mature business, starting a new business, or even planning our careers, to look ahead to try to determine what are likely to be the features on the landscape to help us navigate – not fixed points because nothing is fixed, but at least the trends likely to shape the future.
At the risk of sounding grandiose, it seems to me that one of the most important macro trends that publishers need to pay close attention to is the focus on the individual. After thousands of years when the empire was the unit of historical, economic, and political significance – think of the empires of ancient Greece and Rome, the Holy Roman empire, the Austro-Hungarian empire, the British empire, and even the American empire which prevailed in the 20th century, we eventually focused on the nation state. For a while this was the dominant defining entity – that led to nationalist movements from Catalonia to Northern Ireland to Kurdistan. For a while, people defined themselves principally as members of a nation. This in turn gave way to the global corporation, replacing the nation state as the unifying entity of significance – think IBM, think HSBC, think General Motors, think News Corporation. For a while, these were the agents of global economic, social, political and technological changes, agents that governments were largely powerless to confront or control. Today, we live at the beginning of the age of the individual. Of course, governments still matter. Of course, corporations wield enormous power. That’s unarguable. But their power, significance and influence is waning and is being questioned more closely than ever by a world of empowered individuals, connected by communications technology, individuals better informed than their governments and employers would like them to be, individuals with access to a global view, individuals each equipped with a megaphone and apparently sufficiently unafraid and empowered to use it. Whether you like it or not, that’s the legacy of the technology communication revolution we are living through: a world where everyone wants to talk, where everyone has an opinion, where everyone is using the microphone they have been given. It’s not a world in which reticence is valued, it’s not a world in which it’s easy to find a quiet, reflective space, it’s not a world in which reflection is encouraged or rewarded. Like it or not, it’s the world we have, and it’s the world in which publishers have to try to and survive and prosper. It’s a very difficult world in which to justify one’s place on past performance or on a status earned in very different times. It’s not enough to say, ‘I am Penguin and for 50 years I have been an arbiter of what makes good fiction’, or ‘I am John Wiley and for 200 years I have produced great textbooks. That’s not enough anymore. Today’s fiction readers and today’s students are a keystroke away from a universe of information (much it not produced via traditional publishers), a keystroke away from a world of new arbiters, new tastemakers, new authorities, that owe no allegiance to the Penguins and Wileys. You may argue that these new authorities are self-appointed and I’d agree, but it doesn’t matter. When you have access to a selection of thousands of seductive, charismatic evangelical preachers, it become very difficult to operate a universal church when your only claim to authority is conferred on you by longevity. You had better have more compelling arguments than that, much better credentials, if you want to survive.
That, of course, is part of the significance of self-publishing. Technology and standards have driven the creation of relatively simple and relatively affordable tools that give anyone who wants it access not only to the market but also to the means of production and the means of distribution. What matters here is not that anyone can be an author and anyone can be a publisher – although in itself that is a remarkable social innovation. What really matters is that these technology developments hand power to the companies that have no interest in preserving the traditional value chain. In our industry, that means Amazon. For a company such as Amazon, driven to harness technology in support of the best possible customer experience, there is no contradiction in being a retailer, a publisher and a self-‐publishing enabler. The distinctions are meaningless when your purpose is to dominate the channel and to drive as much content into that channel – regardless of whether you own all the rights or none of the rights to the content.
And that, of course, is what lies at the heart of the recent controversy about the agency model and the wholesale model, about accusations of collusion on pricing, about the DOJ investigation and lawsuit, about the subsequent settlement and ongoing litigation involving Macmillan, Penguin, Apple and the DoJ. Those who applauded the introduction of the agency model saw it as a critically important strategy in a wider effort to wrest control of pricing and commercial terms from an increasingly dominant retailer and a vital contribution to the preservation of a competitive marketplace for e-books. For its critics (including the DoJ), it represented a conspiracy among powerful publishers and a retailer to fix prices and terms and undermine competition in an unfair way. Whatever side of the argument you are on, it’s legitimate to ask who is best served by a settlement that requires the publishers involved to suspend the current agency arrangements for a period of two years and prevents them introducing new arrangements that prevent retailers reducing prices.
Pulling off that trick is tough and I don’t pretend to have many – let alone all – of the answers, but one thing is certain. You had better be present and visible at the point users go looking for their information, education and entertainment. This is not the moment to be relying on the consumer to find you. Because they don’t care enough to go looking for you. They don’t need to. Good enough will do; just in time will do. Publishers have to be present where the users are; they have to be in the network communities in which people congregate, talk, learn, share, and buy. That presence, that visibility means in practice a significant commitment to mobile, because it’s clear that for the fastest growing markets, namely those outside the U.S., it will be mobile devices (not laptops and desktops) that will be the devices of choice for consuming content. Success in this context, in a global, mobile, and individual market, requires much more than the preparation of a few apps or formatting content to look good on smaller screens. It requires an entirely different attitude to how content should be written, prepared, formatted, sold, priced, and promoted. The good news is that there’s a global market out there: a global market of connected, technically savvy, increasingly sophisticated content users. The bad news is that everyone is trying to reach them (not just publishers) and the challenges of getting noticed in the crowd are getting tougher.
‘These times are terrible indeed. Children no longer obey their parents and everybody is writing a book‘. I wonder what Cicero, who wrote these words more than two thousand years ago, would have made of today when it seems everyone really is writing a book (or at least a blog). We’re living in the age of abundance, an age in which the most abundant commodity of all is information. For publishers used to prospering and managing in a world of scarcity, of friction, and of obstacles – a world in which you used to have to walk to the bookstore or be a member of the library to get a book; a world in which you had to enroll in an institution and go to a classroom in order to learn; a world in which you or someone else had to pay for every piece of information you consumed; a world in which the number and the selection of things you could read were dictated by companies; these were some of the characteristics of the age of artificial scarcity. Well, for much of the world the age of scarcity is over and the world of abundance has replaced it. If anyone in the book world thought that the move from scarcity to abundance would be easy, if anyone thought that the removal of all those obstacles and all that friction would be an uncritically good thing, go and ask the shareholders of Borders or go and ask the owners of independent bookstores, or go and ask librarians about how they’re feeling right now about the age of abundance. You might not guess it from my words, but I’m an optimist about our future. In the short term, getting to that future is going to be very difficult indeed for many of the established players in our industry. Some won’t make it, and that’s a shame, but no great surprise. We’ve been here before. What matters is the big picture. A world (and I mean a world) of readers looking to be entertained, educated, and informed by words. That’s what matters. The rest is just detail.
An alternate version of this story originally appeared in Giornale della Libreria, September 2012.