Dead Trees is a Dead Model: Part 2
Last week MJ was kind enough to post my guest piece, Dead Trees is a Dead Model, where I argued that ebooks will soon displace paper ones. The comments -- many of them disagreeing with my argument -- were outstanding, and if you haven't read them yet, I urge you to click back and take a look.
Lee Child, author of one of the best thriller series out there, the Reacher novels, made a particularly trenchant point: that the majority of book buyers buy only a few books a year, often as impulse purchases at places like airport kiosks; that these people are unlikely to be receptive to buying an eBook reader; that therefore paper books will continue to thrive. I don't agree, and the nature of my disagreement provides a nice jumping-off point for today's topic: what everyone in the industry -- writers, agents, publishing houses, and booksellers -- should do to adapt to the coming displacement of paper by eBooks.
Let's start with booksellers -- in particular, with the original online bookseller, Amazon. There's no question in my mind that Amazon wants eBooks to replace paper and is trying to foster the transition. Why would Amazon want paper books to be replaced? Simple: eBooks eliminate Amazon's massive procurement, storage, and shipping costs. Think of Apple's iTunes store: would Apple prefer to be selling music by shipping CDs? Also, by making books available anywhere, anytime, and at a substantially lower price enabled by digital's lower costs, eBooks can dramatically increase the number of books bought on impulse. Lower cost, higher profit, greater volume: a very attractive combination for any retailer.
As for Amazon's attempt to foster the transition, that's what the Kindle is for. After all, until the right hardware exists, there's no market for the software. Yes, in one sense the Kindle is intended to capitalize on the desire for eBooks that's growing anyway, but its more important purpose is to speed the transition.
If I'm right about Amazon's digital hopes and plans, a few things follow:
First, if eBook readers aren't becoming a mass market fast enough, Amazon will find ways to make them more attractive. I talked about obvious ways in the previous post: improved quality, added features. But there are at least two even more powerful ways Amazon could create a mass market for Kindles. It could drop the price dramatically, moving, as I suspect it intends, to a razor/blade model with the Kindle as the loss-lead razor and book downloads as the high profit margin blades. Look what Apple did with the iPhone: the company introduced the device at $600, then dropped the price of the next generation, much improved, 3G, 15,000-outside-apps-available model to $200 (Time's Top 10 iPhone apps here). It seems to me that Apple is now using the iPhone itself as the razor, with music, video, and application downloads as the blades.
Another way Amazon could increase the rate of adoption would be to add a feature like video downloads. Maybe a few-books-a-year reader wouldn't buy even a fully featured $99 dedicated reader. But she might just buy one if it came preloaded with a movie and could instantly download others. Remember, seven years ago, when Apple introduced the iPod, not many people could have imagined that today iPods would have large color screens suitable for video and would include a phone version, too. Some people buy an iPod primarily for the video downloads -- but I'll bet they download music, too. Others buy the device for the music, and get upsold to other functions along the way. It'll be the same with the Kindle.
The point is, if Amazon is motivated enough -- and I think they're very motivated indeed -- there are a lot of things they could do to help speed the demise of paper in favor of what for them would be a much more profitable model. At which point, a question arises: what happens to the relationship between Amazon and traditional book publishers?
Answer: they become competitors. Because Amazon becomes a publisher. In fact, Amazon just became one.
When Jeff Bezos announced the new Kindle, he also announced that Stephen King had written a new novella that would be available only on the device. People interpreted the exclusive deal as Amazon's attempt to sell more Kindles. That was the short term goal -- but the long term strategy is to move the market to digital, which eliminates not just Amazon's costs of dealing with paper, but its costs of dealing with publishers, too.
Once Amazon is doing a certain volume of eBook downloads (and I'd be amazed if Amazon hadn't worked up metrics for all this), why would it want to buy King's next book from King's current publisher? Why not go straight to King himself and eliminate the middleman? I don't know quite what the arrangement would be, but I can imagine something like a suitably huge advance and a 50/50 revenue split for an exclusive Stephen King digital Amazon title. It works for both sides: Amazon is already paying publishers about half the retail cost of each book, plus absorbing tremendous costs of procurement, storage, and shipping. If King is currently splitting the other 50% with his publisher -- a far more favorable arrangement than I know of for any other author -- he's still left with only 25% of the retail price of a book. The Amazon model would increase King's portion to half, and would offer the hope of ameliorating the lower per-unit eBook price not just by increasing King's percentage, but by increasing volume, too.
After the results of the current experiment come in, Amazon will adjust the model with the next King or Patterson or Palahniuk or other superstar exclusive title (increasing the desirability of Kindles in the process). The process continues with other NYT bestsellers who want to get in on the action, and snowballs from there. More readers are moved to buy Kindles; more eBooks are sold; Amazon does more exclusive deals; the process reinforces itself.
So it's reasonably clear how Amazon is trying to position itself in the digital age: as a combined publisher and online bookseller. What does this mean for traditional publishers and traditional booksellers?
I have to say, I think the outlook for both is bleak. I wrote about a lot of this about a year and a half ago in a three part guest series on the impact of flattening distribution called called First Madonna and Radiohead; Next, James Patterson. I assumed then that the majority of readers wouldn't make the move to digital and that print-on-demand was the main threat to publishers' business model. I now think I was mistaken about that specific point, but the general argument is the same: the main value-add for publishers today is distribution. Digital removes the need for distribution, and with it, publishers' primary competitive advantage. (That series can be read here, here and here.)
With their primary value-add badly eroded by digital, I expect publishers will try to become more like agents, but I'm not optimistic about their chances. Media companies don't have a history of nimble adaptation. Individual editors who see the writing on the wall, so to speak, will probably set up shop as agents, but publishing houses as we know them today are probably doomed.
Traditional booksellers are also likely to have a rough time of it. Some number of people will always prefer paper, just as some people today still insist on buying their music on vinyl albums, but we're going to see many, many bookstores close as digital catches on. Secondhand stores will continue to do okay, and maybe small speciality stores, supplied by small specialty publishers, will manage to carve out a niche. But overall, there will be far fewer bookstores than there are today.
I should add at this point that I'm not a proponent of these changes. I describe these trends, and their likely outcomes, as I perceive them. I'm not generally enamored of the prospect of my own death, either, but the unpleasantness of the subject doesn't prevent me from acknowledging and preparing for the eventuality.
Agents, as I argued in the previous three-part series, will be okay. The value they add today for paper won't change much for digital. When Amazon approaches Patterson as outlined above, Patterson will still need an agent to represent him for all the reasons he needs one today.
Writers will be okay, too -- maybe better than okay. How the digital market shakes out -- whether the Sony Reader and Kindle will be able to download from common sources; whether other devices and form factors arise; the extent to which authors will be able to offer direct downloads -- are beyond the scope of this post. But books will still be sold, so the industry, regardless of its form, will need people to write them.
One thing is certain: agents need to stop treating digital rights as a second-tier issue. For books that will go out of paper print in a few years regardless, it won't matter much anyway. But if you think you have a winner on your hands, something that's still going to be selling strongly five years from now or more, keep in mind that it might be selling substantially more downloads than paper copies. Agents should ask themselves how they'll feel for a certain title if five years from now, or ten, 90% of units of that title are being downloaded and only 10% sold in paper form. Publishers' and online booksellers' digital revenues will represent nearly pure profit -- have you done enough to secure your author's portion of that profit stream? Because sooner than you think, that digital stream is going to represent most if not all of what you and your author are earning.