Dead Trees is a Dead Model #2 - Guest Post by Barry Eisler

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.

Comments

[JA Konrath]

I'm on a blog tour right now, and I just talked with someone about the oncoming ebook revolution. Here's the gist.

There are two reasons new technologies take over.

The first is added content. CDs held more tracks than LPs, and often featured bonus tracks. Yes, they sounded better. But they offered more than that. They gave you extra.

An iPod holds many more songs than a CD. It's much easier to carry around than a trunk full of albums. It also offers games, movies, an address book, a reader, and other apps.

iPod wins.

DVDs had better video resolution than VHS. But BluRay has better resolution than DVD, yet it hasn't taken off in the same way. Why not?

BluRay offers the same extras as DVDs do. Commentary, deleted scenes, interviews, making of docs, alternate endings. That's why people flocked to DVD. But BluRay isn't giving more content, so it isn't becoming a required purchase like a DVD player is.

Polaroid recently stopped making instant cameras. No duh. With a 2gb SD card, you can fit 5000 pictures on your digital camera--or phone--then print them at home. You can also edit them, crop, adjust for red eye and contract.

Digital wins.

But there's a darker side that no one talks about, yet is also the reason these new formats catch on.

They can be copied.

CDs were audiophile fringe until the first CD burners hit the market. The same with DVDs.

Digital cameras were fringe until memory cards became huge and cheap and easily transferrable to your computer.

A BluRay blank disc costs $20 each. That's why they aren't catching on yet.

Yet iPods caught on in a big way. iPods are made to steal music. It would cost over $55,000 to legally fill a 160gb iPod using iTunes. Yet everyone seems to have full iPods.

DVDs can be burned, and they can record TV, but VCRs didn't take a huge hit until TIVO, which not only recorded TV on the fly and with an easy preprogrammed interface, but it could also cut the commercials. Now every cable provider includes a DRV and on demand.

Extras are important. I'm going to love it when ebooks are introduced with alternate endings, early drafts with deleted scenes, optional author-notated commentary, extra short stories and interviews. It will happen.

But it won't truly take off until Amazon removes the DRM copy protection and allows the format to be copied.

People want to share their digital media. File sharing networks are 21 of the top 100 visited websites on the internet. Think about that. We all know huge sites like eBay and Google and Microsoft. But Pirate Bay and Rapidshare and Mininova are getting just as much traffic. And this doesn't even include Usenet, where there are billions (yeah, billions) of filesharing downloads every day.

We can save the discussion about file sharing being stealing for another time. Legal or not, moral or not, people are doing it.

But should they be allowed to do it with things they've purchased?

I should be able to lend a book that I bought to my mother, whether I bought it at Borders, or downloaded it from Amazon. I paid for it. I should be able to do what I want with it.

Once the Kindle price comes down---or once Kindle gets a cheap competitor that allows for copies and includes book extras, the ebook revolution will really begin.

[Lee Child]

Barry, you and I know from law school that distinguishing between cases is a vital art, and difficult, so bear with me here. You said above, "Let's start with booksellers," and I'm saying, "Let's start with customers." So I'm trying to think of something in the market that I'm vaguely aware of ... that I could under certain circumstances be vaguely tempted by ... that I see - if I think about them at all - as vaguely positive ... and I came up with those C-shaped neck pillows some people use on planes.

Now, for all I know, there's a thriving industry there, with all kinds of blogs and discussions and projections about the future. But I neither know nor care. I'm in an airport, I have time to kill, I'm wandering, I see other people with them, I see them for sale, and some benign impulse in my mind goes, "Hey, I could try one of those." So I enter a store and they tell me, well, the retail model changed, and all they actually sell is a squirt of argon gas, and I'm supposed to have already gotten the C-shaped velvet envelope somewhere else. So I go, "Oh," and I walk away, not really upset or annoyed, because a C-shaped pillow was way low on my agenda.

But I'm a lost customer. No big deal, if I'm at the margin, in a tiny minority. But suppose people like me represent 50% of the C-shaped pillow market?

That's my point. And I'm not sure you address it. You use the term "reader", and my question is, what exactly is a reader? Your argument concerns those who know they're readers - and as such, it's a fine argument. But you'll agree that there are readers who really aren't readers. The big point is, what's the relative proportion? You seem to suggest 90-10. I think it's closer to 50-50.

Can an industry convert 50% of its market to a wholly new way of doing business? Especially if that 50% is as fundamentally indifferent to the product as I am to C-shaped neck pillows? Hard for us to swallow, maybe, but most book buyers take our stuff or leave it in the most casual way imaginable.

The interested parties you discuss above can talk and plan and project all day long ... but it's a waste of time, unless the mass of the market goes along. Just sayin'.

[Ken Wohlrob]

I do agree with Barry's assessment that Amazon will start functioning more like publisher and partnering with authors (and agents) to release exclusive content. B&N already has made the leap into publishing in order to produce exclusive print content.

However, the argument falls flat when the discussion turns to the Kindle offering video or other added features. As a portable device, the Kindle is grossly inferior. Amazon knows this. That's why they are now trying to figure out how to release Kindle books on other devices.

As soon as Apple jumps into the e-book market (which is inevitable, especially based on the number of book-based apps), the Kindle is in serious trouble. Why buy a device that does so little when you can purchase an iPhone. And Blackberry won't be far behind. Which means Amazon and the Kindle has lost any competitive advantage. Beta was really cool for a while.

As for Lee's point about impulse buying, I think he's spot on. But is ignoring one stat: Kindle's (and e-book readers) boost impulse purchases. Amazon knows this fact: people who have e-devices buy more e-books than they would in printed form. The reasoning is simple: if you heard something interesting about "The Omnivore's Dilemma," would you be more apt to download it for $9.35 to sample some of it or purchase the printed version for $16.00 (not counting shipping) and wait for it to be shipped? E-devices actually spur impulse shopping for titles that normally would be low on a buying priority list.

[Lee Child]

Ken is right about enhanced impulse purchases - by those who already own a device. Anecdotally, I saw someone's blog where they finished one of my books on a Kindle at 3 a.m. on a bus to somewhere, and bought five more instantly. Wonderful! We all know that impulses dwindle fast under the old model, so that's good news. But only if the buyer already owns the device. My point is not so much about impulse buying per se - it's about the split in deep-down instinctive self-identification ... are you a reader or not? Readers will lap up all these benefits, no question. But an awful lot of reading is done by non-readers. Semantic, I know, but you know what I mean.

[Ken Wohlrob]

Again, I agree with Lee 100% that people who don't identify themselves as "readers" (and who won't purchase dedicated e-book readers) are a large portion of the book-buying public.

However, where I think it gets interesting -- and I already think we're heading in this direction -- is when e-book reading becomes incorporated into the single device/iphone/blackberry world. Is that airport book shop no longer necessary to get non-identified-readers to do an impulse buy? And when the person who already downloads music and video to their phone or iPod, suddenly sees e-books available, is that the leaping off point for the digital version of that non-reader impulse buy? Someone will develop a one-click purchase model for this type of transaction -- maybe Amazon, but my guess is Apple will figure it out sooner so it functions much like buying an app or a music download directly to your web-enabled portable device.

And yet, printed books will still sell. Many will still be the impulse purchases by non-reader Lee is discussing. Others, more for fiction, will be die-hard fans who want to own something concrete (as opposed to digital) from their favorite author or series (something Lee's fans can attest to), and some will just be purists who while not being digital-phobic -- they use computers and iphones and even e-readers on occasion -- but prefer the act of reading a printed book, which I think most will agree has its own psychological appeal like listening to an LP as opposed to an MP3 file.

[M.J. Rose]

Ken is right... the ebook is going to be read more and more on the phone... I just posted a bit about today's news that book apps are the biggest growth apps.

I agree with Lee - and always have - that non "self-identified" readers are our biggest customers and the hardest ones to find, market to and sell. And that's why I think ebooks are going to gain a huge share of the market but that print is not going to disappear so fast.

But the real opportunities to engage more readers in more ways.

[Lee Child]

Again, I'm sure Ken is right in principle about an e-reader app as a "spare" function on an integrated device. I think that's the only way into the mass market. But there's a whole new physical debate there - how small is too small? Maybe it's just habit, but an iPhone is too small for me when considering 100k words of text. I would opt for something at least the size of a paperback page - which is outside the realm of small integrated devices. Do people watch whole movies on iPods? Or just short clips? Your experiences?

[Jonathan E. Quist]

I disagree in one respect with both Barry and Ken. What makes the Kindle stand out as an e-book reader head and shoulders above earlier generation devices is the electronic ink display technology. This does not lend itself to video or color, at least in its current form, but it does dramatically reduce eyestrain over LCD or CRT-based devices.

I might consider downloading a couple of short stories to my phone or PDA, I would not consider attempting to read an entire novel on one. Someone half my age might disagree, but if readers over 40 were surveyed, I expect there would be a strong correlation between increasing age and preference for Kindle or similar devices.

What is necessary to capture Lee's impulse readers is ubiquitous availability and convenience. If, for example, you could pick up a $10 device loaded with an expanded NYT list, with free samples and full titles at $5 each, then return the device virtually anywhere, pay for only titles you'd read, and get your $10 back, you might snag readers of opportunity.

Or even better, make the content delivery "cloud-based" - have the content online, including such low-level details as current position in the book, and any added bookmarks. Include the ability to scan a boarding pass, and voila, as the flight is boarding, the book and user status is transferred to the aircraft, where the reader can continue from the current page on the seat-back screen in front of them. (Or, have it read to them via text-to-speech or a recorded performance.) And if they haven't finished by the time they get home, they can open the book from their home computer, again at the position where they left off on the plane. The technological building blocks to make this work already exist - but it would take the likes of an Amazon or Google (or a consortium of publishers) to implement in the real world. If I can keep a manuscript in Google Docs, why not a purchased book I'm reading?

[Laura S]

As a seriously avid reader (I average about a book a week), I thought I'd put in my 2 cents.

Yes, I realize (from your comments) that I'm in the minority of book-buyers, but the average book-buyer (by your definitions) isn't necessarily likely to read here.. so here's my thoughts. :)

I do have a Sony eReader, and I both luv it & get frustrated with it. It's wonderful to carry so many books in such a lightweight device. I love the eInk technology, which makes the screen incredibly similar to paper (no backlight), so there's no eyestrain. (Which makes me think that any device that is both an e-Reader and a video player would be just like reading on your computer. Your eyes can only take so much at a time.. Until new technology comes along that can share the 2 types..)

But I've also found it frustrating to look for a specific passage that I wanted to refer to... or the inability to lend a book I adored to someone else.. or the fact that it does run on a battery.. and if the charge doesn't fully take before you get on a 10+ hour bus ride, you're book-less.. (ahem)..
I've also found that eBooks are no cheaper than paper (in the Sony eStore at least). In fact on the sales tables & at secondhand bookstores I can usually get the paper version much cheaper.

(Seriously, if they're not printing the book using ink & paper & shipping it out, how can it cost the same?)

So while I currently do buy eBooks, I'm probably still more likely to buy books in paper format right now, & if I am, so are most casual readers.

[Ronda F.]

I read (and generally purchase at full price) at least two print books a week. (The writers who have commented here can all thank me because your books are on my shelves.)

I have looked at the Kindle several times. It has not and still does not appeal to me on any level--price, size, looks, feel, longevity, durability, etc. My shelves contain books that have been dropped, stained, loaned and cherished from as far back as childhood. What technology device (or electronic format) can you think of that will stand that test of time?

I'm an avid photographer; I've gone the digital photography route. I back up my photos on CD but am painfully aware that I am one hard drive crash or disc error away from losing precious memories that I haven't had time to print to "paper." I don't want to share the same worry about the books I love.

The only scenario I can really envision working for me would be for Amazon, Apple and other book vendors to essentially become the world's "digital lending libraries." An initial library membership fee would cover the cost of an e-book reading device and provide members with a discount on books "checked out" of the library. (Non-members would pay a higher price.) The "check out fee" for each book would depend on the duration that the member wanted to keep the book. This fee structure would be similar to the fees I pay Verizon for the games I've downloaded to my cell phone. The highest price is for "unlimited" usage.

[BeckyH]

Barry- you're missing the true added value that publishers offer-editorial services. They have read the slush pile and helped an author put out the best possible version of their story. I will buy a new SF author from Tor or Baen Books because I trust that they have a good idea of what makes good SF. If I have to rummage through thousands of available titles with no idea of their quality I'm wasting my time.
And how will any business model succeed in an environment where getting people to actually PAY for the material is getting harder and harder? (I won't start on copyright and electronic theft)
The major risks that a publisher takes on are production, storage and distribution of the physical books. That's why any given book is so expensive-certainly the authors aren't getting most of that money. When those risks disappear what becomes a reasonable cost per book?
I know it will all shake out in the end, but I wouldn't give up on the paper book just yet.

[Barry Eisler]

Thanks again everyone for the terrific, thought-provoking comments.

Joe, great points about the value of extras and the ability to copy. I'm not sure I agree, but I've been extrapolating from my own buying habits and that's not necessarily a great way to understand wider trends.

Lee, I don't know that we disagree all that much. 50/50 or 90/10: whatever the split is, I don't think it'll be static, and improving technology, lower costs, and initiatives by companies like Amazon will change it. Whether the split changes a lot or can be changed only marginally is a key question here. I think the answer is "a lot," but I could be wrong.

Ken, I love my iPod, but I suspect along with Lee that it's too small for wide adoption as a novel-reading device. I don't even like it for magazine articles. But again, I'm extrapolating from my own experience and haven't seen any real data, so I could certainly be wrong.

Laura, I think you've identified some key limitations of eReaders --- but I also think all those limitations can and will be ameliorated. Likewise, Ronda, data loss is a potential problem, but personally I feel my electronic data, which I keep in multiple locations in case of an earthquake or the like (living in the San Francisco Bay Area and Tokyo makes you paranoid) is safer than my books. One good fire and my whole library is gone.

Becky, I think your argument might be conflating two related but distinct publisher value-adds: editorial, and trust. I talk about both in the linked three-part series, and argue that neither one represents a high barrier of entry to competitors. In other words, once you don't need trucks to distribute books, a freelancer can edit, a book reviewer can gain your trust, and traditional publishers' competitive advantage crumbles.

I'd love to talk more about all of this, and for anyone who'll be at Left Coast Crime in Hawaii this week, we can. Otherwise, see you on the Fault Line tour, starting on Tuesday (full schedule on my website), at Romantic Times in Orlando in April, or at Thrillerfest in NYC in July.

And thanks again MJ for letting me post here!

Cheers,
Barry