There’s also a fascinating piece with the editor of the Irish Independent talking about the digital change going on at Independent (kicks off around 13.00 mins or so) and Brian Fallon from Distilled media talking about TheJournal.ie and the other brands in that group.

It’s a great question and he supports it well, but I think he’s wrong in his assessment for a number of reasons. Firstly his premise is mistaken, ebooks are not the disruption, merely the manifestation of the disruption (of which more below) and secondly even if we are to accept his categorization of ebooks as the disruption/sustaining innovation, he misses a key point about the nature of the trade publishing industry that undermines his argument.

On Disruption
The error Baldur makes in looking at ebooks as the disruptive innovation rather than considering ebooks as part of a wider context. I would contend that ebooks themselves are simply one symptom of a much wider and radical transformation that is underway, digital creation and distribution of content.

This process has actually been ongoing for quite some time and began with the emergence of tools that digitized the back-end of the business; word processors, computers, design software, email and much more (which changed writing, editing, typesetting, design etc) and has over time moved from there towards more front facing aspects of the industry (production, distribution, selling) before starting to make a large impact on the consumer side of the industry, consumption in the form of ebooks and web-reading (not to mention making many other forms of content from music to games available to those consumers).

It is this process which is causing the disruption, not ebooks which are merely one, now obvious, fork that it enables. What’s more this process is very much a disruptive one. It enables self publishing, which Baldur points out has the potential to be very disruptive and I would argue already has been and will continue to be. It also makes real the competition between all forms of content in a very cutthroat way. Digital creation and digital distribution pits amateur against professional, curated against random, quality against crap and, probably most importantly of all, form against form and past creation against current creation. It makes accessible all things ever created (once digitized) and pits them against all other things ever created.

So yes, the ebook is just a format change, but it is not a sustaining innovation in any true sense of the word. Rather it is a symptom of an ongoing, radical and endless disruption of the creative content industry in all its guises (and one which is replicated across most industries that have an information/content/data/entertainment component which is to say, them all).

On Trade Publishing
But let us move beyond the argument of whether it is or isn’t disruptive in itself and onto Baldur’s case of why eooks are just a format change the industry flubbed. One of Baldur’s key points is this:

Unlike most disruptive innovations, ebooks were very quickly adopted by the publishing industry’s most profitable customers, people who buy the most, spend the most, and talk the most about books.

The problem here is that those consumers are not publishers’ most profitable customers, rather they are the customers of their most profitable customers, bookstores.

So when Baldur says:

Amazon’s release of the Kindle was like the iteration of the Thinkpad or the Powerbook that first made them viable as desktop replacements, not a disruptive innovation but a discontinuous sustaining one.

He needs to consider  the impact on bookstores before he can say the Kindle was a sustaining innovation. Ebooks might be just a format change but they are a format change which would, if they were adopted by a large enough group of consumers, wipe out publisher’s key trading partners. That is what makes them so disruptive to the industry even though they are only a symptom of the real change.

To ignore this key fact is to misunderstand the trade publishing industry as a whole.

Baldur also says that:

Ebooks are a sustaining technology that are being mismanaged into devaluing an entire industry (that mismanagement is a subject worthy of a series blog posts) while the true disruptors get to work in peace. (In the long run, Google is the real winner here.)

I have much to fault in this section.

First Baldur notes that ebooks have brought about a considerable devaluation across the industry (which presumably has been a boon for readers) something I question and isn’t really held up by the figures either even if you look at the most recent figures from the UK, print sales were down modestly but digital sales more than made up for it.

He rests the fault for this at the door of publishers who have flubbed the transition to a new format. BUT how else might they have acted? Ebooks threatened, and still threaten, to close  their most profitable route to market, bookstores.

The only booksellers who have successfully launched rival ebook offerings have done so only with great difficulty. Barnes & Noble has sunk considerable cash into the project and struggles to gain further traction in the US or any beyond the US, even as it has successfully spun out the entity and sucked in money from Microsoft. Kobo was started as an independent entity and recently sold by Indigo to a non-booktrade player.

If Ebooks were indeed sustaining and just a format change, we should be seeing the old order of trade publishing flourishing, we are not, our bookstores are dying. Publishers can and will survive ebooks, but their major customers look almost certain not to. Print booksellers are looking like the major casualty of a “format change” which seems to me an unlikely occurrence of that “format change” were indeed sustaining.

One thing Baldur certainly gets right about the implication of this true disruption wreaking havoc up and down the supply chain is that Google is happily egging the disruption on, but he misses that Amazon is too. if he got that, he might see this for what it is.

I could review this book for another thousand words, and still have more to say. In that, this book is incredibly valuable. We’ve not had much exposure to the minds of those driving the eBook revolution, and to have something to engage and in places disagree with strongly is rather novel. There are some very nice idealistic long-term statements in here, and though this is no exhaustive business history we get an idea of some of the thoughts behind the technology. I cannot in all honesty say I’ve been blown away by what I’ve read, but it has given me a more direct perspective on another experience of eBook History. Merkoski’s peek behind the curtain is valuable, it will be interesting to see if the conversation goes somewhere new from here.

via Burning the Page – an instant review | FutureBook.

While I agree that Amazon has made a very sensible move in acquiring the company, it seems to be a far more strategic and defensive acquisition than anything else. The real value of the deal is in what it prevents rather than in what it enables.

All the talk about the data gained seems a little misplaced to me. Amazon, after all, has considerably more and better data on readers and via Kindle is getting even more as time goes on. Where Goodreads has only the expressed opinions and posted libraries of its users, Amazon has real sales and purchases and, increasingly, real reading data on readers not to mention reader class, book and book class level. No-one else comes close to that.

What the purchase does do though is prevent a valuable commodity from becoming a weakness in the future in the hands of a rival. In fact, almost all of Amazon’s acquisitions in the book space have been quite successful at keeping reader preferences and expressed opinion data at the global or non-publisher specific level from the hands of others. In many ways its minority interest in LibraryThing prevents a publisher from getting involved there too (I like LibraryThing and have a lifetime account).

So Amazon has gained a little but prevented a lot by removing yet another data-set from the hands of its rivals, whether it takes advantage of this data-set or not, it at least ensures that its rivals are considerably less data empowered than it itself is.

Yet I can’t help feel that the BBC is being unfairly pilloried, partly because it overpaid, and partly because it was, well, the BBC, and therefore unable to complete its vision. We do not see the financial performance of LP, but it won’t be pretty given what the write-down says about its costs, and the decline in the travel-book market, even though LP remains the market leader. But we do know that it was making the transition to digital, through its e-books, apps, and most importantly via its website. When it was bought by the BBC LonelyPlanet.com said it received 4.3 million visitors a month, that figure has since trebled.

Most crucially, though we may baulk at how it played out, the vision of putting the BBC and LP under one virtual roof still looks compelling. Combining the BBC’s digital know-how, its wealth of content, historical and up-to-date reports from across the globe, with Lonely Planet’s brand, its publishing nous and its reach, still looks unbeatable. The entity could have offered a true unbiased constantly updated window on the world, powered by trusted content and embellished by social interaction from the many travellers and observers attracted to such a portal. Were Google to pull off something similar, we would all be applauding.

via The loneliness of the overvalued publisher | FutureBook.

Scale is not always good, at a certain point scale can actually create its own problems, especially when scale attracts regulatory attention and increased oversight. Scale also creates management problems and scale created through mergers offers the possibility of management turf fights as rival teams deal with the inevitable right-sizing of the new combined entity. So why merge at all? What scale was being sought?

To Battle The Tech Giants

The most regular suggestion offered was that the companies wished to brace for the forthcoming battles with tech giants like Amazon, Apple, Google and others. I find this somewhat plausible but not really convincing, any alliance between publishers would still be in the ha’penny place with regards to those giants.

Even more though I think publishers are not in Amazon’s business (despite Amazon’s efforts to in fact be in everyone’s itself which you can take seriously or treat as a very clever distraction tactic), nor Apple’s, nor Google’s nor do they have the resources internally to be in those businesses. Barnes & Noble have shown us just recently what happens when you try to compete in a business you don’t know, it can be costly even when you do it very, very well. So scaling to compete in a field you don’t really have skill or abilities for would be exceptionally foolish.

To Save Money

Another possibility floated was that by combining they could make savings and that has more justification  Sales teams will surely be slimmed down where there is duplication, IT infrastructure can surely be streamlined and cost savings made. All that has value, but equally the risk of not being able to carry off those savings, of instead finding it difficult and failing is pretty high. Many a merger has fallen down on the lack of delivery on the promise. I think if they merged just for savings then the merger will probably be a disappointment.

Where does that leave us? Well we know, from subsequent actions, that Pearson was keen to move further into educational publishing and services and keen to shift its trade publishing assets. I wrote about this urge some time ago. That explains one side of the deal, but not the other and even then we might expect Pearson to seek the highest bidder rather than a merger or alliance. Still not getting very far along the road, are we?

Assume Intelligence

Let’s assume that the leadership at Random House and Penguin (or Bertelsmann and Pearson) are smart capable folks who can to some extent look at the future trends and sense where their industry might be going. One important aspect of those trends is for content that plays well across platforms. Not just a book, but an app that does something interesting maybe even a casual game based on the book and, if everything looks right, a movie.

The cost of developing such content (at that point intellectual property or IP is probably a better term) is dramatically higher than the cost of publishing books. Developers, designers, producers and a host of other skilled and expensive staff are required just to get the IP to market in salable form. This is not an attack on editors or narrative books in general, just that on average the cost of developing a book is predictable within a certain range. Obviously some books are more expensive than others but few require the scale of investment a well thought through app or game requires.

Combined with this rising cost of creation, the cost of acquiring content from authors, as I mentioned earlier in the week, is increasing especially for those with proven market power. The more likely a property or an author’s work is to translate across platforms, the more expensive it is likely to be.

Marketing To Everyone

Finally in cost terms, marketing across platforms is also expensive. This is a double pronged problem. On the one hand different platforms have different demands for marketing and different costs too. What works for a book will not always work for an app or a game. The second problem is that the cost of production being higher means that revenue expectations for a product will be higher too, hence the audience required to generate that revenue is larger meaning that niches probably won’t suffice(1) and marketing to a wider audience becomes much more important.

These kinds of projects can have lucrative pay-offs when they strike the big time. Harry Potter, The Hunger Games, The Twilight Saga and Fifty Shades of Grey have all moved beyond being simple books and into the realm of media franchises each with a different set of products on offer.

While I don’t yet have the evidence of it, I believe that these franchises are but the early examples of the trend towards bigger and more lucrative hits that will see publishing become an even more hit driven business than it currently is*.

If I’m correct about this shift I expect to see large publishers shedding distractions and concentrating more on their top brands or their brands with the most potential (occasionally producing titles/IP with prestige status). I’ve written before about the kinds of changes publishers must make and as Mike Shatzkin writes, they are beginning to make those changes:

Both Hyperion and Wiley are showing us what the publisher of the near future is going to look like. They will be more focused. They will be shedding overheads so they can expand or shrink their offerings more readily to respond to opportunities and circumstances. They will be less dependant on the trade bookstore and book review trade networks. And Hyperion’s decision says something more about the future that Wiley’s doesn’t: book publishing will increasingly be an activity operating in tandem with or in service of other objectives of the owning organization.

But how does this relate to the merger? The biggest and most obvious demand that the increased costs suggests to me is for a significantly larger capital base to secure, fund, manage and protect IP projects that require much larger creation and marketing costs. Seen in that light the Penguin/Random House deal is not a defensive move designed to protect publishing from the technology sector but an offensive move that places the new entity as a leader of equal if not larger scale to the movie studios like Sony, Time Warner, Disney, NBC/Universal and the like.

Transmedia Takes Capital

As transmedia and cross-platform content becomes more important the real rivals of publishers are not the platforms that enable them to reach their customers** but the creators of content which might be chosen by those very consumers in the place of their own. In short the book publishing industry is facing convergence with other forms driven by digital distribution and consumption.

In that world, where all content is now in competition with all other content, publishers need to increase their firepower to enable them to acquire, create and market the best content they can and in so doing enable them to charge the highest price they can, all the time facing down their rivals trying their damnedest from the other direction.

That to me explains why Penguin and Random have chosen to combine. In short, it’s all about the money, but for investing in projects rather than profit (that will come later when they get some hits). I fully expect other publishers to do the same, we might even seen publishers combine with other major content creators be they games developers, movie studios,  I could be wrong of course, but I hope I’m right.

Some rights reserved by 401(K) 2013

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(1) To be clear, I don’t rule out the viability of certain niches, nor the ability of some publishers to thrive as more modest sized entities publishing across several different niches or indeed solely focused on a single niche, but this piece is about larger publishers.

* With the obvious caveat that not all books will be hits and not all writers and publishers will be able to compete in that pace. But that’s okay, some writers and some publishers will make a decent living in the space below, perhaps many perhaps few, that is yet to be determined.

** Of which I have long believed anyway there is only one, The Internet!

On the face of it, McDonald’s overall pricing objective is to increase market share, whereas for publishers it tends to be achieving short term return on investment. Bearing in mind that some markets are mature than others, and can hold higher prices than others, we recommend that publishers should consider varying their eBook pricing appropriately. In general, we find that the US can hold a higher price point than the UK, and still be competitive. This means setting your price a price of x and just doing the currency calculations, means you are missing out on opportunities to maximize your revenue.

via How International Pricing Strategy Affects Publisher Profitability | ePubDirect.

E-books will push this change even more. There is no reason why authors’ royalties should be the same on e-books as they are for paper books and in many ways there is no reason why the authors cannot sell e-books themselves rather than through a publisher. Why should you sell a paper publisher your digital rights when there is no need?

Authors Will Drive Change

And the change was forthcoming. The last six or seven years it has been rapid in fact. If anything marks that change more dramatically then the new that a once self published author doing a deal with a big New York house that did not include ebook rights, I don’t know of it:

In the end, it was Simon & Schuster who crafted a deal specifically to my needs, a deal for the print rights that would augment the success I was having on my own by doing what they do best: bringing out a book and getting it in the hands of booksellers. On March 12th, paperback and hardback editions of WOOL will become available to a wider audience. Soon, an entirely new readership will have an opportunity to sink into the world of the silo. They will get a chance to feel Holstons grief, follow Jahnss journey, and meet Juliette for the very first time. I couldn’t be happier about this deal. I am very appreciative of the opportunity I’m being given, appreciative of the readers who kept WOOL going long enough for a deal like this to come to fruition, and appreciative of an agent who was willing to say “No” with me even when it was against her best interests, all because she believed in seeing the same publishing future that I believe in.

via Hugh Howey: How WOOL Got A Unique Publishing Deal.

Philip Jones has a nice take on what publishers need to do to work with self publishers and much of what he says is valid, but I think the key point is that publishers must recognize that there has been a power shift on the field of play and the author is no longer without options.

Traditional Publishing isn’t going away because of this shift mind you, and importantly not every author has the market power to resist the demand to pass over ebook rights, but this does mark a new and important acknowledgment of the shift driven by digital and authors.

But what really pisses me off about all this is the amount of hours expended by pundits, experts and online commentators, with their heads stuck under the hood of self-publishing, happy to throw virtual shapes, pontificate and moralise on the cracks and leaks and woes of every self-publishing service provider. When in reality, over the last couple of years, some of the most egregious and contemptible entries into the world of self-publishing have actually come direct from—or under the guise and umbrella of—traditional publishers.

It is no wonder so many new authors want to completely bypass the traditional route of publishing when faced with the horrible deal on the table from Random House? As far as The Independent Publishing Magazine is concerned, Random House is now fully in the self-publishing arena in all but name.

via The Independent Publishing Magazine: Random House Digital Imprints | It’s a duck!.

The decision means that Hyperion is migrating away from the traditional book-publishing model of actively competing with other publishers for new titles. Instead, Hyperion, which is part of Disney’s ABC Television Group, will look for books either linked to ABC television properties or that it believes can be extended to television or other corners of Walt Disney.

via Hyperion to Put Older Book Titles on Market – WSJ.com.