Month: September 2010

On Publishing Economics & Cannibalism


UPDATE: The Sunday Times (Ireland) has picked the post up in an edited version for their Think Tank column today.


There has been some debate over whether cannibalisation of print sales by digital sales is actually occurring and what’s more some debate about whether, if it is occurring, it matters a great deal, all mostly prompted by The Bookseller’s recent piece on ebook sales beginning to impact sales of print books:

For example, the e-book market share of the science fiction and fantasy sector globally for the 10 weeks since June was 10%, more than treble the genre’s market share of print book sales. The share taken by romance and saga books was 14%, seven times its print market share.

Julie Meynink, business development director of Nielsen BookScan, said though it was early days, data from Nielsen BookScan US, which globally represents the biggest share of e-book sales, showed a decline in print sales within these two sectors. In the year to date sales of romance books in the US are down 7.5%, while science-fiction and fantasy sales are down, even when the effect of Stephenie Meyer is stripped out. Estimated e-book sales from the Association of American Publishers show that the e-book market has risen 10-times since 2008, with sales accelerating this year with sales over the first two quarters up 180% on 2009.

Ahead of the seminar, Meynink said: “There has been over-performance in the growth in e-book sales in the romance and science fiction categories, when compared to the market share of print book sales, and this correlates with a fall in print book sales in those sectors.

Sorry for the long quote, you should read the whole piece. The highlighting is mine. I want you think through that bit as you read this. Meynink is telling us that ebooks are pushing aside print sales in specific genres that are at the forefront of digital adoption. No messing there, no room for shifting the territory or fluffing the message – the rise correlates with the fall.

Evan Schnittman has an interesting analysis in which he posits that ebooks are not the issue, it is the changing way people interact with books when they shift towards digital and that it’s not such a problem in the medium to long run:

The good news is that the same Nielsen study shows a significant portion of the ereading market buys more ebooks than they did print books. Furthermore, the study also shows that 80% surveyed would never consider buying a dedicated ebook reading device. So in the end, the book-selling world may lose 25% or so of its print customers to ebooks, but those customers will likely buy more product than they would have if they didn’t use an ereader.

Publishers must face the vibrant and growing market of ebooks with a view that their print runs and print sell-through have been and will continue to be downwardly affected by the loss of consumers to ebook reading devices. However, this isn’t cannibalization, it’s an opportunity for market expansion by feeding ereading consumers more of what they want to find.

I Think People Are Misunderstanding The Issue Here
I’m not sold on this market expansion argument. And I’m not sold on it for a specific reason. We are looking at the problem through the wrong end of the lens. The customer isn’t the issue, the publisher is. Simply put, for most publishers and on most titles a 10-20% shift to from print to digital undermines their economic model. Costs per unit will rise and revenue per title will drop if that kind of shift happens, and coping with it won’t be easy.

A loss of 10% or even 20% of print sales when the print run is over 10,000 isn’t catastrophic, especially if ebook revenues bring in some of that lost revenue. It won’t help the economics of a title, but it won’t kill them either. The more you print the less and less it costs per unit and the more and more room for manoeuvre you have regarding price and discounts. Sure, you’ll feel some profit pinch, and your revenue per title will dip, but overall if most of your books sell in excess of 10,000, you will be able to cope with a reduction in the region of 10-20% (though if the digital share grows beyond that it MIGHT become an issue).

But most books are not printed in quantities in excess of 10,000. In fact, in Ireland, I’d warrant that the average print run is circa 3,000 if not a little bit lower. From what I know of the US and the UK, this figure might be slightly higher, perhaps 4-5,000.

Those kind of books (hardback or paperback) are only just viable at current price levels. It’s one of the major issues publishers face. Paper prices have risen dramatically this year, but book prices haven’t risen to reflect that. If publishers are forced to cut print runs on top of absorbing cost increases, the profit per book sold will decrease dramatically.

Looking At It Clinically
If ebook starts to take 20% of a books sales, the print run becomes increasingly non-viable. Only two decisions really remain at that point, reduce costs or increase price.

Suppose a publisher looked to reduce costs, they might cut the print run even more, but each unit would then be more expensive and printers don’t really like doing runs below 3000 so the price might end up being pretty much the same. They could use cheaper materials and thus reduce the attractiveness of the product. They might squeeze the author’s percentage, but authors could self-publish when the deal gets bad enough and if an agent’s involved that’ll probably not happen.

So the other option is to increase the price. This is likely to reduce the demand from readers in the bookstore, and make it harder to get shelf space in physical stores. Even independent bookstores are wary of taking books that they know are more expensive than readers expect and readers have come to expect good prices.

On top of which the higher prices could shift more readers towards digital editions exacerbating the problem that kicked this all off to begin with!

I suspect that leaves the publisher in a pretty tough spot, they are pushed on costs and they have no flexibility on price. They can’t really dramatically increase the price and they cannot dramatically reduce their costs. UNLESS…

They Go Digital
The left-field option is to cut the print cost out of the equation and with it the cost of distribution and go digital only (perhaps with a print-on-demand option) with a title. That changes the economics of the project and is scary as hell for traditional publishers, because then pricing is weird for them, involving only fixed costs and very little in marginal costs per unit sold.

But, and this is the crucial point, if they follow this route, they have the prospect of profitable sales whereas if they stick with a mixed print and digital set up they will lose money.

What would you do?
I suspect that many publishers, those at least who fit squarely into this bracket I’ve described here, will start to see this logic. They will begin to adapt their model to reflect the changes they need to make. They will pull physical books and release ebook editions, at first they’ll also do print on demand or short run digital editions. Over time, they will actively recruit their readers to digital, because they know they have to do these things to survive and profit from the changed realities. It may or may not be enough.

Those that don’t, unless they actually are lucky or good enough to move from titles that routinely sell around 3,000 to titles that sell in excess of 10,000 units, will definitely perish. That’s not fair you might say, but they have the option to change. If they just think it through and start making those changes now or VERY soon.

Of course you see now why we were looking at the problem through the wrong end of the lens, if publishers shift to digital to enable profitable publishing, that may very well mean readers don’t get to choose if they shift to digital because for certain books they may very well be forced to.


Related:
I’ve talked about how this reduction in print runs will affect physical bookshops

Me On The Radio

I was on CountryMix/Sunshine 106.8FM on tuesday talking about my upcoming One Stop Self Publishing Conference.

It was a good segment and I think I gave a decent account of myself. If you are interested in Self Publishing and will be in Ireland on 16th October the conference is great value, features industry experts and will really bring to life the issues involved.

There’s also a session on Digital Publishing that even publishers will find useful if they haven’t yet made a move into that space yet.



Go Read This | Authors Feel Pinch in Age of E-Books – WSJ.com

Decently put together piece from Jeffery A. Trachtenberg. I’m not sold on all his points, but as a general survey it makes a good starting point:

Not everyone believes that the shift to digital publishing is necessarily bad for writers. Novelist E.L. Doctorow, who has taught creative writing for 23 years at the NYU Creative Writing Program, says the industry may be transforming away from big corporate-owned publishers back to a cottage industry like it was many years ago. The shakeout could help prune an overcrowded market.

“Writers come up from nowhere, from the ground up, and nobody is looking for them or asking for them, but there they are,” says Mr. Doctorow. “If there is a weeding out that’s going to occur because of such difficulties, it may be all to the good.”

via Authors Feel Pinch in Age of E-Books – WSJ.com.

Go Read This | Ebooks Don’t Cannibalize Print, People Do « Black Plastic Glasses

I disagree with some of this, in fact with a lot of it, though it does seem that when Evan describes the mechanics of those who have moved to digital reading, he is on the money!

While I see the logic behind this understanding – I posit a slightly more nuanced definition of what is happening: Ebooks aren’t cannibalizing print books — consumers with ebook reading devices are, as a rule, no longer buying print books. Subtle? Yes, but from a commercial publishing point of view this is a crucial difference between seeing a direct correlation between ebooks and print books and understanding what happens to a customer when they make the switch to reading devices.

via Ebooks Don’t Cannibalize Print, People Do « Black Plastic Glasses.

Go Read This | David Worlock | Developing digital strategies for the information marketplace | Supporting the migration of information providers and content players into the networked services world of the future.

David is so often on the money, and he nails it here, but crucially the first quote I’ve pulled is only part of the story:

In consumer publishing it is really hard to find examples of players once great in print who are now able to operate in network terms with a similar facility .

There’s much more more:

I also feel that the portfolio days of B2B have drawn to a close. Investing in disparate service elements in niche markets no longer adds sufficient value to be justified , and if the future really is around workflow emulation, as this column has been suggesting, then the niche positions do not cut it without a great deal more content and software.

via David Worlock | Developing digital strategies for the information marketplace | Supporting the migration of information providers and content players into the networked services world of the future..

Go Read This | The Asymmetry of Waste in the Age of Abundance — A Reversal of Scarcity’s Balance « The Scholarly Kitchen

Great piece on scarcity, abundance, content and strategy, or at least the thinking necessary to get there!

The asymmetry of choice in the age of scarcity allowed providers to define the available choices. Now, consumers choose from a myriad of sources and versions. Any asymmetry they may experience in the future could be the asymmetry-of-choice — controls they impose for their own convenience, not for the convenience of producers. This creates uncertain demand for providers, and the move toward a more efficiently utilized information environment will have huge effects on all our familiar aggregations, packages, and delays.

The Asymmetry of Waste in the Age of Abundance — A Reversal of Scarcity’s Balance « The Scholarly Kitchen.

Go Read This | A Newbie’s Guide to Publishing: The Acquisitions Editor

Oh for sure he’s pitching a rocket into a pile of mess and it’s gonna offend folks, but there’s lots here that publishers should think about!

(Writer pauses, then turns around)

Writer: Look, it’s true that I do need a good editor.

Editor: See! I told you!

(Writer hands Editor his business card)

Writer: When your company goes bankrupt, and you’re unemployed, I want you to look me up. Send me a letter. One page, double spaced. List your qualifications for editing my book, and your rates. Also include a SASE. If you don’t hear from me in six months, no need for you to follow up–it means I’m not interested…

via A Newbie’s Guide to Publishing: The Acquisitions Editor.