5 Things the Big 6 Will Try
Why did News Corp decide to break into two companies? Because the path-to-market model has changed forever and new investments are needed.
Does that mean publishers will disappear? No. Distributors like Ingram? No. Bookstores? No. Nothing will change in the current supply chain except—volume. So why is News Corp so worried about the future of newspapers and book publishers? Because a lot of expensive investment experiments will be coming to websites and bookstores near you. Experiments that will drag down the bottom line. Experiments that will test business relationships to the breaking point. What kind of experiments? Bear with me a minute.
Much has been said about 20th Century publishing methods and advantages versus independent authors who go direct to the reading consumer via e-readers. Nothing will ever be decided or finalized in that debate. Unlike the music industry, publishing has always had the original hardcover and always will. Cheap paperbacks are a different story. Those will be gone shortly. There are people like me who still prefer the hardcover and people like my wife who prefer the e-reader. There are books I prefer on my e-reader, notably books with big words I need to look up, and books with pictures. (Insert joke about my reading level here.)
No matter what format readers prefer, there are two distinct methods of reaching the reader: Direct and Indirect. This has existed for years in technology. Corporations often buy computers direct from the manufacturer. Consumers played with that idea for a while, then came back to Costco to check the look and feel before buying. Both channels continue to exist even after Apple glorified the direct-storefront. I will let you mentally hash out the rationales for different buying experiences but suffice it to say, there are times when one is better than the other and vice versa.
In 2002 the model for publishers to reach the market looked like this: author-> agent-> publisher-> distributor-> Bookstore-> reader with unsold books-> distributor-> publisher. Efficient? Think about shipping half a pound of paper at least twice if not three or four times.
Today, that model still exists and will continue to exist but most likely at a lower volume. The streamlined alternative is author-> publisher (optional)-> ebook distributor (optional)-> reader. Lower cost? Yes. Lower profit? For the publisher, yes. A lot lower.
Of course the operative phrase here is (optional). Do publishers add value? Yes. Is it irreplaceable value? No. Is it a known value? No. Walk into a book store and ask readers to name five HarperCollins authors. Or Penguin. Or _____. Readers are not aware of any publisher’s added value. That is a problem.
The publisher and bookstore of the future will have to add value to the reading experience. Yes, they do that now. What value they add and how they add it will change dramatically over the next five years. With the biggest drama occurring over the next two.
What options do the Big 6 publishers of today have to add quantifiable value in the streamlined path-to-market? How do they protect that value from duplication by competitors? How do they make that value obvious to the reader? And most important: how do they build that new brand?
1) Go direct to consumers? Yes. They will have to offer it as an option at some point. Several already have. Few with any passion.
2) Apple-style showrooms? Maybe. Barnes & Noble will sell books to readers without worrying about one brand versus another. HarperCollins versus Random House. If things get really dicey, The HarperCollins Store might become an attractive option for them.
3) Pay-to-display hardcover books at independent outlets? Maybe, but probably not any more than they’re doing now.
4) Paid Reviews. Yes, until they’re caught. Oddly, paid reviews are expected for independent authors but spurned in the Big 6 (or so they tell us). How long will that dignity last?
5) Turn their collective back on Amazon? If they can. Amazon is a competitor and distributor. And growing in power daily. The Big 6 need B&N, Amazon, Apple & Google at the moment. If options 1-3 play out, and if Google’s Nexus 7 creates an open platform, it’s open season on Amazon.
How will investing in these experiments payoff? Unknown. And therein lies the risk to the News Corp bottom line. A great deal of flexibility will be needed to weather the coming storm and Fox Entertainment (TV & Movies) does not need that drag on profits. Therefore–split the company in two. And what do we learn from the split? That News Corp intends to make big investments in changing the publishing marketplace.
How do you expect to procure books in 2022? What are the options for publishers and bookstores in the next two years?
Peace, Seeley James
PS on 7.11.12: A 6th thing they could try is to acquire new technology. But that is just an admission that they don’t have the personnel on board to implement those new technologies. If the latter is true, past M&A experiences teach us that the acquired company will evaporate (note Dell and HP acquisitions). For more on MacMillan’s sad attempts to deal with the future, see this article in the PandoDaily.
Peace, SJ
Category: Publishing
As someone who just endured 5 and a half days with no electricty (to charge up my reading device) and no internet (to download reading material) I was most assuredly glad to have my paper “back up” reading. I think each of the reading formats has its place and its advocates and many are like me, who prefer both digital and paper. Things will change, but I don’t think it will be as nuclear as some people predict.
Wow, 5 days without Internet? I could only live through that if I had 5 hardcovers, 5 bottles of wine and my wife. Actually, if my wife were there, I’d need 10 hardcovers. She goes through them like a lawn mower.
I agree, not as nuclear, but a different shape from what we know today.
I think you are fundamentally mistaken about a few things in your analysis. Your key error is this: “publishing has always had the original hardcover and always will.” This statement is either irrelevant or false, depending on your definition of “original hardcover”. If you mean that publishing will always have the protection from competition afforded them today by their ability to distribute hardcover bestsellers, you are sadly mistaken. If you mean that their will always be an upscale market for hardcover books, you are correct but that is irrelevant to your point. I’m not sure if the market for hardcover books will be the future equivalent of the market for horse-drawn carriages or the market for mechanical watches, but I’d bet on closer to horse-drawn carriages.
What happens when an ereader from Amazon costs less than the price of a hardcover bestseller? That will happen. Soon. Bestsellers will no longer be sold in hardcover format, at least to individuals (libraries are a different story). When bestsellers can’t be sold in hardcover, what happens to the distribution pipeline? The Big Six have no viable model at that point. They are just the highest cost producers who have nothing uniuqe to offer their suppliers.
Smaller publishers will be much better positioned to take over the premium trade. Barnes & Noble goes out of business, even if Newco, the Nook part of the business, survives. The only bookstores will be those independent booksellers in big cities who can reach the well-to-do.
None of the strategies you suggest will help the Big Six. Amazon’s position is a lot more precarious than most people realize because they operate, like any retailer who is a one-stop shop, on razor-thin margins. Just ask your local grocery store. But it won’t be Google who threatens them, at least not the Google that exists today that knows absolutely nothing about selling to consumers (as opposed to selling consumers which is their real business). Kobo, maybe. Nook might have a chance, if they can dump the idiots at B&N who have saddled them with a horrid web site and the burden of keeping the Big Six happy. More likely is a challenger no one sees coming, either a tech startup or an established retail giant.
Amazon’s real power comes from their ability to offer the best selection at the lowest price with a nearly ideal shopping experience. And the recommendation engine. Anybody who wants to go head to head with them will have offer all of that plus something more than Amazon can’t easily duplicate. And right out of the gate. And endure the inevitable seemingly unending stream of quarterly losses while they compete on price. So, I would expect the challenge to come from outside the U.S. Probably from China or India where a challenger could build up a strong base to use as a launching pad.
I’m an Amazon customer, I own a business that is an Amazon customer. While both I and my business partner have Kindles (I have 3 and she has 2) and buy books from Amazon, neither of us are carrying our Kindles much. We are reading on our phones when out and about. However, I usually order all of our office supplies, cleaning products, pet products and even shoes from Amazon. I’ll even pay a little more for products sold by Amazon because of their great customer service. That is what another site would have to compete with before I would switch my buying habits. (I’ve used other office supply and electronic sales sites in the past, but Amazon has them beat hands down, especially with ease of customer service.)
My definition of hardcover is the common definition, contrasted to paperback. While ebook people prefer ebooks, the sales numbers show the quantity of hardcover sales actually increasing over the last two years. During that same period, the number of paperbacks has dropped in proportion to the number of ebooks sold. In other words, the displacement is happening on the paperback end of the market.
When I travel, and lug 2-3 large hardcovers, I pull out my Kindle. When I’m at home, I look around my library and still love it.
True for now, but again irrelevant to the very near future. That isn’t a psychic prediction. It is a simple extrapolation based obvious economic fundamentals. Reconsider my question. What will happen to hardcover sales, which are completely driven by bestsellers, when bestsellers are no longer viable in hardcover? Ebook people is a nonsense term. People switch to books when it makes sense for them personally. How many people will prefer hardcovers when a hardcover costs 10 times what the ebook costs?
By the way, I love the stat you pulled. Do you know what else happened in the last two years? The Price Fix Six artificially inflated ebook prices to prevent the very scenario I see coming.
Here is how this plays out. The next cheap Kindle will come out priced at, say, $49. Whatever the hot Big Six book is, it will be priced at $35. How many people will buy that book if Amazon has a sale that includes a Kindle, that ebook + whatever is that year’s 50 Shades of Gray indie hit + a bunch of Amazon authors’ ebooks, all for $59? And then, a couple of years later, repeat, except the bundle is cheaper than the hardcover. All of this will happen, at a time of Amazon’s choosing. There is nothing that Big Pub can do to stop it. The production costs of hardcovers are inexorably rising. The hardware costs of ereaders is inexorably falling.
Demographics suggest both ebook and print publishers face uncertain futures. The majority of readers are older people. Young people read fewer books. For evidence of this check the demographics of your favorite book sites on Alexa. The largest age range of site users is usually over 45 and some are as high as 65 and older. The two exceptions I’ve noted so far are Wattpad and Manybooks.net. This demographic group is now reaching or in the age of affluence and retirement. They have the money to purchase hardcovers and ipads, and the time to read books. What happens when they’re gone? In the not too distant future the market for books may be limited to writers and people on other continents learning English. Well, maybe not quite that extreme, but you see my point.
Second Point. Are smartphone poised to take over as the primary ebook readers? I’m seeing more and more comments that the larger screens are adequate for reading ebooks, and smartphones can do almost everything a tablet can do and more.
Demographics are a guessing game at this point. The vast majority of books are delivered to consumers by Amazon who reports nothing to anyone. If they did, it would still be difficult to understand the stats.
My family bought 113 hardcopy books and 138 ebooks last year all delivered to my wife’s name on her account. There are four of us (ages 12, 14, 53 and 56) making those purchases. As the e-library became annoyingly filled with my family’s books, I opened a separate account. If your numbers are correct, how many of those people are ordering books online for younger family members?
Amazon knows a lot more than any of us about the demographics. Have any links to them sharing that database? :)
No, of course not. An independent study by a credible organization, like Pew, would be better than Amazon’s sales figures. Epubs are eroding Amazon’s market share, although it is still the dominant retailer.
You are a writer, which illustrates my point but doesn’t prove it. I could offer lots of anecdotal evidence in support my demographic fear, but it isn’t scientific and this isn’t the place for it. You have children, are their friends the Video Generation?
A great point. When it comes to ordering online, I order books for my wife, mother, sister, or even friends with some consistency. To say nothing of the orders I place that are used as gifts. Books that I personally have no interest in and don’t represent me in any way. But these orders lead Amazon to believe that there is a 36 year old male with buying habits that are downright schizophrenic.
I may be more of the exception than the rule, but my type of ordering is not uncommon. This must lead to some fairly fuzzy demographics.