Digital Disruption of the Book Publishing Industry

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Guest lecture given at Carnegie-Mellon University April 29. 2014. Describes the history of digital technology in book publishing and six aspects of disruption: the retail market, interoperability, self-publishing, content forms, revenue models, and copyright.

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Digital Disruption of the Book Publishing Industry

  1. 1. Digital Disruption of Book Publishing Bill Rosenblatt GiantSteps Media Technology Strategies April 29, 2014
  2. 2. Outline History of Digital Publishing Elements of Disruption Copyright Failures and the Future
  3. 3. Major Market Segments  Trade (32%) – Mass market fiction & nonfiction – Sold through retail – Lent through libraries – Big Five: PRH, Macmillan, Hachette, S&S, HarperCollins  Educational (45%) – K-12 and higher ed – Sold through instructor & school adoptions – Captive audiences – Majors: Pearson, McGraw-Hill, Cengage, Wiley  Professional (23%) – Legal, business – STM (Scientific, Technical, Medical) – Majors: Elsevier, Thomson, Wolters Kluwer
  4. 4. History of Digital Technology in Book Publishing
  5. 5. Late 1990s Prepress Mfg Distribution Spread of Digital Technology Mid-1990s Publishers Mid-2000s to Today
  6. 6. Key technologies – Apple Macintosh: edit and lay out book on a computer – Adobe PDF: emulate print output on digital devices Market developments – Layout tools: Adobe PageMaker, QuarkXPress – Single workstations, “sneakernet” processes Mid-1990s: Desktop Publishing
  7. 7. Key technologies – Client-server computing – B2B broadband Internet – High-capacity portable storage – Demand printing – XML: logical formatting, reflowable output, metadata Market developments – Distribute then print – Outsourced production Late 1990s: Production & Distribution
  8. 8. E-Books: First Wave 1990s - .com Crash Key technologies – Dialup Internet – E-commerce – Standalone e-reader devices Market developments – E-book e-retail: Online BookStore (1992) – Print book e-retail: Amazon (1995), B&N (1997) – 1st gen e-readers: Rocket eBook, SoftBook (1998) – Adobe acquires GlassBook (2000) – Subscription services: Safari Books Online (2001)
  9. 9. E-Books: Second Wave 2006-2010 Key technologies – Smartphones, tablets, apps – Electrophoretic display (E Ink) – Wireless Internet (Wi-Fi, 3G) – EPUB: XHTML-based “standard” format Market developments – E-readers with E Ink: Sony (2006) – E-readers with wireless delivery: Kindle (2007) – Other entrants: Nook (2009), Apple (2010), Kobo (2010)
  10. 10. Recent E-Book Developments  E-Reader market consolidates – Many devices disappear – Sony exits US market – Amazon, Apple, Barnes & Noble emerge as leaders  Kindle & Nook tablets – E-reader growth flattens – Tablets take off  Kobo (Canada) enters market – 2010: Borders deal – 2011: Bought by Rakuten; Borders shuts down – 2012: ABA IndieBound deal – 2014: Acquires Sony’s US customers  Resurgence of white-label retail services – For small publishers and special-interest retailers
  11. 11. Reading Goes Digital
  12. 12. Reading Goes Digital  Unit volume grows from 1.5% in 2008 to 30% in 2013  2011 was the breakthrough year  Now growth is slowing
  13. 13. Elements of Disruption
  14. 14. Elements of Disruption Retail market Interoperability Self-publishing Content forms Revenue models Copyright
  15. 15. Retail Market  Digital retailers can become dominant faster & easier  Amazon has as much market share as it can w/o DoJ attention  Yet also much easier to organize special-interest retailing  Result: trifurcation of retail market: – Mass, large-scale: Amazon plus 1-2 others – Special-interest publishers & retailers: white label services – Local: indie bookstores, IndieBound/Kobo Large Scale White Label Services Indie Bookstores
  16. 16. Interoperability  Portability of e-books and e-readers  Language aside, this is totally new for digital age  Interoperability is antithesis of retailer lock-in – Retailer lock-in = incentives for retailer investment – Open standards de-motivate retailers  100% interoperability is a chimera – Web browsers/HTML are 99%, exception that proves rule  Markets tend towards 2-3 of everything – Operating systems: Macs & PCs; iOS & Android – Databases: Oracle, Microsoft, IBM
  17. 17. Market shares: • Amazon (Kindle/Kindle Fire): 55% • Apple (iPhone/iPad/iPod): 17% • B&N (Nook/Nook HD): 14% • PC: 6% • Sony Reader/Kobo/Other: 10% Source: Bowker, 2Q2012 Nooks Kindle Devices iPads, iPhones, iPod touch PCsOther Adobe Content Server- Based Stores* *Interoperability not seamless, requires some user tech savvy. E-Bookstore Client Platform Interoperability By Platform Market Share
  18. 18. Sources of Non-Interoperability  Formats – KF8 (Amazon), EPUB (everyone else) – DRM fragmentation undermines EPUB – IDPF working on open standard DRM for EPUB 3  DRM – De facto standard was Adobe’s DRM – But none of the major platforms use it (anymore) – And interoperability is not smooth  “Cloud Sync” – Sync e-books across all devices registered to retailer – E.g. Amazon WhisperSync
  19. 19. Fighting Retailer Lock-In Music Industry  Sat and watched as Apple ran away with market  Strategy: dump DRM to attract Amazon  Result: Amazon has 22% of flat-to-declining market  Streaming on the increase but revenue (to music rights holders) will never make up for decline Digital sales unit volume (Source: RIAA, 2014)
  20. 20. Fighting Retailer Lock-In Movie Industry  Determined not to follow in music industry’s footsteps  Strategy: UltraViolet – Provide consumer interoperability equivalent to DVDs – Reduce incentives for retailers – Consumers purchase right to download & stream on variety of devices – “Disc to digital” rights for some DVD & Blu-ray purchases  Result: – Limited adoption by retailers – But it’s early days..
  21. 21. Self-Publishing  Pre-internet: $10k to publish with “vanity press”  First wave – FirstBooks, ExLibris, iUniverse – Mostly print – Cost: a few hundred dollars  Second wave – Lulu, SmashWords, Blurb, Amazon Kindle Direct – Print + e-books (except Amazon) – Bypass publishers but not big retailers – Cost: freemium  Big-name authors can bypass both publishers and retailers – J.K. Rowling, Pottermore – Extremely rare today but may become more common
  22. 22. Content Forms “A book is not an extra-long tweet.” -- Jaron Lanier
  23. 23. Hardback Paperback CD-ROM E-book 20102000 200519801950193019001500 Cloud Reading Content Forms  Books have been around for centuries  Everyone still understands what “book” means…  …despite evolving delivery means  This is unlikely to change.
  24. 24. Content Forms Smaller pieces – 2009: Scribd starts selling major-publisher content – 2011: Amazon launches Kindle Singles Multimedia extensions – Long history, few successes – Late 1980s: Voyager (CD-ROMs) – Today: Gutenberg, Inkling, Kno
  25. 25. Revenue Models: Retail Pricing  Downstream entities make $ other than margin on books  Piracy, “compete with free”  Steve Jobs’s $0.99 music, Jeff Bezos’s $9.99 e-books  Publishers restricted from setting retail prices  “Agency” model exploits legal loophole
  26. 26. Revenue Models: Other Models  Subscriptions: “Netflix for E-books” – Pre-Internet: LexisNexis, Westlaw, etc. – 2001: professional, Safari Books Online (O’Reilly, Pearson) – 2013: trade, Scribd, Oyster  P+E (Print + E-book) – Access code sent with print book order – Very few publishers do this now  Rentals – Took off in Japan during first wave – “How dare you” attitude in US for trade books – Somewhat successful for e-textbooks
  27. 27. New Models Catch On Slowly Million U.S. Users (estimated) Legacy Emulations New, DigitalNative 0 20 40 60 80 100 120 On Demand Music Paid Subscription VOD Free/Limited VOD Bookstore Radio Record/Video Store VCR
  28. 28. Higher Ed: E-Textbooks  Adoptions difficult to scale  Used print textbooks easy & cheap to obtain  Rentals (print & e-book) gaining popularity  Piracy on the rise: currently 34% of students  MOOC phenomenon boosts free content  Digital-native materials reduce piracy
  29. 29. “The copyright wars are the world’s most pretentious supply chain dispute.” Robert Levine Author, Free Ride Copyright
  30. 30. Copyright Is a Balance  Accessibility of works to public  Incentives for creators Value
  31. 31. The Internet Has Thrown Off the Balance  Much more content available  Non-pecuniary motivation to create & distribute  Content easier to get for free  Easier to consume  Perception of value eroding  Enforcement almost nonexistent  Copyright itself demonized  Shrinking creator middle class
  32. 32. The Digital Age: It’s Different This Time Physical media products  Copyright tied to physical products  Prices based partly on cost of manufacturing & distribution  Creative works are input goods to publishers  Content that authors or publishers want to sell Digital  Copyright separated from physical media  Prices based on perceived value of content  Creative works are input goods to Google, Facebook, etc.  Everything that’s digitized is copyrightable
  33. 33. Supply vs. Demand for Content Supply Demand
  34. 34. However, Books Aren’t as Affected Slower growth in book titles vs. music Authors ambivalent about piracy and DRM Higher ed is the big exception: Piracy rose from 20% in 2010 to 34% in 2013
  35. 35. Supply Growth Physical Products Digital Books 1.7 million titles in 2007 catalog ~2 million titles today Videos 60,000 items in catalog >8 million clips in Content ID database Music 4.3 million tracks in 2008 >50 million music tracks
  36. 36. Sale vs. License Physical Products  Sale  Copyright bundle of rights  Store is a seller  User is a buyer  Publisher and seller cannot restrict rights Digital Downloads  License (EULA)  Store’s Terms of Use  Store is a licensor  User is a licensee  Publisher and seller can set whatever rights they want
  37. 37. Libraries and E-Books  Libraries buy print books just like you or I would – Any books they want – At same prices as consumers pay  Libraries use e-book lending platforms to serve patrons – Leading supplier is OverDrive – E-books “self-destruct” after loan period  But e-books are licensed, not sold – Publishers can set terms, including refusal to license – Prices often higher than consumer sales prices – “Frontlist” catalog can be withheld – Number of loans per title can be limited
  38. 38. Major Trade Publishers Library E-lending Policies Publisher Policy Pricing Hachette Book Group Full catalog, no restrictions 3x consumer prices for frontlist titles HarperCollins 26 loans per title Macmillan Backlist titles only, 2 years or 52 loans per title Penguin Full catalog, 1 year of loans per title Random House Full catalog, no restrictions Higher than consumer Simon&Schuster Full catalog but only to select libraries and 1 year of loans per title
  39. 39. Copyright Alternatives  Don’t bother trying to making money from bits.
  40. 40. Copyright Alternatives  Pay everyone for all the bits they generate.
  41. 41. Failures and the Future
  42. 42. Failures “Social Reading” Paid General Reference Consumer Print On Demand
  43. 43. Failures? “Social Reading” General Reference Freemium Consumer Print On Demand
  44. 44. The Future  Print will never, ever, EVER go away  E-books will settle on about 40-55% market share (unit vol.)  E-textbooks: adoption process so cumbersome that market will largely pass them by  New content forms will take hold very slowly  Major publishers will… – Embrace audiences that startups aggregate – Rely more and more on marketing analytics – Continue to worry about Amazon
  45. 45. billr@giantstepsmts.com 212 956 1045 www.giantstepsmts.com www.linkedin.com/in/billrosenblatt/ Twitter: copyrightandtec

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