“The new way of reading books arrived hesitantly. It exploited a novel technology, reflected changing public habits of consumption and radically altered the distribution and economics of the traditional publishing industry.”

Am I talking about the Amazon Kindle again?   Actually, no.  Read on:

The paperback represented an intimidating revolution to the 1930s book industry. It took high literature to a far wider audience. But established publishers disdained it, fearing it would cheapen the industry and drive down profits. It might not have been – as its ancestor the pamphlet novel was in the 1840s – assailed as a threat to the “eyesight of a rising generation”, yet the reaction had much else in common with how the emergence of the electronic book is now being regarded.

The more things change, the more they stay the same.   I often hear from fellow readers that e-books don’t “feel” the same as real, physical books, that they don’t “smell” the same.  There is some truth to this.  Even among books, stately leather-bound volumes have a different feel and smell than pulp paperbacks, yet there is a market for both.  The most likely outcome with the e-book is that it carves out a rather large chunk of market shares (possibly close to 100% for school text books and certain reference books) but that it doesn’t fully replace the traditional book.  For infrequent or impulsive readers (say, someone at the airport suffering through a layover), a cheap, disposable paperback makes a lot more sense than an expensive electronic reader.

At any rate, the e-book is certainly making its presence felt, shaking the foundations of an industry that hasn’t changed much in 500 years.  The Financial Times article quoted above is one of the best we’ve read so far: “Brought to Book.”

“Book publishing is moving from a slow-moving, localised, opaque, oligopolistic and often highly uncommercial world to an open, global, highly liquid and highly commoditised world,” the FT quotes Benedict Evans of Enders Analysis.  “This is not a shift that we would immediately associate with higher profits for incumbents.”

Lower profits will push more marginal publishers out of the business.  But what will happen to the authors who would then not have a publisher to bring their work to market?  Might there be a new surge in self publishing?  Perhaps.  The whole process promises to be exciting to watch.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

We’ve written about the Amazon Kindle in prior posts, specifically on it power as a disruptive technology to revolutionize the centuries-old industry of book publishing.  (We use the Amazon Kindle by name by personal choice, but competing e-book readers such as Sony’s are certainly part of the revolution too.)

Now, we read in the New York Times that the revolution is coming to the public library (see “Off the Shelf, Onto the Laptop, Libraries Turn to Digital Books“).

Thus far, libraries have barely gotten their feet wet.  But the changing economics of the industry make us believe that e-books will quickly become a large percentage of new purchases.  In explaining the model, the Times writes,

Most digital books in libraries are treated like printed ones: only one borrower can check out an e-book at a time, and for popular titles, patrons must wait in line just as they do for physical books. After two to three weeks, the e-book automatically expires from a reader’s account.Some librarians suggest that because digital books never wear out, take up no shelf space and could, in theory, be read by multiple people at the same time, the purchasing model for e-books should be different than it is for print…

But some publishers worry that the convenience of borrowing books electronically could ultimately cut into sales of print editions.

Publishers are right to worry.  They saw what happened to the music recording industry, and they shudder to think that it can happen to them too.  But like it or not, it will happen, in some form or another.

The competitive forces of capitalism — made all the sharper by the deepest and longest recession since the Great Depression — will continually lower prices for consumers when not restricted.   The delivery of intellectual property via electronic means — be it software, music, or a book — is virtually free, as is reproduction of the material.  It’s also “greener” and better for the environment, requiring less physical plant, storage space, and fuel.  The price savings here represent “good deflation,” the innovation-driven kind that makes our society as a whole richer.  (This is not to be confused with “bad deflation,” which is due to falling final demand.)

Piracy is a problem, but not an insurmountable one.  Microsoft manages to remain profitable despite widespread piracy of its software, and it mitigates this with product keys.  Apple experimented with digital rights management to avoid MP3 piracy, though this has been less successful.

Authors, like musicians, may have to find a new business model.  Perhaps they could generate revenues through consulting services the same way that musicians do concert tours?  It’s hard to say exactly how this will all play out.  Authors (alas, ourselves included) may find book publishing less lucrative in the future, though we believe most of the pain will be felt not by the authors but by the middlemen that are increasingly becoming obsolete.

It’s hard to know what direction the industry will go and who will be left standing once the dust settles.  But that is the beauty of a revolution — it will be fun to watch!

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy