I recently had the privilege of being interviewed by Victoria Sandbrook. In a serendipitous twist, I found that by answering her questions I clarified some of my thoughts around book publishing’s big issues. What follows is largely for my own archival purposes.
1. What is the best thing publishers can do to get ahead in the digital marketplace?
The thing they can do right now is centralize their editorial and production processes around “content creation.” Not “print books.” Not even “ebooks.” They’ve got to create content.
XML is a big key here. It creates flexibility to take advantage of all forms: print, EPUB, PDF, HTML, a hologram imprinted on your brainstem, etc. A digital-centric workflow also lets publishers quickly adapt to new ideas.
2. What parts of the established publishing model are most hurting expansion into digital publishing?
There are a couple that occur to me. The first, and biggest, is a print-first mindset. That’s a massive detriment because print is locked down and inflexible. Building digital products out of print products is unbelievably inefficient. And really, it’s just dumb. Everyone creates content in a digital form these days — know anyone who still uses ink and parchment? Why would you take something that’s already digital, lock it down in print, and then retroactively attempt to create digital formats from that inflexible product? It doesn’t make any sense.
The second issue is disregard for consumers’ growing power. The old model worked to the advantage of publishers and retailers. High distribution and production costs meant only the most committed businesses had the clout needed to get books into the marketplace. These firms could set their own terms because consumers didn’t have an Amazon-like option as an alternative. But now they do. Any publisher who does anything that works against the consumer is shooting itself in the foot. DRM is a perfect example. You’re not protecting content with that. You’re pissing off your best customers by preventing them from doing what they want with the content they purchased. And you’re doing that within an environment where the consumer has the power! I understand the DRM impulse. I really do. It’s a reaction to an irrational fear. But cooler heads need to prevail here, and that requires a deep understanding of market reality.
3. Why should small publishers stay small?
I’m totally biased toward this “small” thing, so take all this with a grain of salt 😉 It’s the ravings of a small evangelist …
Anyway … after 5 or 6 years of studying digital disruption in the content industries, I’ve reached one conclusion: there’s a successful model here, but it’s much smaller than what we’re used to. Someone may very well figure out how to create a giant business within digital’s dispersed environment (Google certainly cracked that code), but this mythical company will not accomplish this feat by transitioning a giant business built in a different age wholesale to the digital world. It just doesn’t work. Pricing is lower. Audiences are large, but dispersed. Consumers have unbelievable choice. So a business can’t count on 20 or 30 percent margins in this environment. It might achieve those margins in time, but you can’t walk into a digital business expecting those.
That’s why I believe small publishers are uniquely positioned to take advantage of digital. The Web creates stunning efficiencies. You can reach huge numbers of people through low-cost marketing (blogs, social media, etc.). You can manage inventory through low cost back-office software. You can even set up your organization to only produce physical products when they’re ordered (print on demand). There’s a lot of upside here. And small publishers have the agility to do these things. They aren’t trying to figure out how to support thousands of employees. They’re generally unencumbered by the old model. That’s liberating.
Problems arise when small publishers grow too fast for their own good. No one has figured out the end-all, be-all model of digital publishing. There are no assumptions, yet. There may never be. As such, a small publisher needs to be able to justify expansion because there’s no guarantee — or even a hint of a guarantee — that their larger size can be supported by fickle and fluid digital audiences. Think of it this way: Would you take on a $1 million mortgage if your annual earnings fluctuate wildly? Probably not (although that may be a bad analogy given events of the last two years …). I’m not saying don’t take risks. You have to do that. Just take smart ones. Understand how the digital environment is different from the traditional marketplace. Once you get that, you can correctly assess your options and make the best possible decisions.
I’m much more interested in building businesses, not saving them. “Small” is the foundation upon which all businesses are built. They get big. They don’t start big. We’re in an odd moment in history where the sea change of disruption is forcing big businesses to transition (“save themselves”). That’s unusual. In normal times — or less disruptive times — entrepreneurs build new businesses and grow them. Currently, we’ve got entrepreneurs doing their small-business thing, but we’ve also got these massive organizations attempting to shift to something new. I think those big businesses need to take a note from the small guys. They need to build businesses in this new environment. Not save them. Not ask for government handouts. Not hope for deus ex machina in the final act.
I’m reminded here of newspapers that closed earlier in 2009. The staffs thought they’d gather their resources and launch their own online-only publications. That’s not a bad idea, but they approached it the wrong way. They were trying to create something that could support 150-200 people out of the gate. Unless you’ve got massive venture capital funding, that’s not going to happen (even then … it’s just such a bad idea). Had they opted to create an online-only product and then grow it appropriately, they would have had a much better shot at success.
4. What do you think will “flip the switch” on digital text? What will make it become the dominant product we publish?
I think it’ll be a gradual evolution that builds toward a tipping point. We’re in the evolutionary stages now … the upside of digital is becoming apparent to envelope-pushing publishers. Devices are being created to deliver digital content. Younger generations are more and more acclimated toward finding and absorbing material in a digital format.
The thing that tips it could be a device. That’s always exciting and fun. But it might also just be the inevitable moment when more money can be made from digital content than print content. It’s really hard to say.
I know publishers of all types like to point to the iPod as a tipping point moment. And it was to an extent. But the debut of that device was made possible by a massive number of decisions made prior to the iPod’s arrival. The move from cassette to CD, for example. There’s no way the iPod would have arrived when it did if people weren’t already accustomed to digital music. The leap from cassette to “digital file” was too great. But the shift from cassette to CD to digital file was easier. See what I mean? There’s all these little steps that add up, and you really can’t see the lines connecting the dots until you look back over the history of a format or device. To me, that’s one of the most intriguing parts of this. There are forces at play and things happening that we won’t fully understand until much later. Again, acknowledgement of this is the first step. Creating the agility needed to take advantage of these opportunities is the second. It’s like catching a no-look pass. You need to read the situation to know that pass might be coming your way. You also need the dexterity to snare that ball when it suddenly appears.
5. Why is Amazon’s e-book pricing problematic?
Amazon’s pricing is only problematic for publishers. It’s great for consumers. It’s great for Amazon, too, even though they’re currently subsidizing a whole lot of the cost. But Amazon is a long-view company. I’ve always respected Jeff Bezos’ ability to shrug off short-term naysayers and keep his focus on the horizon. And that’s why Amazon’s $9.99 price point is a big problem for publishers. In Amazon, they’re up against a company that’s in it for the long haul. Amazon is willing to pay a lot of money short-term to redefine the marketplace for digital books. If that redefinition happens — and I can’t see why $9.99 wouldn’t be more successful than $19.99 or $29.99; lower is almost always better — Amazon will be able to go back to publishers and say: “We’re your biggest retail channel. We set our prices at $9.99. We’re ending our subsidy and taking 20% for ourselves. You’ll need to adjust your pricing (and your business … and your entire model) accordingly. Take it or leave it.”
That’s the power of popularity. That’s what Amazon is doing here (I think … Bezos and Co. are a lot smarter than me).
Now, some in the book publishing world believe they need to create a competitor to Amazon. Collusion concerns aside, that’s not a bad idea. Competition is a good thing. But there has to be a Plan B, and it must come from within publishing organizations. Publishers need to figure out how to make money on $9.99 books (or $4.99 if they’re iPhone apps …). You do NOT want to challenge consumer expectation. Truly, the price point isn’t about Amazon. It’s about Amazon’s ability to harness consumer expectation as leverage. And they’re doing that masterfully. So publishers need to get out in front of this and figure out how to make money on those lower price points. Centralization of content through an XML workflow is one way. That increases efficiency. But publishers also need to experiment with different platforms (iPhone, Android, their own sites, etc.) They also need to consider ways to serve consumers through non-book products. I don’t have the answers here. I just know that when you’re confronting an adversary head on, it behooves you to consider flanking maneuvers.