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November 30, 2010

The Next Gutenberg?

Alumni executives at HarperCollins, Macmillan, and other major publishing houses assess the rapid transformation in the industry as e-book sales explode and e-reading devices proliferate.

Simone Gubar

On November 10, the New York Times announced that it would begin publishing e-book bestseller lists in fiction and nonfiction in early 2011. The announcement took place almost one year after Apple CEO Steve Jobs grabbed the attention of the book publishing industry with the unveiling of Apple’s iPad on January 27, 2010.

“We want to kick off 2010 by introducing a truly magical and revolutionary product,” Jobs told invited guests at the much-hyped event. Midway through his presentation, Jobs held up Amazon’s Kindle — the e-reading device that first brought e-books to the masses. Amazon did a great job, Jobs said respectfully. “But we are going to stand on their shoulders and go a bit farther.”

When the history books are written — in print or electronic form — Jobs may or may not be considered something of a 21st-century Gutenberg, but what’s clear now is that Jobs and Apple — not to mention Amazon, Barnes & Noble, Kobo, Samsung, and others — are revolutionizing the way the world reads as e-book sales explode and e-reading devices proliferate.

Metamorphosis

While e-books still represent a relatively small proportion of total book sales, they make up the fastest-growing segment of the industry. In the first five months of 2009, e-books made up 2.9 percent of trade book sales, according to the Association of American Publishers. In that same period in 2010, e-book sales grew to 8.5 percent.

“Amazon did us all a great favor when they came out with the Kindle and integrated the value chain so that people could easily buy books on a device,” says Brian Napack ’88, president of Macmillan, who calls the company’s recent e-book growth “enormous.” Whether it’s about convenience, price or both, Amazon proved that people are willing to buy e-books. “What we know now is that when people own an e-reader,” says Napack, “they buy a lot more books than they did before — and that’s terrific news for publishers.”

Brian Murray ’95, CEO of HarperCollins, predicts that five years from now, e-books will comprise about 40 percent of his company’s business. “I do think that at some point in the next 10 years, the percentage of e-books will be greater than print books,” he says. “Being able to play a role in how an industry transitions from what was a century of doing business to this new digital future is very exciting — and a lot of fun.”

There is excitement, no doubt — but not without anxiety. The dwindling number of bookshelves in stores, not to mention the closing of bookstores across the country, presents a major challenge to publishers, who have traditionally relied on front-of-store positioning to sell books. “We’re talking about the loss of one of our most important marketing vehicles,” says Napack.

But particularly exciting for publishers — who rely on their backlists for as much as 50 percent of their revenue — is that the digitization of content makes the books on their backlists more discoverable. “The long tail really applies here,” says Joe Mangan ’94, COO of Perseus Books Group, which provides sales, marketing, and distribution services to more than 330 independent publishers. “Publishers have these huge vaults of content that have been hard to monetize in a physical world,” Mangan says. Without the costs of printing, storage and physical distribution, “there are tremendous opportunities to monetize content in new ways.”

Back in 2008, Mangan led the launch of Constellation, Perseus’s digital publishing service that enables independent publishers to offer their content in digital formats including e-books and digital files for print-on-demand. Increasingly, backlist microruns are replacing mass print jobs. “We’re not only navigating ourselves through this transformation in our business,” Mangan says, “we’re helping our clients move through it as well.”

War of the Worlds

While publishers agree that e-books cost less to produce than hardcovers or paperbacks, there is fear among publishers and authors that digital books are being underpriced — by one retailer in particular.

Last March, Macmillan issued Amazon an ultimatum: either switch from a retailer model, where Amazon buys digital books at a fixed wholesale rate and then sets the consumer price (typically $9.99 for bestsellers), to an agency model, where Amazon agrees to sell e-books at a price set by the publisher in exchange for a 30 percent agency fee — or stop selling Macmillan books. Just hours after, Amazon removed the “buy” button from all Macmillan books on Amazon.com — only to change course the next day and post a note blaming Macmillan for the increase in price.

“Authors were behind us,” Napack says. “They understood that we were fighting for the value of their work and to ensure that e-books would be available from many retailers. Booksellers put up ‘We love Macmillan’ signs.”

Not long after the tiff, all the major publishing houses except Random House negotiated similar agency agreements with Amazon — the same model that Apple requires for sales through its iBookstore. Although the arrangement increases the amount of money that Amazon earns on each book, publishers hope the higher retail price will slow the transition from hard copy to digital and open the digital market to more competition, ultimately boosting industry-wide sales.

Brave New World

While digitization brings new levels of complexity to such issues as digital copyright and piracy (a concern Napack has raised on several national industry panels), it has also generated new opportunities for publishers — and writers. In October, for example, Borders introduced a self-publishing platform that allows authors to publish and sell e-books at prices set by the writer.

The announcement is one example of a radical shift in the industry: the boundaries between traditional roles — self-published and commercially published author, literary agent and publisher — are blurring. To survive, publishers will need to adapt.

“The real opportunity here is for publishers to develop a direct relationship with consumers,” says Jack McKeown ’79, former president and publisher of HarperCollins and former CEO of Perseus. “Publishers who are locked into an intermediated approach — reaching consumers only indirectly — will be in trouble.”

To that end, HarperCollins is tapping into crowd sourcing and social networking through a new community publishing site, Authonomy, where unpublished authors can upload a manuscript and get feedback from other writers — and from HarperCollins editors, who read and comment on the five books each month that readers on the site have voted most popular.

Increased interactivity has hit the textbook market, too. Last February, for example, Napack oversaw the launch of Macmillan’s DynamicBooks, which allows instructors to edit digital editions of textbooks and customize them for their individual classes.

E-books are clearly here to stay, but so are physical books. McKeown, who in 2008 launched Verso Digital, an Internet-based vertical ad network servicing the publishing industry, presented findings from a survey he conducted on book-purchasing behavior at the 2010 Book Expo American Convention in New York. Strikingly, so-called avid e-readers — those who buy more than 10 e-books per year — are buying both e- and print books. “It’s going to be a hybrid market for decades to come,” McKeown says.

As the new owner of Books & Books Westhampton Beach, which opened its bricks-and-mortar doors in July — and is thriving — McKeown is confident in his prediction.

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