Big Ed's Place

Traditional publishing is in upheaval. While there are multiple traditional business reasons, three key contributors are efficiency issues, winner takes all economics, and the shift to a digital economy.

The efficiency issues are simply that the current publishing industry wastes a great deal of money by using business models that have been outdated. Walmart’s success was originally driven by squeezing inefficiencies out of the retail distribution chain. Federal Express, Amazon, and many other companies have done the same: eliminated inefficiencies in order to reduce their costs and therefore make a profit at a lower price than their competitors could handle.

The publishing industry suffers from three inefficiencies in particular. The first of these is overprinting. Most publishers print twice as many books as they sell. This is to ensure there are plenty in stock at the appropriate retail stores. The second is the return policy. Bookstores are free to return unsold books and the publisher absorbs both the costs of the unsold books but also the shipping costs. This was set up so that bookstores would be willing to take a chance on midlist books, with the publisher bearing the risk if they’re a dud. The third is the author’s advance. A significant number of books fail to earn back their advance, particularly on the midlist. Publishers have survived by allowing the bestsellers to cover their losses on the midlist while they groomed the midlist, but that just stretches the risk and inefficiencies out over the long term (i.e., how long do you wait for a midlist author to make it?).

These inefficiencies have encouraged the publishing companies to pursue “winner takes all” economics. If a company can increase their percentage of bestsellers, they can survive with their current business model. This is compounded by the fact that most books are sold through Walmart, Costco, etc. these days. Over half of Americans won’t set foot in a bookstore in a given year, but they will in stores that sell books as a sideline. Those locales are only interested in the ‘bestsellers’—creating a Catch-22 (you can’t be a bestseller unless Walmart carries you, but Walmart will only carry bestsellers).

So what does this mean to us, the authors who used to be midlist or below? I think it means that publishers are going to ill-serve new authors until new business models shake out. I also think that the entry to traditional publishing will require either greater evidence that the author can be a bestseller or a solid demonstration of the author’s ability to promote their book (as is happening with The Immortal Life of Henrietta Lacks) or both.

So where does that leave us? Well, one factor in play is that there are fundamentally two economies in play—the atom-based economy and the bit-based economy. In the former, you take a bunch of atoms, manipulate them, and sell them to someone. They have intrinsic value because only one of us can own that set of atoms at a time. In a bit-based economy, you come up with a bit pattern and copies of that pattern are free.

Intellectual property law is the traditional attempt to deal with profits and ownership in a bit economy, when copying is free. However, intellectual property law is only as good as one’s ability to enforce it. Piracy on the internet is easy and likely to remain so, for both practical reasons (catching and prosecuting the pirates) and cultural reasons (It’s not viewed as a bad thing in many circles).

Yet at the same time, ePublishing offers a lot. It lacks the inefficiencies in traditional publishing and offers the possibility of profiting off the Long Tail. It also allows for niche publishing and puts a lot of tools in the hands of authors. We are also seeing an explosion in eReaders and the Kindle is doing well. While the market still needs to sort out eReaders and format standards, there are opportunities in here for smaller, more agile publishers to pursue to allow profits. It just requires some creativity.

Which is where I think we are today–authors and new publishers are trying to come up with creative ways to get stories to people that readers will enjoy, without losing money in the process. It’ll be fascinating to see how it goes.