TechTattle - ebooks - it’s déjà vu all over again!

June 1, 2012

I recently came across an article in the New York Times about the wait times people have to experience to borrow ebooks from public libraries. At first I was astonished. Anyone reading this after 10 yrs would certainly laugh at the crazy thought of wait-listing ebooks!! As per the article, “many publishers have put restrictions on the availability of their digital books in public libraries or refuse to sell them at all. The result is that there are long waiting lists for digital versions of some of the more popular recent books that are available.” It is equivalent to the US Postal Service asking Gmail to ensure that the email is deliberately delayed to not affect USPS’ business. Isn’t that crazy?

If you scratch beneath the surface, you discover the messy state of affairs of the book publishing industry. Stagnating sales of pint books and lower income generated by ebooks (they are priced lower) has led to lower advances and debuts for authors. As per the Wall Street Journal, for instance, “independent publishers offer on an average around $1,000 to $5,000 for advances, a fraction of the $50,000 to $100,000 that established publishers paid in the past for debut literary fiction.” Moreover, from ebook sales, authors make only half of what they make from hardcover as you can see from the graphic below. (Source: Wall Street Journal)

Another major problem has been ebook pricing. Earlier, Amazon operated on the wholesale model wherein they would buy the books at wholesale price (which is typically 50% of the print book’s retail price) and sell the ebooks at $9.99. It sometimes cost them a few dollars per book but it was a ploy to sell more Amazon Kindles. When Apple brought out its iPad, it signed up several publishers to operate on the app store (“agency”) model. Publishers could set the price of the ebooks and Apple would take a 30% cut. Amazon too made the agency model an option. And now publishers price a book at around $12.99 to $16.99. This did cause an uproar with the regular book readers who had gotten used to the $9.99 price tag. To make matters worse, the Justice Department filed a civil antitrust action against major book publishers and Apple, accusing the companies of colluding to raise the prices of e-books. I guess businesses have still not learnt how to deal with digital disruption, be it the music industry, newspapers and now book publishing. Like they say: “it’s déjà vu, all over again”.

There’s no point dwelling in the past or worrying over the current. Let us look at the future. Currently ebooks constitute only 20% of the total copies sold but are growing at a rapid pace. Already, Amazon is selling more Kindle books than paperback books. Most of the titles in Top 50 (or Top 100) have higher ebook unit sales than print books. It is estimated that by 2015, ebooks will outsell print books. Even though, ebooks constitute 20% of total unit sales, they only make up for 8% to 10% of the total revenue. This means the pie is getting smaller and profits too. While lower advances for authors is here to stay for a while, if ebooks can increase the total volume of books by encouraging more reading, it can solve a part of the problem. The current tablet penetration is around 10% and smartphone penetration is over 30%. Imagine the market when tablet penetration is 50%. It looks promising but ebooks will have to compete with games and other forms of entertainment on tablets and smart phones to really change the game. Meanwhile, publishers trying to cross the bridge to ebooks will have to deal with disappointing numbers until there see the light at the end of the tunnel.