« Editorial

Have We Already Reached “Peak E-book?”

The dangers of running the E-book business like a commodity market.

By Andy Richardson, CEO of Influential Software

Recently we’ve been exploring how the war for readers currently raging between e-reading platforms such as Kindle, Sony, Nook & Kobo might have unintended and damaging consequences for the publishing industry. By slashing e-book prices by as much as 97%, launching their own self-publishing imprints or launching often half thought-out e-lending schemes, e-reading platforms are at risk of killing the book business in the process of chasing ever larger markets.

Andy Richardson

It’s an easy trap into which to fall. After all, replace a cumbersome physical product such as a printed book with a virtual, infinitely scalable product like an e-book, and the temptation is to believe that demand is as infinite as supply. And by concentrating their businesses on achieving scale, e-reading platforms have created the idea that publishing is suddenly a commodity business. Except books aren’t a commodity. Commodities are defined by their fungibility, a term that economists use to describe goods like coal, wheat or steel which are capable of mutual substitution. It doesn’t really matter whether you get your crude oil from Libya, Venezuela or the North Sea: you just need oil. Books, however, are the opposite of fungible: each book, from Emma Bovary right through to Fifty Shades of Grey is unique, and substituting one for the other would very probably result in an angry or confused reader.

By eliding the scalability of the wrapper (the e-book) with the scalability of content (the book itself), e-reading platforms are hoping that the electronic publishing market will behave in a fundamentally different way to its print equivalent. But what happens if it doesn’t?

Earlier this month we may have seen the first indication that books and e-books have more in common than digital purists suggest. Statistics published by the Association of American Publishers (AAP) and the Book Industry Study Group (BISG) indicate that the era of double digit e-book market growth may already be over. Its report, which was unveiled at the Frankfurt Book Fair reports a steep decline in the rate at which e-books are growing their share of the overall book market in the US.

This data is at odds with the predictions of many industry watchers, who had expected e-books to account for 50% of all books sold in the US before the end of 2012. A number of factors have been identified as possible causes:

1. The demise of in-app purchasing: Apple’s decision to take a 30% cut of all purchases that take place within iOS apps has led to many e-reading platforms removing the ability to buy new books within their smartphone apps, leading to fewer sales  opportunities.

2. The market’s all about tablets now not e-readers: The growth in sales of tablets, which offer a far wider range of media consumption opportunities than just reading, has encouraged users to play games, watch videos and browse the web instead of read.

3. A wider base of e-book buyers: As the number of e-book readers grows, the rate at which the overall market grows naturally slows.

4. The absence of self-published titles: Both AAP and BISG’s data excludes self-published titles. These titles account for a great deal of the “growth” in published works coming to market as e-books over the past few years.

There could also be another explanation, that the gradual flattening out of digital sales growth is a sign that e-books are beginning to acquire the low-growth behavior of their print equivalents.

Under this argument the meteoric rise of e-book sales over recent years can be explained away as the inevitable outcome of heavy or habitual readers transitioning from a print-only reading diet to one that is wholly or partly constituted of e-books. E-book buyers are not new consumers, they are only new to e-books as a category of product. Once this market is saturated, the book business will return to the low-growth trajectory it had prior to 2008, as publishers and booksellers face the reality of selling their products to a finite number of consumers.

This argument does depend on a number of assumptions. Not least it assumes that we’ve already reached, or are close to reaching, the e-reading saturation point, which is impossible to tell given that the major e-reading platforms don’t disclose sales or user numbers. Publishers also have no way of telling whether the e-books they’re selling at 99p today are being sold to the same people who would have paid £7.99 for a physical book three years ago, or whether these consumers represent a whole new market.

Without this data it’s not possible to say anything definitive, but if the e-reading platform wars do turn out to be a land grab for a mature, low growth market, publishers will find themselves at a major disadvantage as businesses. We have established that books are not a commodity, but publishers have allowed e-reading platforms to treat them as such as they slug it out among themselves for consumers’ credit card details. So what will happen if it turns out that the e-book revolution has not significantly grown the book market but transferred it to another format while shrinking the unit price to below the cost of production? Publishers will find their business devalued, their margins slashed and, most importantly, they will have lost the fiscal breathing space they need to nurture new books.

It’s a stark vision of the future of the publishing industry, but without clear and comprehensive data from the e-reading platforms as to who’s using them, what they’re buying and whether they’re adding to or cannibalising the overall book market, I think it pays to be sceptical.

SURVEY: Is the E-book Boom Over in Mature Markets?

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10 Comments

  1. Posted October 31, 2012 at 4:06 am | Permalink

    Publishers have attempted to make books fungible by their insistence on rigid genre divides and the way they try to reproduce surprise hits. Add in their eagerness to publish anyone well known and it’s clear why self-publishing has boomed. Books that readers enjoy have been turned down by traditional publishing increasingly over the last two decades.

    You say, “Publishers will find … most importantly, they will have lost the fiscal breathing space they need to nurture new books”. The problem is that publishers no longer see this as an important part of their job – it’s been replaced by jumping on bandwagons.

    The only absolute essentials in this business are writers and readers. Everyone else can be replaced. Big publishing is still in denial about this.

  2. Posted October 31, 2012 at 10:25 am | Permalink

    (1) if we’ve passed the inflection point on a period of explosive growth that started about three years ago, then that probably means that ebooks will hit about 50% of total book sales. If it follows a normal growth logistic, the inflection point it about halfway to the mature market size, which means that the “doubling” predicted as a simple projection of growth rates in the previous three or so years would instead be spread out over the next three or so years, and then ebooks will hit the mature niche size.

    (2) The total market niche size is made up of a mix of shifting from paper to digital, and an increase in the rate of reading by people who would have been reading more with easier opportunities. Not everyone lives close by a B&N, or a cool indie bookstore ~ obviously nobody lives close by a Borders any more ~ not everyone is in the habit of visiting their local library. Having it there at the click of a button on their tablet, phone, or iPod makes for a larger market.

    (3) Its still a market for readers, who are a minority of the media consuming population. Its not going to go away in response to competition with video and games. After all, the movies and TV shows are working on how to commodify their first-run works at price points closer to the DVD movie purchase and rental, and leave the “dime per view” streaming to the revenue scavenging of older works, and the hours of entertainment per dollar that a reader gets for a book wipes the floor with the hours of entertainment per dollar that a reader gets for a movie download or rental.

    (4) The move to self-publishing is a structural change, but a structural change back to what we’ve known since the days of dime novels: people will buy and read cheap books to pass the time of day that they wouldn’t pick up if they cost more. They are a big part of the expansion of the market due to ereaders, and if they don’t get counted, the unit sales, and to a lesser extent the sales revenue, is clearly being undercounted.

    Just in my personal experience, Employed part-time as I am, without ebooks, I’d be buying almost exclusively from the used book market. Putting together an order to hit the Amazon $25 free shipping, I’d normally be looking for another used books, not getting a book new instead of used. I know this, because that’s what I was doing until last year when I got a Nook Color.

    After getting a media tablet, I’ve been back in the market of buying “new” ebooks. I’ve been reading the Spinward Fringe space operas, which are self published and go for $1 to $3, with the “prequel” series that established the universe being given away for free download. I also buy Tobias Buckell’s work when it comes out in trade and the ebook hits $10. Without ebooks, I might not have discovered Tobias’ work, but if I knew it, and I was employed full time, I’d be buying Tobias Buckell’s books in hard cover. Without ebooks, not only would I have not discovered the ongoing Spinward Fringe saga, but if it was available in print, I’d only be reading it if I was borrowing it from the local library.

    The $10 ebooks would not be the substitute if the $1 to $3 cheaper self-published books went away ~ the substitute would be golden age science fiction that has passed into the public domain.

  3. Posted October 31, 2012 at 12:40 pm | Permalink

    In the context of your closing remarks, perhaps a “stark vision of the future of the publishing industry” is, on the flip side, an optimistic vision of the future for authors and readers?

  4. JWK
    Posted October 31, 2012 at 3:14 pm | Permalink

    I think the key issue to take away from current trends is that consumers, especially young consumers, are tired of institutional gatekeepers. The popularity of Youtube is evidence of this..the democratization of digital media. And everyone should heed the cautionary tale of JK Rowlings ordeal in getting Harry Potter published. It was the franchise that nearly never happened. How many more Rowlings exist out there who have great stories, but were thwarted by the gatekeepers…those out-of-touch wizards in high towers who think they know best? The more e-books and e-readers can emulate the likes of Youtube and democratize the reader-author space without the filters of ‘experts’, the better.

  5. Posted November 1, 2012 at 8:47 am | Permalink

    Books are commodities. If the interchangeability of items were the criteria for determining what a commodity is, we would not consider furniture commodities. Or computers. Or watches. etc. The confusion between inputs in production and the finished product is obvious. Paper is a commodity and any paper (not really) can substitute for other paper. But the printed book, the finished product on the paper, is no less a commodity just because it has been transformed into a unique item, which of course is printed in many interchangeable numbers. Publishers are not special. Ebooks are also commodities just as music and movies and other intellectual properties are commodities. The entire argument put forth to justify publishers jacking up ebook prices to protect their archaic paper book sales is so thin and self serving that it shames this entire discussion.

  6. Posted November 1, 2012 at 9:38 am | Permalink

    Speaking as a writer/publisher/voracious reader, there are a couple of things missing here. I usually read 2-5 books a week for entertainment and often several as part of my career. I realize mine is a small insignificant voice, but I represent a large and rapidly growing market segment: the forcibly retired on limited income. Of course, here in Minnesota, I think we are rapidly becoming the majority.

    1> With the current structures, I do not own my ebooks—which is a fundamental change. I am leasing them. It’s very hard to buy an ebook or build an ebook library. Witness the poor lady last week who lost her entire library because amazon stripped it. She was really surprised to find out she did not own her books and that she had no recourse.

    2> The cheap prices of some ebooks has enabled me to find authors I never would have found (or afforded) in any other way. I usually read (or reject as unreadable) 3-6 ebooks a week. To me a $10 ebook is silly. If I’m going to pay that much, I wait until I can get it in print. I often wait for paperbacks or even used books—depending on the author.

    3> I buy the entire output of authors I really like. That is very unsatisfying with ebooks. I’ve never reread an ebook (though that may just be the lack of time passed).

    4> The price of books, in general, has gone far beyond uncomfortable into ridiculous. eBooks relieve some of that pressure. I can’t remember the last book for which I paid full retail price. I may have wanted to, but it’s simply no longer financially possible.

    >carefully stepping down off the box< There are more of us than you think.

  7. William Ockham
    Posted November 1, 2012 at 3:24 pm | Permalink

    This article has an interesting omission of a possible cause in the slowdown of the ebook market. There’s no mention of the ebook price-fixing case. When producers who control 50% of market get together to intentionally retard the growth of that market by raising retail prices, the expected outcome is a slowing of the growth of said market.

  8. Posted November 2, 2012 at 3:56 pm | Permalink

    One more reason for the “steep decline in the rate at which e-books are growing their share of the overall book market in the US” you have failed to mention: many publishers won’t sell e-book formats of their titles to resellers or distribution partners like OverDrive or 3M, which in turn license access for libraries and THEIR customers. How can publishers expect to grow sales when some refuse to sell to a whole sector of the industry?

  9. Posted November 3, 2012 at 7:27 am | Permalink

    It is hardly surprising that the sale of e books has declined. The Traditional Publishers, feeling threatened by the phenonmenon are fighting back.
    I am defintely for ebooks, as it has democratized publishing, but as with any widening of scope there is the inevitable fall in quality as every Tom Dick and Harry tries to get on to the band wagon to make a quick buck. I am certain that the market place will eventually sort this problem out. The best solution is to have both print books and ebooks co-existing side by side. My local book store is doing just that and I wish it every success. Visit my site at uftstore.co.uk.

  10. Gavin McLean
    Posted November 21, 2012 at 10:48 am | Permalink

    There are strong historic parallels with the market for Classical Music CDs back in the 1990s. In that market, there was an upsurge in sales in the new format, leading many record companies to invest in new artists and speciality labels to refresh their back catalogue. After a couple of years it dawned on them that the upsurge was almost exclusively from heavy buyers transitioning to the new format and that all the ‘new’ consumers were illusory.

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