Coming Soon (Finally): A Critical Mass of eBook Content

A commenter on a recent post takes publishers to task on suspicion that they “really don’t want eBooks to succeed, and may very well be deliberately pricing them just above what a thriving or even sustainable market will bear.”
Well, I feel that eBook pricing at close to parity with print editions has been understandable given the very small sales volumes, which have led to eBooks being treated by publishers as just another niche revenue “adder” along the lines of a large-print edition. Rights-clearing hassles and high creation and support costs of creating digital editions for the plethora of eBook content formats and DRM systems haven’t helped the case for lower prices either. No publisher conspiracy theory needed. But, “Andre” makes an excellent point in noting that:

Even if publishers preserve their margins and authors their royalties with half-price books carrying virtually no overhead, what really terrifies them is the perception of value being lost. If E Ink devices succeed beyond expectations, then deep discounts would erode the public’s willingness to pay $30 for the next Harry Potter hardcover.

You bet this possibility terrifies publishers! In the hierarchy of text-based content, books are at the top, in terms of carrying a “premium” value, undiluted with advertising. The costs of book creation, in authorial time, editorial attention and marketing are correspondingly higher (as are the risks of print runs – but that doesn’t apply to eBooks, and less so overall given print-on-demand). Disintermediation – authors going direct to consumers – is a related fear, as is the concept of any kind of national or universal digital library.
While I agree that lower eBook prices are both feasible and would stimulate adoption, which publishers may not have been overly eager to have happen, I believe the key way publishers have hamstrung eBook adoption is by limiting supply. Any new format needs a critical mass of content to succeed, and that’s not a paltry 5% of annual new titles. Certainly during the last eBook hype boom (circa 1998-2002) publishers weren’t rushing to make all their content available.
However, a sea-change is clearly under way. Google and Amazon are scanning books and making page-images available. Pirate eBooks are circulating, sometimes within hours of being published in print form. A new “digital generation” is clearly going to expect the option to read on screens. Other parts of the print publishing industry have moved more rapidly: Elsevier now makes over 50% of their academic journal revenue from digital subscriptions, and the trend to what they call “E-Only” subscriptions is growing sharply, and in the tech sphere O’Reilly Safari appears to be doing quite well. Libraries are also acting as change agents, since digital distribution yields immense gains in efficiency and patron access; publishers realize that it’s unreasonable to expect to hold libraries back from going digital.
As a result book publishers – across all segments – feel their hands are being forced and are preparing to make all of their content available digitally. They are absolutely afraid that their business models, indeed the whole industry, may well change in fundamentally disruptive ways, but it’s clear that the book business, like Hollywood, has collectively decided not to sit on the sidelines while Amazon, Google, piracy, and the Web do the disrupting. Their intentions are laid out in recent initiatives announced by Random House and HarperCollins, among others.
Sure, there are still barriers. I believe other industry participants, including Adobe, need to step up to the challenge of delivering technologies, tools, and compelling services that will enable this to happen cost-effectively and with high user satisfaction. We still need better devices for e-Reading. And, yes, I believe eBook prices need to come down. But, regardless, the floodgates of book content in digital form are opening and I believe this will itself be a key part of stimulating all of the above.

12 Responses to Coming Soon (Finally): A Critical Mass of eBook Content

  1. Alexander says:

    Bill,
    I appreciate your thoughts. Though I disagree that limited supply of e-books is the reason why e-books haven’t picked up yet. Check out my blog entry over here where I argue that publishers are a basically bunch of oligarchists who keep the price of e-books (and p-books) artificially high.
    Alex

  2. You’re absolutely right that a shortage of product has held ebooks back; so has the failure of the book retailing mechanisms (specifically Amazon and BN.com) to sell the most successful ebook format (Palm). That is another bottleneck that will open up when Amazon starts pushing mobipocket, a format they own that will work on Palm devices. However, the fact that publishers will make titles available for web serving doesn’t necessarily mean they’ll make them available as ebooks in all formats. And if they adopt a Bloomsbury strategy of selling the ebooks off their own site (to gain margin, I guess…), then fragmented delivery will continue to hold back adoption. There’s no conspiracy here, but if there had been one it couldn’t have been more effective than collective inadvertance has been at holding up ebook adoption.

  3. Tim O'Reilly says:

    Hmmm…as one of those publisher oligarchists, I disagree with the commenters on both counts. I’m not sure that prices are too high. People not in the publishing business have an inflated idea of how much is saved when going from print to eBook (not much at all.) There are savings to *keeping* a book in print, but not to producing one in the first place. Manufacturing costs represent less than 10% of the cover price.
    The other big place for savings that is often posited is in distribution costs. Yet we see Mike saying that if publishers only sell from their own sites, the market will be fragmented. He’s right. Publishers should be making books available for download from their own sites — AND from a new breed of eBook retailer. We’ll end up with the same kind of multi-tier distribution that we see in print, with a consequent need for the list price to be high enough to feed everyone in the supply chain.
    I originally wrote about this in 1994, in a piece entiteld Publishing Models for Internet Commerce, which is still available on http://tim.oreilly.com/publishing.
    I also believe that we need to break the boundaries for how we think about “ebooks” because form factor is not what defines a book. Books do very different jobs. (I wrote about this recently on the O’Reilly Radar.) If the job is reference, a standalone ebook isn’t the answer. That’s why, for instance, we built our Safari Books Online service (http://safari.oreilly.com), believing that in reference, search trumps, so we needed to create a repository product. Safari revenues, btw, are greater than are often reported for the entire standalone eBook industry!

  4. Tim O'Reilly says:

    I should add to my prdN{ous comment on Mike’s comment, that when it comes to fragmentation, I am extremely concerned about both Amazon and Google’s current “one ring to rule them all” type repository strategy. Ultimately, publishers, from one man shops to the old guard, will host their own content, just like they host their own web pages, and we need a neutral intermediary whW9searcies and aggregates all that content, but ultimately passes off viewing control to the content owner.
    This is not to say that Amazon and Google shouldn’t build their repositories, but I’d sure like to see them interoperate with each other and with other content sites, so that the eBook market ultimately is as rich as the html web.

  5. mike smick says:

    High ebook prices might be good for publishers who are actually selling them, but it’s bad for printers. Not in the obvious way. It tells the consumer that they are paying for information, not a physical entity. This might be a good way to justify $80.00 black and white math text books. But this snubs printers saying that printing is a commodity, and doesn’t matter where you do it. Any designer and publisher will tell you that’s not true. Talk to the printers who innovate, working around problems with the page layout software. Matching colors and getting perfect registration aren’t nothing. Many care about quality more than a foreign counterpart might, their product is a better book. That work is something you pay for, or pay MORE for.
    A book is much more valuable in it’s materials. Therefore it could be rationalized that an ebook, which has no material, (minor tax on bandwidth) nor was it touched by labored human hands should be sold for a fraction, such as 2.99 for an otherwise 18.00 book. Especially since the convenience factor of ebooks, such as digital copy pasting, printing is so often stripped through DRM. Any ebook priced equally to a printed volume should never limit printing, copy pasting, read aloud. It is simply evil to lock ebooks like that. If anything, ebooks should be more enabling, should include the extra chapters, or the embedded videos animated flash illustrations rather than static ones, things that paper books can’t have. That’s how you justify a ebook price equal to a printed book.
    PS. sometimes I think I’m the only one reading these blogs, but then we have Tim OReilly chiming in. Wow, I’m in the company of giants and didn’t even know it.
    Tim, if you got time, I want to pitch you a book idea. =)

  6. bowerbird says:

    mike smick said:
    > High ebook prices might be good for
    > publishers who are actually selling them,
    > but it’s bad for printers. Not in the
    > obvious way. It tells the consumer that
    > they are paying for information,
    > not a physical entity.
    and _this_ is why publishers are going with
    high prices for e-books. once they’ve got us
    paying a high price for “the information”,
    they can then go on to soak us even more
    with the “understandable” surcharge for
    “all that paper, and the transport, and…”
    tim’s observation that book manufacturing
    “represents less than 10% of the cover price”
    is telling, because when the price of paper
    doubles, many publishers use that as their
    “rationale” for doubling the price of books.
    it’s very similar to the sports franchise owners
    blaming high ticket prices on player salaries,
    while refusing to open their books so that
    we can see where the money is really going.
    they use any excuse that sounds “reasonable”.
    -bowerbird

  7. Tim O'Reilly says:

    I had a side email exchange with the estimable Tim O’Reilly, who tore into some cost estimates I had tossed out, and added some other words of wisdom. Republishing his email comments at his suggestion – thanks Tim. — Bill

    Well, first off, your manufacturing costs are way high. A book that retails for $14.99 would likely have manufacturing cost below a dollar.
    Secondly, your calculations are based on the assumption that a book has earned out all of its development costs, and all that matters is the marginal economics of a single copy. But in fact, the “cost” of a book (for us at least) is something on the order of $50,000, including acquisition costs, advances, editorial development, copyediting, layout etc. So you have to map those costs against revenues, and right now, the volume in eBooks is small. Sell 10,000 copies of a print book, and your per-copy amortization of development is $5. Sell 1000 copies of an eBook (and yes, that is a bestseller), and your per-copy amortization is $50.
    There are also some significant structural issues that affect existing publishers:
    – As you shift readers from print to online, your print costs go up, because you’re printing shorter runs. There’s a tipping point where it no longer becomes economical to print the book at all. So that’s one reason why publishers are scared.
    – Because of the way the large retailers work today, the number of books in stores is determined by how quickly the book sells in its first six weeks. If eBooks skim the cream of early readers, the book gets modeled lower, sells fewer copies, and costs more.
    This is why ebooks will tend to happen first from small players and self-publishers with nothing to lose. But here too your economic analysis is flawed. The reason that self-publishers can make this work is that they get to keep a “royalty” of 75%, making it a reasonable tradeoff to sell an order-of-magnitude fewer copies.
    Lulu, with their 25% fee, is the model here. But that leaves no room for any of the traditional publishing activities, which, in my opinion, do add significant value.
    I do believe that ultimately, eBook prices will be lower than print books, but nowhere near as much as your analysis suggests — look at our Rough Cuts program as an example. We charge approximately 60% of the retail price for the pdf only, 70% of the retail price for the print book only (bought direct), and 110% of the retail price for both bought together.
    There are also not insignificant infrastructure costs in hosting and selling eBooks. Apart from returns, it’s not that different in costs to manage a print book distribution center and an eBook distribution service.
    As far as overhead in the value chain goes, I see it developing in eBooks as well. First off, the idea that the channel will be satisfied with 25% is a myth. If any player gets to critical mass, they will start to increase their margins. What’s more, I don’t think there will just be a single level of aggregation. Even with eBooks, there will be multi-tier distribution in order to manage access to distribution. Heck, just look how much intermediary action there is on the web, with web publishers needing to pay for SEO, ad serving, hosting, etc. For any market to mature, it needs a rich ecosystem, and everyone in the ecosystem has to get paid.

  8. Mike Perry says:

    As a small publisher, I’ve released a few books as ebooks, with results that aren’t particularly impressive.
    Recently, I’ve come to use a “last minute purchaser” question for deciding whether to do an ebook version. Is this a book, I ask myself, that someone on tight deadline (i.e. a student with a paper due the next day), is likely to need? If the answer is no, I don’t bother. Most people would still rather have a printed book and, profit aside, I’d rather sell them something more tangible than digital bits. Their great-grandchildren may read that printed book. It’s unlikely my ebook will survive their next computer upgrade.
    Other than near-instant delivery, ebooks simply haven’t acquired enough added value over their printed competitors to take off. Being searchable is a plus, but only for certain kinds of material (i.e. computer manuals). Far more useful might be a ebook reader clever enough to let a user shift in an instant from reading as he waits for his morning coffee to perk, to listening to that same book being read aloud at the proper place as he drives to work. And some sort of auto-download and organized storage scheme like podcasts and iTunes would be helpful.
    And finally, I found this remark encouraging:
    “I believe other industry participants, including Adobe, need to step up to the challenge of delivering technologies, tools, and compelling services that will enable this to happen cost-effectively and with high user satisfaction.”
    Releasing ebooks would make more sense for me as a publisher if Adobe products such as InDesign, which do such a marvelous job of generating PDF files, could just as easily create the proper files for the common ebook formats such as Palm. Making an ebook easy to publish would go a long way toward creating that “critical mass” of content.
    –Mike Perry, Inkling Books, Seattle
    Editor: The School of Journalism by Joseph Pulitzer.

  9. James Pepper says:

    So what do you do about images that are too expensive for publishers to print, or at least that is what they say. What I am looking for is a technology, whether it is on CD or DVD to publish images, raster images, that take up a lot of space eletronically. That arena seems to be missing in all of these equations. It appears that electonic books are going to be in the domain of early microsoft publisher graphics. These electonic books reduce images down to nothing. I spent a few moments tonight reducing my illuminated bible (The Pepper Bible) pages down to the level necessary for that new Sony device.
    It’s terrible! What are the formats for artists to publish their works safely without them being copied all over the Internet. Or is the Art of the Book something of the past? Will we ever see books like Maxfield’s Parrish’s Arabian Knights, or is that era long gone?

  10. Bill McCoy says:

    James, I am sensitive to the issues you expressed. One of the benefits of digital representation is to make it easier to create rich, colorful content without worrying about printing costs. But if the restrictions on image resolution for eBooks make it even harder to display quality images then that doesn’t really help!
    I also empathize because I ran a startup that developed infrastructure for dynamic generation of thumbnail and display images from high resolution masters. We had a great product (IMO) and some major customers but not quite enough traction to make it. I do think that the “resolution on demand” approach, in combination with scalable vector graphics (supported by Flash SWF and SVG), will enable future eContent solutions to support rich imagery while still being size- and bandwidth-conscious, esp. for resource-limited devices.
    But, I admit we’re not quite there yet. Typical practice is still “hand cut” images sized to someone’s best guess at an OK compromise resolution.
    Luckily this issue is not limited to book pages. Digital photography has the same issues and is driving towards solutions to this. Especially now that “Camera Raw” is starting to displace “one size fits all JPEGs”. Indeed ultimately the only raster images should be those that are truly photographic in nature: illustrations and certainly text should not be image-based.

  11. Robert Nagle says:

    This is a good thread, and most of the insights are right on, but I wanted to add to Mr. Oreilly’s thoughts about the economics of publishing.
    These calculations probably apply to nonfiction, but not to fiction or literary works in general, especially if the creator is doing the formatting/editing. The difference between ebooks and pbooks for the individual creator is simple: no capital expenditures required (only an enormous amount of time!). Of course, you still have to worry about marketing and promotion, but then again, even that may be overemphasized. for literary ebooks, the time window for attaining profitability seems longer, especially if the only expenditure by the DIY author is time. So you may not really need the “media blitz” that is required to stand out in current pbook markets.
    Then again, DIY authors may not be a good position to have a realistic expectation of what kind of return of investment they could see (if the only manuscript they deal with is their own).

  12. Steven Garbeil says:

    I came across this thread by accident, and I am very impressed. Mr. Nagle’s insightful comments as well as Mr. O’Reilly and Mr. McCoy, are well thought out and to the point.
    I would like to add a comment about the quality of the material. I have been buying books since I was a little boy (very long time ago), and the paperback science fiction mass market editions from the 60’s hold up fairly well to the test of time, but they do not get the use that my copy of ‘Learning Emacs” from Mr. O’Reilly’s place does.
    Reference books get used a LOT! The publishers know this, and therefore they spend many more hours on formatting, typesetting, error correction etc.
    Typeset is an art arcane, and the folks who do it for a living deserve every penny, as well as editors, proofers and all the other folks who check a manuscript and format it ready for print.
    A work of fiction gets read on the average of once (Tolkein excepted of course 🙂 ), and therefore can have much lower standards in quality, and the paper seems the least important, as long as it doesn’t fall apart in my hands during the read.
    A reference work on the other hand takes a tremendous beating. My Calculus books are battered and torn, and my computer references dog-eared and tattered, but they are still in the ring.
    Thank you Mr. O’Reilly!