Today's cumbersome publishing process from authors to publishers to printers to booksellers to consumers is becoming more efficient as readership changes from paper-based media to digital-based media. The incentive of greater access to information through Amazon, Apple and soon Google at reduced prices is forcing the convergence of old and new media business models.
Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set a fifty percent of the cover price. Authors are paid royalties at a rate of about fifteen percent of the cover price. On a twenty-six-dollar book, the publisher receives thirteen dollars, out of which it pays all the costs of making the book. The author gets $3.90 in royalties. Bookstores return about forty percent of the hardcovers they buy; this accounts for $5.20 per book. Another $3 goes to overhead costs and the price of producing and shipping the book--leaving, in the best case, about a dollar of profit per book.
According to the American Booksellers Association, the number of independent booksellers has declined from 3,250 to 1,400 since 1999; independents now represent just ten percent of store sales. Chains like Barnes & Noble and Borders account for thirty percent of the market, and super-stores like Target and Wal-Mart, along with clubs like Costco, account for forty-five percent, though they typically carry far fewer titles.
A best-selling hardcover that is seventeen dollars at Amazon.com commonly sells for as much as twenty-eight dollars at a bookstore. And now, ebooks call this physical storefront system into question. The Internet makes everything available and cheaper. If there was no physical book, what would determine the price?
Amazon generates more than half of its revenues from products other than books. Many publishers believe that Amazon looks upon books as just another commodity to sell as cheaply as possible, and that it sees publishers as dispensable. "Don't forget," the chief of a publishing house said, "Bezos has declared that the physical book and bookstores are dead."
"Our vision," Jeff Bezos, CEO of Amazon, has said many times, is to be "the world's most customer-centric company." Part of the appeal to consumers is low prices; Amazon sells many books, particularly best-sellers, for little more than the wholesale price, or even at a loss. In the long term, Bezos believes lower prices expand Amazon's market share, its stock price and its profits.
Bezos has devised a more efficient way to buy books. And, with the arrival of electronic books, he began to think of ways to replace paper entirely. Ebooks had undeniable advantages for publishers. There would be no more returns, warehouse fees, printing expenses or shipping costs. The obstacle was that no one knew how ebooks should be read.
Late in 2007, Amazon released the Kindle, which presented a decent simulacrum of printed pages and could wirelessly download a book in sixty seconds. There are now an estimated three million Kindles in use, and Amazon lists more than four hundred and fifty thousand ebooks. If the same book is available in paper and paperless form, Amazon says, forty percent of its customers order the electronic version. Russ Grandinetti, the Amazon vice-president, says the Kindle has boosted book sales over all. "On average," he says, Kindle users "buy 3.1 times as many books as they did twelve months ago."
In Grandinetti's view, book publishers are making the same mistake the railroad companies made more than a century ago: thinking they were in the train business rather than in the transportation business. To thrive, he believes, publishers have to reimagine the book as multimedia entertainment. "The real competition here is not, in our view, between the hardcover book and the ebook," he says. "TV, movies, Web browsing, video games are all competing for people's valuable time. And if the book doesn't compete, we think that over time the industry will suffer. Look at the price points of digital goods in other media. I read a newspaper this morning online, and it didn't cost me anything. In a lot or respects, teaching a customer to pay ten dollars for a digital book is a great accomplishment."
Today, the publishing industry is desperate for a savior. Between 2002 and 2008, annual sales have grown just 1.6 percent, and profit margins are shrinking. Like other struggling businesses, publishers have slashed expenditures, laid off editors and publicists and are taking fewer chances on unknown writers. The industry's great hope is that the Apple iPad will bring electronic books to the masses--and help make them profitable. Ebooks are booming. Although they account for only an estimated three to five percent of the market, their sales increased a hundred and seventy-seven percent in 2009, and it is projected that they would eventually account for between twenty-five and fifty percent of all books sold.
Tim O'Reilly, the founder and CEO of O'Reilly Media, thinks the old publishers' business model is fundamentally flawed. He has found that the lower the price the more books he sells. O'Reillys' company sells ebooks as apps for Apple's iPhone for $4.95, and he says that they generate "a lot more volume" and profit than his company loses in hardcover sales.
In the long term, Apple's iTunes have proven profitablity expansion in music and plan to do the same in ebooks and emagazines with their new iPad. Amazon has gained a huge market share with its Kindle ereader and last year accounted for an estimated eighty percent of all electronic-book sales. Now, Amazon has launched an app that allows it to sell ebooks on the iPad. Even Google will open an online ebooks store, call Google Editions, by the middle of this year. No matter where consumers buy books, their perception is that electronic media should cost less. That perception is the force behind making Amazon, Apple and Google the emerging leaders in the book selling marketplace.
Source: THE NEW YORKER, April 26, 2010