The EBook Wars

I was away last week and so am late to the party when it comes to commenting on the fight between Amazon and book publishers. Here are a couple of observations.

First, I was surprised it took so long for this fight to start.  It is a great example of what I call “fighting over the digital pie."  What was most fascinating about it is that none of the publishers even made a mention of how much authors would receive.  At present, this is all about trying to support the existing cost structure of publishers with strong parallels to the fight between networks and cable.

Second, there has been some discussion around what it actually costs to put out a book today and how that might change with ebooks.  The debate seems to be largely between two extremes: either that ebooks should be much much cheaper (often unsubstantiated) or that the only cost to actually go away is PP&B (paper, printing & binding) which makes up only a small portion of the total cost.  Looking at several actual breakdowns of costs, not surprisingly the truth is likely to be somewhere in-between.  Pre-production costs will remain for ebooks and depending on the number of formats and additional markup could actually go up a bit.  But marketing costs are up for grabs as authors can start to build their own audience via blogging and books can be discovered via social networks.  Wholesalers should go away and retail margins should be highly compressed.  Publishers’ cut too is likely to get compressed as their value-added diminishes in a world where authors can be directly in touch with readers.  Taken together, I believe that at least 50% of the existing cost basis of the book business could be obliterated for ebooks.

Third, even with a reduced cost basis, if ebooks are to be traditionally priced (which is to say the same price for each copy), they need to succeed with DRM, something that the music industry failed at.  Personally, I abhor DRM because of its implications for computing devices (closed, not hackable, not trust worthy).  But I am afraid that for the first time we are getting close to highly DRM’d general purpose devices succeeding in a mass market due to their superior design and user experience.  It would be quite a Faustian bargain for all of us to accept DRM in the name of convenience and design.  More on that in a separate post – until then I suggest reading Alex Payne’s post on the iPad.

Fourth, nobody seemed to suggest that charging the same price for a book to each reader is an antiquated idea.  A literal adaptation of the historic price discrimination model of starting with a hardcover and then moving through softcover to mass market paperback shows a lack of imagination.  There are many better and more effective ways of capturing consumer surplus for digital goods.  Think Farmville!

Fifth and finally, throughout most of the discussion there appears a presumption by publishers and authors that there is some kind of god-given right, or short of that a cultural mandate, for them to be able to cover their costs.  That view seems to ignore most of the history of publishing during which great works were authored but very few people made a living off it.  I am convinced that we will see great books published in the future completely independent of the business model (or lack thereof) of the publishing industry and the income from book sales to authors.  Whether it is mico-patronage a la Kickstarter, or income from a day job a la Rowling during the early Harry Potter work.

I am hopeful that in the end we will make it to a DRM-free ebook future with a new renaissance of content but for now it looks like we will have to watch the titans battle it out.