Tag Archives: business models

Discounts and risk in the ebooks market

Remember that post from Evan Schnittman a few weeks back – the one titled “Why ebooks must fail”? Well, he promised to start discussing potentially workable models for the ebooks business, and that’s exactly what he’s now doing.

The first follow-up is titled “Discounts Must Align to Risks”; it looks at the current deep-discounting procedures that prevail in the dead-tree books business as it stands (which share risk between publishers and retailers), and presents three possible ways for a similar system to be applied to the otherwise intangible ebook:

The following ideas, if massaged and improved on by enough smart people, may help evolve trade ebook selling into a practice that wisely shares the risk and provides stimulus and margins for all involved. These models are not new – they are culled from today’s trade retail models. With that in mind, here are three discount models for discussion.

The first is called On Consignment, and it would operate exactly as it does today, except with shorter, perhaps dramatically shorter, discounts. Discounts should align to risk and there is very little risk being shared in this model.

The second model is called Advance Purchase (non-Returnable). Rather than rely on the timing of sell-through at the reseller, publishers are paid for ebook sales in advance. So, resellers that wish to carry an ebook of a publisher can order it as they currently do, or they can purchase the number of “sales” they believe they would make in a given period of time, and pay for this upfront at a greater discount. For this model, a retailer should receive discounts similar to those given on non-refundable sales in print.

The third model is called Refund for Credit (Returnable). Essentially it is a “returns” model for the ebook market. It’s designed to allow retailers to take risks on a larger pool of titles, as they can receive credit by “returning” some of the advance “sales.” This model helps retailers get a better discount for a title than they would if they order On Consignment, but less than the Advance Purchase model. It also helps publishers, as there would be greater incentive to pre-pay for sales for a wider variety of titles, enhancing the cash flow. Again, this model should employ discounts similar to those available for returnable sales in print.

These ideas are probably old hat to industry insiders, but for the rest of us peering in through the shop window it’s an interesting insight into the way the industry works, and the ways it might adapt to change in the near future.

Schittman makes the point that his blogging is not “sanctioned by, endorsed by, or even remotely associated with” his employers at OUP, but one wonders how many people on the inside – of the OUP, and publishing in general – are keen for this discussion to be dragged into the open, and how many would rather sit on the lid of Pandora’s box.

Escaping the downward spiral of newspapers

printing pressYou know what they say about rats leaving sinking ships… but then again, you know what they say about rats being survivors. The sinking ship of newspapers is seeing a few of her passengers make a beeline for the portholes; now The Guardian has followed the lead of the New York Times and is opening itself up to the web with APIs rather than shutting the doors. [image by Baltimore City Paper, ironically enough]

As TechDirt points out, many Guardian staff are quite keen for competitors like the NYT to (as they keep threatening) start charging for access to content – because it would hand Teh Grauniad a naked advantage for no effort on their part.

That said, the NYT isn’t sitting on its hands:

“Paper is dying, but it’s just a device,” Bilton told Wired.com […] “Replacing it with pixels is a better experience.”

Bilton, a youthful technologist who programs mashups in his free time, is charged with inventing the future for the Gray Lady in an era of troubled times for newspapers. Fewer people are subscribing, classified ads are decamping for the internet and online revenues aren’t making up for lost print ads.

But Bilton envisions a world where news is freed from the confines of newsprint and becomes better.

It’s whether the shareholders and board of directors agree with him that counts, of course.

Also via TechDirt we see that Slate are using crowdsourced reportage (in this case photojournalism of Depression2.0, or whatever you prefer to call it) to lower costs and improve audience engagement at the same time. Contrary to the teeth-gnashing of industry pundits, newspapers aren’t going to die… but it’s clear the herd is going to be culled pretty seriously as it passes through the needle’s eye of technological and sociological pressure.

Unsurprisingly, younger members of the newpaper business believe that newspapers could save themselves by learning from the Silicon Valley approach – by embracing technology, change and way-out ideas rather than suppressing or ignoring them. They’d better move quickly, though.

Stephen King, Amazon’s Kindle and the death of publishing as we know it

Amazon Kindle ebook readerWe’ve been mentioning ebooks a lot lately here at Futurismic, as the big publishing companies have suddenly woken up to the fact that the 21st Century has well and truly arrived… and isn’t going to go away.

One can look at the ebook as a way for the publishers to move away from the increasingly expensive and wasteful dead-tree model and reinvigorate themselves in the process. But there is a flipside, of course, as pointed out by The Guardian‘s Naomi Alderman:

if ebook readers took off, big-name authors such as [Stephen] King may be able to move to self-publishing. And that could mean the end of our current publishing system. Because of the way the publishing business is structured, big-name authors who sell millions of books are, in effect, supporting the industry. I’ve heard various estimates of the percentage of books that actually turn a profit. One agent I spoke to said 95% of published books make a loss. Others have put the figure lower. Either way, everyone agrees that a large majority of profits come from a small minority of authors.

If King, Dan Brown, JK Rowling and Patricia Cornwell were all to decide to move to selling their books online themselves, rather than going through a publisher, they’d certainly benefit financially. Typically, an author only receives about £1 for every copy of their book sold. Rather than relying on a publisher, big-name authors could afford to simply employ an editor, a PR person, a typesetter and a designer. They could price their books at only £2 or £3 and still make much more money than under the current system.

There’s obviously a few flaws in Alderman’s reasoning here: first of all she’s discounting the nurturing aspect of the publishing industry, its ability to bring the next generation of Kings, Cornwells and (universe forfend) Browns up through the ranks; secondly, a shift to ebooks should see the loss margins on a title by a smaller author drop considerably, as there’ll be no massive pile of unsold books to pulp (not to mention much smaller distribution costs).

But what is plain is that book publishing needs to learn in adavance from the messy lessons that the record companies are still struggling with now. A look at the music industry blogs will show you that Alderman’s speculation above is an almost perfect mirror of what’s already happening with middle-band musicians as they (and their fanbase) realise the labels are primarily concerned with wringing the last few drops of profit out of a dead business model, and decide to leave them behind.

As has been pointed out before, the principle difference between the publishers and the record labels is that publishers haven’t yet been forced to innovate by the pressures of piracy. It looks as if they’d be wise to jump ship and start swimming for shore right now, rather than waiting to be made to walk the plank. [Image coutesy Wikimedia Commons]