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Clear and present danger

The consumer not content is king of the digital revolution. But what does that mean to book publishers? As Richard Withey, global director of interactive media at Independent News & Media warns, it means an end to their comfort zone.

You are not going to like what you are about to read, so I’ll get my retaliation in first. You probably need to reduce the average age of the members of your board by about 20 years – and add at least a sprinkling of computer genius. Now I’ll tell you why.

For a couple of centuries at least, educated men and women with a literary bent have been able to make a comfortable and at times exciting living from the business of getting words on paper. Because the capital costs have been relatively high (especially in newspapers, with their high production and distribution costs) newcomers have been prevented from getting much of a foothold except by conventional means (for example, buying up the opposition’s presses).

Innovation has tended to come from within publishing sectors, to be assimilated over relatively long periods, in digital terms at least, and to be driven by the pursuit of cost and scale efficiencies, which is why, before the digital revolution, the biggest thing to hit book publishing for a century was the paperback.

Many visitors to The London Book Fair work in publishing because they have an affinity with its inherited furniture – all the accoutrements of publishing, from the close relationships with authors to the business of galleys, proofreading, jacket design, marketing and distribution. They all form part of a well-understood process that feels like a continuum from Caxton.

The sometimes violent changes that took place in newspaper production in the 1980s, with the move to direct-entry systems, had little or no effect on business models other than to reduce manpower costs – the only business discontinuity of News International’s move to Wapping was the loss of one edition of the Sunday Times. However, with the arrival of the web the move to digital has begun to involve consumers, and newspapers faced changes of seismic proportions that provide lessons for book publishers.

The high ‘comfort factor’ in publishing, be it trade or STM, presents a clear and present danger to your margins and your business. Publishers in every sector have been blindsided by still attractive margins and a sufficient level of consolidation, which disguise deep-seated threats. So far, most publishing sectors have operated in a virtuous circle that worked in the interests of all involved, and, just as in music publishing, that circle generally did not include consumers.

Now consumers have the means to call the shots. For trade book publishers, the disruptive technologies addressed by other sectors in recent years are only now arriving at their doorstep. Publishers who commission, edit, publish and distribute fixed packages of information have before them vivid examples of the coming revolution – and the dangers these present to their business models – in an industry that enjoyed the same virtuous circle: the music business.

In the five years the iPod has existed, Apple has gained almost 90 per cent of the US market for legal music downloads. Moreover, it looks as though the battle for digital music distribution will be fought against Microsoft’s Zune, not traditional music distributors. The secret of the iPod’s success was not just to be first on the scene with a cool device, but to closely synthesise the technology of its device with the iTunes Store and its content. In the mind of the consumer, they are synonymous, and they work seamlessly. So what’s digital music got to do with book publishing? Digital music developments, indeed most disruptive developments over recent years, have centred on new formats and distribution. The retail book trade should not be surprised. Amazon was one of the first household names on the web, with massive consumer reach, its system of personal user recommendation widely copied and the effective precursor of Google, blogs and wikis. It could be argued that internet trading of non-virtual commodities started with
books, but the book industry has, largely, not participated.

Similarly, Audible,which started trading soon after Amazon, pioneered the downloading of audible texts and became the precursor to the iPod. Partly as a result of these early developments in book distribution through the web, which introduced consumers to online purchasing, technology now influences consumer behaviour faster and more deeply than ever. If you don’t believe this same revolution has happened in publishing, and that it is also consumer-led, you soon will. Music and film businesses have already realised that technology enables consumers to set the distribution agenda, and have responded with acquisitions, licensing deals and technology platforms that enable them to take part. Universal, Sony BMG and Warner all took minority stakes in YouTube as part of their licensing deals, shortly before Google acquired the company. This close integration of technology delivery platforms is a model that publishers must follow. Content may remain king, but if it turns up for the battle without a horse it will end up like Richard III on Bosworth Field.

I can almost hear you respond: ‘We heard all this in 1999, and it didn’t have any impact on us then. Amazon didn’t turn its first full-year profit until 2003.’ That is not what Rupert Murdoch thinks. Speaking at the American Society of Editors in April 2005 he warned: ‘Unless we awaken to these changes, which are quite different to those of five or six years ago, we will, as an industry, be relegated to the status of also-rans.’

What Mr Murdoch and his advisers had spotted and appear to have successfully engaged in through the acquisition of MySpace is a wholly new arrival: the phenomenon of Web 2.0 – the growth of social networks and their impact on consumer behaviour and expectations. This has led to a new kind of provider of news and information, such as OhMyNews, and new conversation platforms such as Bebo, and Facebook. A glance at the speaker list for the Web 2.0 conference reveals a world populated by young arrivistes, with little or no connection to traditional publishing. Only a sprinkling of media publishers were on the platform (such as Arthur Sulzberger Jr of the New York Times) and I found only one speaker with a connection to book publishing, Tim O’Reilly, one of the founding entrepreneurs of the web and co-producer of the Web 2.0 conference. This means book publishers are not connecting in a meaningful way with the social network world of blogs, citizen journalism and collaborative publishing opportunities, such as wikis and XML-based distribution technologies like RSS.

Among the core lessons learned by newspapers are that changes in distribution are brought about by digital, and these have an effect on the business model. Newspaper publishers spent the first years of the web worrying about the technological impact: how to digitise content and make it sufficiently different for this new medium. But it turns out that the biggest digital impact is on audience, distribution formats and, consequently, business models, which almost overnight (with the significant help of Google) have become transactional, incremental and temporary in nature.

Margins are suffering and realisation has dawned that there are new kinds of consumers out there with different expectations about how they want to consume and pay for information. Consumer publishers are beginning to respond. Mr Murdoch’s closely observed investment in social networks looks like paying off handsomely, because it focused on audience rather than technology. In a recent Deloitte & Touche survey (Deloitte/AOP, Turn The Page, 2006) of 30 digital decision makers in consumer publishing houses, technology came a very poor fourth in a ranking of the top five drivers for digital success, behind marketing and business model imperatives.

‘Unless we awaken to these changes, which are quite different to those of five or six years ago, we will, as an industry, be relegated to the status of also-rans’ Rupert Murdoch, owner News Corporation speaking at the American Society of Newspaper Editors.