I passed by Barnes & Nobles in Union Square a couple of days ago and had a strange, counter-intuitive, feeling: I was jealous of people without Kindles. They actually had a reason to go into what used to be one of my favorites stores. As for me, I reluctantly realized I haven’t been in a book store for over 6 months.
I have been bearish about the book industry for years, although I haven’t written much about it. So, let me say that loud and clear: The book eco-system is in a state equivalent to a dead tree: it is still standing in the forest, and from the outside all seems ok, yet one day, without any pre-warning, it tumbles over and falls into the ground.
And the industry is being killed by a special kind of book: the digital one.
Amazon’s Kindle was the first reading device to become mainstream, with numerous titles and an easy one-click purchase process. It made buying digital book a sweet instant experience. It is now their top selling product ever, as is Barnes and Noble’s recent entry to the e-reader market, the Nook.
So, who is getting killed and why?
First and foremost, the book stores.
- Digital books are cheaper. It’s the same product without printing costs, shipping, inventory, store employees and real estate costs.
- People are buying less books, for a couple of reasons:
- They read less. When you spend an hour a day on Facebook, and take your iPhone to the bathroom (yes, I know, nasty habit we are all guilty of) instead of a book, you are bound to read less books.
- They will stop buying books as gifts (which is a strong driver for book sales). Surprised? When was the last time you bought a CD for a friend? In a world of digital content, a digital gift just isn’t the same anymore. You’ll have to find better gift ideas in the upcoming years.
- It’s just plain easier to buy a digital book. It’s always in stock and downloads instantly. You won’t meet any cute girls (or guys) in the bookstore anymore, but they are already in the park, listening to their iPods and reading books on their Kindle.
I also noticed a change in my behavior: I used to buy more books than I could read, as I was overly eager in the bookstore. I had stacks of books next to my bed (I called is my guilt stack). Not anymore. As I can now buy any book I want, whenever I want, I simply buy less. I know the book will be there, waiting for me in Amazon’s repository, and there is no rush in buying it. I think my book purchases are down by almost 50%.
It has been a few days since I wrote this post (it was waiting in my queue for some fine-tuning), and I read the grim news of America’s 2nd largest bookseller Border’s cash crisis. It’s sales in Q3 fell nearly 18% from a year earlier, and it lost $74M dollars last quarter.
(End of update)
Border’s stock lost about 95% of it’s value in the last five years.
Barnes & Nobles is trading at $14.15/share, similar to its 1993 IPO price, down a 65% from it’s price 5 years ago, and the market expects it to fall much further, with short-sellers consisting a whopping 49.4% of float.
And if at stock prices we are, the following chart shows how a little online bookseller from the nineties, called Amazon, has been doing compared to the the above two old-school playesr: a 10,000% increase in value. Wow. Again: a 10,000% increase in value. If I only invested my 1997 savings of $15,000 in Amazon’s stock, I could have been flying business class now, sipping champagne with all the bankers.
Back to the eco-system:
Second come the publishers. The publishers have an important role in the eco-system: the filter manuscripts, employ editors who work with authors on improving authors books, and most important: they are marketing machines. Strong publishers have better placement in bookstores (a critical element for marketing new books) have more marketing dollars and have a better chance of creating a buzz for the books they select to promote. The problem: only a couple of authors get the royal publisher treatment (usually based on their revenue potential and previous success). The rest are left to promote their books pretty much on their own. In a digital world, the publishers strongest asset – it’s relationship with the bookstores – isn’t needed anymore. So why would a successful author need to share his revenues with a publisher? He can self-publish his book digitally and keep a significantly larger chunk of the revenues.
My prediction: most publishers will go out of business within the next 5-10 years.
There are six large publishers in New York, 3-400 medium-size publishers, 86,000 small self/publishers. The large six publishers revenues accounted for 45% of the ~ $40B industry (in the US).
A publisher must sell about 10,000 books to break even. The average book sells 500 copies.
The vast majority of book authors do not make a living of writing books anyhow. Unless they live with their parents, book writing should be considered as their hobby. These authors are actually going to benefit from the rise of the e-book market, as they don’t need to shop for publishers and can distribute their books without paying high printing cost or fight for shelf placement.My prediction is that the revenues of professional authors will decrease significantly without the publishers marketing machines and premium bookstore placements. However, their profits may not be as adversely affected once they cut the middle man (i.e., the publishers).
Book editors will have a hard time making a living. As their pay checks are received from the publishers, lower publisher revenues will yield in lower pay for editors, down to a point where they will have to switch an industry. This will of course have a direct averse impact on book quality.
The biggest threat to the authors is content theft. Today, e-readers are making a good job with their DRM (digital rights management that prevents illegal copying of digital content), but books are already being ripped and republished as DRM-free PDFs. It’s going to be a fierce battle, and we all know who is going to win. Unlike music bands though, which sell less albums yet can still make a living from live performances, authors don’t have this luxury: seeing a book author live on stage is somehow less exciting as watching U2 performing in front of a full stadium.
With authors less incentivized monetarily to write books, we’ll have a smaller selection of good new books. I am now reading Andrew Sorkin‘s Too Big to Fail, and cannot imagine him doing such an extraordinary research and writing work as a non-profit. After all, one has to pay the monthly bills.
There is much more to write about the book eco-system, but this post is getting to be too long. If you read so far, I’m impressed!
Finally, a short list of book qualities the e-reader can’t replace:
1. The smell of an old book and the fun of reading of its yellowish pages.
2. The beautiful covers of some books.
3. The excitement of having all your books lined up like solders in your library.
4. They are less fragile. I dropped my Kindle by mistake last month in Puerto Rico, and my heart lost a bit. If it would have broken, I would be stuck without anything to read. Books don’t break.
HAPPY NEW YEAR!
[Update Jan 3, 2011]
Just came across this post that has some interesting statistics: Amazon sells 6 Kindle books for every 10 physical books; sales of Kindle books already surpassed sales of Hardcover books; for it’s top 10 best-selling books, it sells 2 e-books for each physical book.