July 2010


The next chapter

By Malcolm Knox
Inside the Amazon warehouse, Fernley, Nervada, 2003. © Macduff Everton/Corbis
Inside the Amazon warehouse, Fernley, Nervada, 2003. © Macduff Everton/Corbis

Tom Gilliatt thought he was quick on the uptake of Amazon’s Kindle – until he took one home. The non-fiction publisher at Pan Macmillan had his company e-reader, one of the first in Australia, taken away by his 11-year-old son, Freddy. “I was going to explain how to use it, but before I could say anything he was already using it,” Gilliatt says. “While I had to be given instructions, for him it was totally natural, even though he’d never seen one. That was when it struck me that this, to him, is a book.”

The scene is being played out across Australia, parents unable to get access to their new iPads, Kindles or Kobos because the digital natives they have spawned won’t let them. Witnessing Freddy Gilliatt or my own children handling an e-reader, I see that the moment for the sentimental argument for paper – p-books! – has, in a profound way, passed. My children may have some of the Pavlovian pleasure-connection I have with print, but it has already been superseded for them by the serotonin release that occurs when they hold an electronic device. When I am dust and my book collection has been sold, given away to some eccentric antiquarian or compacted for recycling, reading on electronic devices will be commonplace. Print books will never die completely – there is already a growing market for the limited-edition, deckle-edged, cloth-bound, handset p-book – but in a fundamental sense the paper book is, like me, speeding towards obsolescence.

American e-book sales rose 177% last year and, while their share of the Australian market is currently below 5%, the Australian Booksellers Association expects e-books to account for 20–25% of our market by 2015. Carolyn Reidy, the CEO of the American publisher Simon & Schuster, said at the Sydney Writers’ Festival: “2010 is the tipping-point year in digital publishing … If the digital business keeps growing as it has in the last year or two, I believe e-books could represent as much as 25% of our revenue within 5 years.”

In February, the federal government set up the Book Industry Strategy Group to consider the digital environment. Notwithstanding this and other initiatives taken up by the industry, however, the recent excitement about digital publishing has tended to propagate a myth that Australian publishers are less than e-ready. The truth is that for many in the Australian publishing industry, the digital age is already old news. Academic publishers, for example, have been digitising content for more than a decade. According to Macmillan Australia’s digital publisher, Victoria Nash, the company’s academic publishing changed from 95% print and 5% digital to the reverse of these percentages in just five years.

Some Australian e-publishing ventures foundered not because they were too late for the wave, but too early. Macmillan and Dymocks attempted an electronic bookstore partnership three years ago but it stuttered, due to a lack of reading devices and, says Nash, consumers not understanding the restrictions on the way they could use the books, particularly in terms of printing.

E-book reading devices and the online presence of books are not new phenomena. More than ten years ago, the market was concerned by the slow take-up of Rocket e-books and Softbooks, which were electronic readers first released in 1998. And, of course, there is Project Gutenberg, the oldest public digital library, which set about making classic, out-of-copyright literature available online. In 2000, the Australian Society of Authors was putting Australian literature online as part of its federally funded “Ozauthors” project. Ozauthors withered, a case of the supplier of a product being too far ahead of the market. Author Libby Gleeson, who was a director of Ozauthors, notes that “if you set it up now, it could be just what everyone’s crying out for – more Australian content.”

Initially, books’ main presence in the digital world was in the form of online bookselling and marketing. After Jeff Bezos founded Amazon in 1994, Australian chains such as Dymocks were quick to enter the digital market. Authors have long used blogs and websites to market their books, and blogs have frequently been turned into books.

The big change, when trade publishers migrated into the digital realm, came from the fusion of a vast online retail catalogue with a device people wanted. Amazon’s Kindle, released in America in 2007 and Australia in 2009, finally aligned the device with its market; it now accounts for 80% of American e-book sales.

REDgroup Retail, which owns Borders’ Australian, New Zealand and Singaporean operations, launched its Kobo e-reader in May 2010. Like the Kindle, the Kobo is a single-function reading device linked to a retailer. Purchasing books is easy and instantaneous, and features of these devices, such as “e-ink”, which is easier on the eyes because of magnetised type rather than a backlit screen, bear the advantages of a customised device.

Then came Apple’s iPad. At a Sydney Writers’ Festival session in which panellists discussed their having read My Brilliant Career on each of a Kindle, an iPad and an iPhone, the audience was asked what they owned. Kindles prevailed, but when asked who intended to buy an iPad, a forest of hands went up. After a period of intense anticipation, the iPad was launched in Australia on 28 May this year; newspaper and magazine publishers were ready, issuing applications for simultaneous release with the device.

As a convergent device, that is, one that furnishes many things other than books, the iPad has understandable advantages. Apple also already has 125 million customer credit-card accounts that have been established through its iTunes store. At time of writing, however, Apple was still negotiating agreements with publishers on what books will be sold from its iBooks store.

The Australian author and blogger James Bradley (city?oftongues.com) read Miles Franklin on a Kindle and obtained an iPad two days after its Australian release. He says the iPad “is a beautiful device, which, interestingly, [in its e-book apps] still simulates turning a page, which seems like putting curtains on a TV screen to start a show. There’s no reason you shouldn’t be reading continuous text scrolling down until the end of the book, so it’s interesting that they want to give us that comfort factor, to make the technology seem neutral.”

The next significant player – and not a device but a platform – is Google Editions, the massive book-digitising project expected to arrive in July. With more than 12 million titles already amassed in its catalogue, Google Editions will be “device agnostic”, which means its content will be accessible on any device that supports a web browser. Consumers will need a Gmail account and will have to make their purchases through Google Checkout, although Google is not planning on entering the device market.

For Australian publishers, there is no dividing line between threat and opportunity when it comes to e-books. As Henry Rosenbloom, the owner of Scribe Publications, has said: “While there’s no clear way forward, we’ve come to the conclusion that we know as little about it as anyone else does, so we might as well learn by doing.”

Australian publishers Macmillan and Allen & Unwin have employed digital publishers for several years to lay the ground for their digital businesses. Even with their extensive preparation, however, Allen & Unwin’s Elizabeth Weiss admits that “it’s one big mad scramble with publishers, agents and retailers all trying to get into position but nobody being quite sure what the best position is. It’s nothing less than a cultural and industrial revolution.”

There has been a great deal of speculation about the potential for e-books to change the experience of reading and writing. The micro-fiction and the poem might be resuscitated because of their neat fit with a short train trip and an iPad. Multimedia experiences in which the written word merges with video, voice and animation, may be shaped by the new technology. Simon & Schuster has been marketing what it terms the “Vook”, a hybrid of text and video. The Australian children’s author Graham Nunn has used his expertise in HTML to publish his books without a single tree being felled. The British author Neal Stephenson has started an online collaborative novel, The Mongoliad. Who knows where it will lead? To new literary forms, or up the same cul-de-sac as the choose-your-own-ending and flip-books of the 1970s?

As a later adopter than the US, Australia may have benefited from having seen the clash between American publishers and Amazon. Amazon used its monopoly on the Kindle to discount publishers’ recommended e-book prices of around US$13 to US$9.99. Macmillan led a counter-offensive, threatening to withdraw its books from Amazon. It was the e-tailer who blinked – for the time being at least. Amazon’s loss-leader model (heavily discounting books to obtain market share) now appears to be in transition as the industry moves towards an agency model, in which the online retailer accepts a commission, generally around 30%, of an agreed price.

But retailers are still able to discount e-books at their discretion, taking the per-sale hit themselves. Weiss says that e-books on Kobo sold at an average of 58–78% of the recommended retail price during the first month of its operation. “There’s a bit of a price war going on between Kobo (Borders) and Kindle (Amazon),” she says. In the Australian market, Borders has one local advantage: it has been more proactive than Amazon in securing deals with Australian publishers.

Pricing, for now, is the most significant unresolved aspect of e-publishing. Nash says, “pricing will remain fluid for some time … and I can’t see it evening out as music has with iTunes,” where prices have settled at around US$1.69 per song and US$16.99 per album. “E-books will evolve with a lot more differentiation on price.” Since starting its e-book business in 2007, Macmillan has aligned its e-book prices with its p-book prices in an attempt to avoid cannibalising the existing business. In response to weak demand, however, last month it discounted e-books by 20%. “The psychology of the market is difficult,” Nash says, “because the costs of making e-books far outweigh the money we make on them, but unfortunately the consumer thinks all you need to do to make an e-book is right-click and save.” According to Weiss: “It’s a bit Wild West out there on price points. My guess is that it will settle at around $15 for a lot of books, but there is going to be a lot of action first.”

The fluidity of pricing prompts deeper questions about the value of books – and art, and knowledge. As Stephen Page, the head of Faber and Faber, told Australian publishers in March: “The certainties of price in the print world … have underpinned confidence in the creation of value for books. In the digital age these notions of value are yet to be established in relation to written works.”

For many consumers, says Michael Lijic of the Australian Copyright Agency Limited (CAL), “if you’re reading it on a screen then it must be free.” It’s a mindset that goes beyond books, he says, but is damaging to publishers because of the perception that they are now only selling a digital file, without the tangible cover art, packaging, paper and printing that gives a p-book its heft.

The mindset is quantitatively wrong: the costs of digitisation, file conversion and file management are high, and editors, proofreaders, publicists, publishing managers – oh yes, and authors – still have to be paid whether the book is ‘e’ or ‘p’. One reason e-books were so slow to take hold was that publishers could not make money with the addition of the estimated $400 per title it cost them to digitise.

But the perception prevails and therefore “piracy is the biggest worry for the creator,” says Lijic. “You can expect that nationally, the more e-books that come onto the market, the greater the upswing in piracy will be.” Weiss says that pirated Allen & Unwin titles are commonly found on file-sharing websites, and that even the most rigorous Digital Rights Management (DRM) regimes are not watertight.

If the digital-means-free crowd is a main foe, book publishers are lucky that the music industry has already fought them. When the free-for-all of the Napster years subsided around 2001, and Apple’s iTunes became the dominant music retailer in 2002, many lessons were learnt. One grasped by the industry was that the device – in that case the iPod – could not only drive digital sales, but also limit the incentive to pirate music. Another was that an effective DRM system, in particular the technical codes stopping consumers from copying and sharing files, could complement the device. Many also realised that an acceptable pricepoint is the best disincentive for pirates. Book publishers now think they have the devices and they are developing DRM, but price will remain the best weapon against piracy. As Bradley argues: “If publishers try to sell e-books for $35 so as not to cannibalise their print sales, people will go all-out to pirate them.”

The comparison with music has its limits, though. Consumers are content to pay a couple of dollars per song in order to create their own playlists, but, as Weiss points out, “The basic unit of music consumption is the song, and the album is an artificial creation. Digital has broken up that artificiality. But with books, aside from textbooks and some niches, such as Lonely Planet guides, the basic unit is the whole book. A lot has been said about granularisation and bespoke content, but there’s not the demand for it yet.” In other words, a low pricepoint for partial content will not be an effective disincentive to piracy; there is little point offering e-books for $1.69 per chapter.

CAL, Australia’s collecting society for authors and publishers whose work is copied, is concerned with making sure digital piracy doesn’t (further) impoverish creators. Lijic says the organisation has been negotiating licences with Google and Apple, and has sought a role in administering Google’s payments to Australian creators. Lijic envisages the agency partnering with Google if the giant decides to digitise Australian libraries: “There are potentially 3 million Australian books Google can digitise. That can translate to a lot of eyeballs or a lot of revenue for Google, which would mean legitimate revenue opportunities for Australian creators.”

What price consumers will stand will also determine the fate of the middlemen. If publishers and retailers cannot both find a profitable position in the digital world, one – or the functions of one – will be disintermediated. Retailers face being seen as the weakest link in the chain but few publishers want to enter the selling business.

Weiss says, “The author is the brand, and has always been the brand. People don’t buy a book because it’s an Allen & Unwin book, or because it’s a Dymocks book. They buy it because of the author.” However, she also points out, “It’s not that hard to write something and whack it online as an e-book. The role of the publisher in providing editorial services is increasingly vital.” The whipped dog of publishing, the editor, may again find herself the most important person in the company. Likewise, old-fashioned hand-selling, whether in chain or independent outlets, may be revitalised in the digital environment, with trusted individual booksellers becoming important brands online, just as trusted book bloggers have. “I think there’s a larger transformation going on here,” Bradley says. “The author won’t be taking material to a publisher, selling it to them and seeing it passed down this line of publisher, distributor, retailer, reader. Instead you can see partnership developing.”

Rather than putting up posters and dump-bins in bookstores, publishers in this environment are linking authors with niche online communities. As well as getting their authors reviewed in newspapers, publishers are sending out video trailers and digital samples to readers who have already identified themselves through their previous purchases.

Publishers are looking at payment alternatives to the dominant current models. Academic publishers have for years been using subscription models, where a consumer pays for access to all works provided by the vendor for a period of time or within a set number of uses. One business, called Books 24-7 Online, does just that, offering a corporate licence to clients who then nominate a certain number of users and the period of time they want access for. The copyright owner is then paid according to how many pages are viewed. Questia is a subscription-based e-library service, where students pay a monthly rate for complete access to the site. Advertising around, and inside, e-books is of course another revenue-raising possibility. Consequently, authors are being guided towards a different payment scheme from the old, standard model of 10% royalty on the recommended retail price of the book. The Australian Literary Agents’ Association (ALAA) has recently taken up the overseas practice of paying authors a 25% split of the net receipts of their e-books, that is, a quarter of the total pool. Reflecting their uncertainty over how this will play out, the ALAA recommends a revision of this scheme after the next one to two years. The Melbourne agent Donica Bettanin, who is the ALAA committee member responsible for e-books, says: “Authors generally feel that they want to give it a shot, while leaving the exact terms open to review. We don’t know whether the [25% of net receipts] model will give authors the best deal, but we won’t find out unless we try.”

In northern hemisphere markets, e-book trends are emerging: fiction is performing well; new books are pounced upon within days of their release; authors’ backlists, often unavailable in physical bookstores, have increased sales as flow-ons.

As for the device that we will be using, the future is anyone’s guess. Lijic says he thinks the Kindle “looks like Beta already” and that “the open-platform approach Google is taking is the one I would back”. Bradley thinks whole branches of p-book publishing will disappear: “Why would I trawl bookstores for a Penguin Classic when I can get it in ten seconds? Why buy a Marvel comic when it’s so much more vivid on my iPad? Who would buy a Lonely Planet guidebook to a whole country when you can download the guide to the section of a city you’re in right now?”

Until this year, the argument over e-books centred on whether they would ever overtake print. Industry members surveyed at the 2009 Frankfurt Book Fair predicted digital sales would overtake print in 2018; only one-fifth of respondents thought digital would never overtake print. The argument has now gone beyond ‘if’, to ‘when’.

As to what will be read, and how, Carolyn Reidy gives a tantalising view. The Vook was “developed by people who have grown up reading on paper, watching television and using computers as separate experiences: while these acts are now being combined, they are not yet forcing us to change how we read. As successive generations mature – accustomed to multi-tasking and receiving information on a screen 24/7, whether connected at home or wirelessly – I think new forms of writing and authorship will emerge that will reflect both how our technology has advanced and how the human mind has changed in the way it learns to process information, create, and communicate.”

Malcolm Knox

Malcolm Knox is a former literary editor of The Sydney Morning Herald, and has won three Walkley awards for journalism. His books include Jamaica, The Life and Bluebird.

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