Marketwatch, May 2011

E-books causing seismic shift in publishing
Commentary: Are publishers more prepared than music honchos?

Marketwatch, May 26, 2011

by Therese Poletti

SAN FRANCISCO (MarketWatch) — One doesn’t have to be in Manhattan this week at BookExpo America to figure out that the electronic book is causing a seismic shift in the publishing industry.

Some other events in recent weeks have provided further evidence that book publishing — as the music business already experienced — is being turned quickly upside down by the growth of digital books and e-readers. Inc., a major force behind e-readers with its pioneering commercial success, the Kindle, said last week that it was selling more electronic books than printed ones. And a bid for 70% of the ailing book retailing chain Barnes & Noble Inc. by Liberty Media Group was said by its top executives to be fueled by the company’s e-reader, the Nook, and its electronic book platform.

Both companies also put out new devices this week. Barnes & Noble announced its new Nook Simple Touch device, while Amazon launched a 3G version of its ad-supported Kindle.

“When you have widespread electronic distribution of books, whether e-books or print-on-demand, all of the barriers of entry disappear,” said Ted Weinstein, a San Francisco literary agent. “All of a sudden the supply chain, their warehouses, their ability to move tons of paper to and from retailers, transforms from a barrier to entry to an albatross.”

Other events are fueling some jitters throughout the industry, including Amazon’s plans for five of its own publishing imprints, as well the prospect of best selling authors moving to self publishing.

Amazon’s imprints have names like Montlake Romance and Thomas & Mercer for mysteries and thrillers and they will will publish books electronically for e-readers, and they can also be printed on demand. Amazon also reportedly hired literary agent Laurence Kirshbaum, once the chief of the former Time-Warner books, to head up another new imprint.

Book publishers now see Amazon, which helped instigate the shift with the establishment of its Kindle business in 2007, as both a big seller of their books and a competitor.

Opposing messages from recent deals signed by two best-selling authors are further weighing on the industry. In March, thriller writer Barry Eisler decided to go the route of self-publishing, instead of taking an advance of $500,000 for two new books. Eisler told the Daily Beast that the move will give him full creative control of his work and possibly a bigger take on potential sales.

If more top-selling authors forge ahead with similar self-publishing moves, that could weigh further on publishers, which depend on their big money-making best sellers to pull in the majority of profits, and help fund lesser-known writers.

A few days after the Eisler news, another best-selling author, Amanda Hocking, who had self-published a popular vampire romance series, signed a $2 million book deal with St. Martin’s Press for four young adult paranormal novels. She decided she was tired of being a one-woman corporation and wanted to focus on her writing.

“It’s both exciting and scary,” said Keith Raffel, a Palo Alto, Calif.-based author and former software entrepreneur. “I am a tech guy. I like trying new stuff and figuring this out.” Raffel, the author of “Smasher” and “Dot.Dead,” two published thrillers which take place in Silicon Valley, is experimenting with selling electronic versions of another book, “Drop by Drop.” “I’m doing a little literary portfolio diversification,” he said.

Many authors are becoming more like entrepreneurs, managing brands, expanding into public speaking, developing DVDs, or finding other creative ways to promote their work. One of Weinstein’s authors, Dan Roam, also in San Francisco, gives workshops and lectures frequently about his best-selling business book, “The Back of the Napkin,” which are about how to solve complex problems with pictures.

One of the biggest questions that remains is will the physical book die a slow death, as the popularity and convenience of electronic books grows.

Fortunately, most people don’t predict the total demise of the analog book.

“I believe this works like a lot of technology works,” said Raffel, who founded UpShot Corp., now part of Oracle Corp. “At one time computers were mainframes, then we had minicomputers, then we had PCs, and they didn’t totally replace minis or mainframes…The growth in the book business will be in e-books, but that doesn’t mean the other is going away.”

According to the Association of American Publishers’s monthly data for March, sales in the U.S. of electronic books surged 145.7% to $69 million, by far the biggest growth sector in book publishing. The biggest sector of the market, adult paperbacks, saw sales tumble 7.7% to $115.9 million. Adult hardcovers, the second biggest area, were up 6% to $96.6 million.

But as some areas see sales shrink, there may be further consolidation in the increasingly smaller book publishing industry, which is now down to a handful of publicly traded giants with book publishing arms, including News Corp., which owns MarketWatch, the publisher of this report. There could even be more mergers as well as layoffs.

“Everyone is exploring new models,” said Weinstein. “It’s bumper cars out there.”

Therese Poletti is a senior columnist for MarketWatch in San Francisco.

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