Guest lecture given at Carnegie-Mellon University April 29. 2014. Describes the history of digital technology in book publishing and six aspects of disruption: the retail market, interoperability, self-publishing, content forms, revenue models, and copyright.

1. Digital Disruption of Book
Publishing
Bill Rosenblatt
GiantSteps Media Technology Strategies
April 29, 2014

2. Outline
History of Digital Publishing
Elements of Disruption
Copyright
Failures and the Future

3. Major Market Segments
 Trade (32%)
– Mass market fiction & nonfiction
– Sold through retail
– Lent through libraries
– Big Five: PRH, Macmillan, Hachette, S&S, HarperCollins
 Educational (45%)
– K-12 and higher ed
– Sold through instructor & school adoptions
– Captive audiences
– Majors: Pearson, McGraw-Hill, Cengage, Wiley
 Professional (23%)
– Legal, business
– STM (Scientific, Technical, Medical)
– Majors: Elsevier, Thomson, Wolters Kluwer

4. History of Digital Technology
in Book Publishing

5. Late 1990s
Prepress
Mfg
Distribution
Spread of Digital Technology
Mid-1990s
Publishers
Mid-2000s to Today

6. Key technologies
– Apple Macintosh: edit and lay out book on a computer
– Adobe PDF: emulate print output on digital devices
Market developments
– Layout tools: Adobe PageMaker, QuarkXPress
– Single workstations, “sneakernet” processes
Mid-1990s: Desktop Publishing

7. Key technologies
– Client-server computing
– B2B broadband Internet
– High-capacity portable storage
– Demand printing
– XML: logical formatting, reflowable output, metadata
Market developments
– Distribute then print
– Outsourced production
Late 1990s: Production & Distribution

8. E-Books: First Wave
1990s - .com Crash
Key technologies
– Dialup Internet
– E-commerce
– Standalone e-reader devices
Market developments
– E-book e-retail: Online BookStore (1992)
– Print book e-retail: Amazon (1995), B&N (1997)
– 1st gen e-readers: Rocket eBook, SoftBook (1998)
– Adobe acquires GlassBook (2000)
– Subscription services: Safari Books Online (2001)

9. E-Books: Second Wave
2006-2010
Key technologies
– Smartphones, tablets, apps
– Electrophoretic display (E Ink)
– Wireless Internet (Wi-Fi, 3G)
– EPUB: XHTML-based “standard” format
Market developments
– E-readers with E Ink: Sony (2006)
– E-readers with wireless delivery: Kindle (2007)
– Other entrants: Nook (2009), Apple (2010), Kobo (2010)

10. Recent E-Book Developments
 E-Reader market consolidates
– Many devices disappear
– Sony exits US market
– Amazon, Apple, Barnes & Noble emerge as leaders
 Kindle & Nook tablets
– E-reader growth flattens
– Tablets take off
 Kobo (Canada) enters market
– 2010: Borders deal
– 2011: Bought by Rakuten; Borders shuts down
– 2012: ABA IndieBound deal
– 2014: Acquires Sony’s US customers
 Resurgence of white-label retail services
– For small publishers and special-interest retailers

11. Reading Goes Digital

12. Reading Goes Digital
 Unit volume grows from 1.5% in 2008 to 30% in 2013
 2011 was the breakthrough year
 Now growth is slowing

13. Elements of Disruption

14. Elements of Disruption
Retail market
Interoperability
Self-publishing
Content forms
Revenue models
Copyright

15. Retail Market
 Digital retailers can become dominant faster & easier
 Amazon has as much market share as it can w/o DoJ attention
 Yet also much easier to organize special-interest retailing
 Result: trifurcation of retail market:
– Mass, large-scale: Amazon plus 1-2 others
– Special-interest publishers & retailers: white label services
– Local: indie bookstores, IndieBound/Kobo
Large Scale White Label Services Indie Bookstores

16. Interoperability
 Portability of e-books and e-readers
 Language aside, this is totally new for digital age
 Interoperability is antithesis of retailer lock-in
– Retailer lock-in = incentives for retailer investment
– Open standards de-motivate retailers
 100% interoperability is a chimera
– Web browsers/HTML are 99%, exception that proves rule
 Markets tend towards 2-3 of everything
– Operating systems: Macs & PCs; iOS & Android
– Databases: Oracle, Microsoft, IBM

17. Market shares:
• Amazon (Kindle/Kindle Fire): 55%
• Apple (iPhone/iPad/iPod): 17%
• B&N (Nook/Nook HD): 14%
• PC: 6%
• Sony Reader/Kobo/Other: 10%
Source: Bowker, 2Q2012
Nooks
Kindle Devices
iPads,
iPhones,
iPod touch PCsOther
Adobe
Content Server-
Based Stores*
*Interoperability not seamless, requires some user tech savvy.
E-Bookstore Client Platform Interoperability
By Platform Market Share

18. Sources of Non-Interoperability
 Formats
– KF8 (Amazon), EPUB (everyone else)
– DRM fragmentation undermines EPUB
– IDPF working on open standard DRM for EPUB 3
 DRM
– De facto standard was Adobe’s DRM
– But none of the major platforms use it (anymore)
– And interoperability is not smooth
 “Cloud Sync”
– Sync e-books across all devices registered to retailer
– E.g. Amazon WhisperSync

19. Fighting Retailer Lock-In
Music Industry
 Sat and watched as Apple
ran away with market
 Strategy: dump DRM to attract Amazon
 Result: Amazon has 22% of
flat-to-declining market
 Streaming on the increase but revenue
(to music rights holders) will never
make up for decline
Digital sales unit volume
(Source: RIAA, 2014)

20. Fighting Retailer Lock-In
Movie Industry
 Determined not to follow in music industry’s footsteps
 Strategy: UltraViolet
– Provide consumer interoperability equivalent to DVDs
– Reduce incentives for retailers
– Consumers purchase right to download & stream on variety of devices
– “Disc to digital” rights for some DVD & Blu-ray purchases
 Result:
– Limited adoption by retailers
– But it’s early days..

21. Self-Publishing
 Pre-internet: $10k to publish with “vanity press”
 First wave
– FirstBooks, ExLibris, iUniverse
– Mostly print
– Cost: a few hundred dollars
 Second wave
– Lulu, SmashWords, Blurb, Amazon Kindle Direct
– Print + e-books (except Amazon)
– Bypass publishers but not big retailers
– Cost: freemium
 Big-name authors can bypass both publishers and retailers
– J.K. Rowling, Pottermore
– Extremely rare today but may become more common

22. Content Forms
“A book is not an extra-long tweet.”
-- Jaron Lanier

23. Hardback
Paperback
CD-ROM
E-book
20102000 200519801950193019001500
Cloud
Reading
Content Forms
 Books have been around for centuries
 Everyone still understands what “book” means…
 …despite evolving delivery means
 This is unlikely to change.

24. Content Forms
Smaller pieces
– 2009: Scribd starts selling major-publisher content
– 2011: Amazon launches Kindle Singles
Multimedia extensions
– Long history, few successes
– Late 1980s: Voyager (CD-ROMs)
– Today: Gutenberg, Inkling, Kno

25. Revenue Models: Retail Pricing
 Downstream entities make $ other than margin on books
 Piracy, “compete with free”
 Steve Jobs’s $0.99 music, Jeff Bezos’s $9.99 e-books
 Publishers restricted from setting retail prices
 “Agency” model exploits legal loophole

26. Revenue Models: Other Models
 Subscriptions: “Netflix for E-books”
– Pre-Internet: LexisNexis, Westlaw, etc.
– 2001: professional, Safari Books Online
(O’Reilly, Pearson)
– 2013: trade, Scribd, Oyster
 P+E (Print + E-book)
– Access code sent with print book order
– Very few publishers do this now
 Rentals
– Took off in Japan during first wave
– “How dare you” attitude in US for trade books
– Somewhat successful for e-textbooks

27. New Models Catch On Slowly
Million U.S. Users (estimated)
Legacy
Emulations
New,
DigitalNative
0 20 40 60 80 100 120
On Demand Music
Paid Subscription VOD
Free/Limited VOD
Bookstore
Radio
Record/Video Store
VCR

28. Higher Ed: E-Textbooks
 Adoptions difficult to scale
 Used print textbooks easy & cheap to obtain
 Rentals (print & e-book) gaining popularity
 Piracy on the rise: currently 34% of students
 MOOC phenomenon boosts free content
 Digital-native materials reduce piracy

29. “The copyright wars are the world’s most
pretentious supply chain dispute.”
Robert Levine
Author, Free Ride
Copyright

30. Copyright Is a Balance
 Accessibility of works to public  Incentives for creators
Value

31. The Internet Has Thrown Off the
Balance
 Much more content available
 Non-pecuniary motivation to
create & distribute
 Content easier to get for free
 Easier to consume
 Perception of value eroding
 Enforcement almost nonexistent
 Copyright itself demonized
 Shrinking creator middle class

32. The Digital Age:
It’s Different This Time
Physical media products
 Copyright tied to physical
products
 Prices based partly on cost of
manufacturing & distribution
 Creative works are input goods
to publishers
 Content that authors or
publishers want to sell
Digital
 Copyright separated from
physical media
 Prices based on perceived
value of content
 Creative works are input goods
to Google, Facebook, etc.
 Everything that’s digitized is
copyrightable

33. Supply vs. Demand for Content
Supply
Demand

34. However, Books Aren’t as Affected
Slower growth in book titles vs. music
Authors ambivalent about piracy and DRM
Higher ed is the big exception:
Piracy rose from 20% in 2010 to 34% in 2013

35. Supply Growth
Physical Products Digital
Books
1.7 million titles in 2007
catalog ~2 million titles today
Videos
60,000 items in catalog
>8 million clips in Content
ID database
Music
4.3 million tracks in 2008 >50 million music tracks

36. Sale vs. License
Physical Products
 Sale
 Copyright bundle of rights
 Store is a seller
 User is a buyer
 Publisher and seller cannot
restrict rights
Digital Downloads
 License (EULA)
 Store’s Terms of Use
 Store is a licensor
 User is a licensee
 Publisher and seller can set
whatever rights they want

37. Libraries and E-Books
 Libraries buy print books just like you or I would
– Any books they want
– At same prices as consumers pay
 Libraries use e-book lending platforms to serve patrons
– Leading supplier is OverDrive
– E-books “self-destruct” after loan period
 But e-books are licensed, not sold
– Publishers can set terms, including refusal to license
– Prices often higher than consumer sales prices
– “Frontlist” catalog can be withheld
– Number of loans per title can be limited

38. Major Trade Publishers
Library E-lending Policies
Publisher Policy Pricing
Hachette Book Group Full catalog, no restrictions 3x consumer prices for
frontlist titles
HarperCollins 26 loans per title
Macmillan Backlist titles only, 2 years
or 52 loans per title
Penguin Full catalog, 1 year of loans
per title
Random House Full catalog, no restrictions Higher than consumer
Simon&Schuster Full catalog but only to
select libraries and 1 year
of loans per title

39. Copyright Alternatives
 Don’t bother trying to making money from bits.

40. Copyright Alternatives
 Pay everyone for all the bits they generate.

41. Failures and the Future

42. Failures
“Social Reading”
Paid General Reference
Consumer Print On Demand

43. Failures?
“Social Reading”
General Reference Freemium
Consumer Print On Demand

44. The Future
 Print will never, ever, EVER go away
 E-books will settle on about 40-55% market share (unit vol.)
 E-textbooks: adoption process so cumbersome that market will
largely pass them by
 New content forms will take hold very slowly
 Major publishers will…
– Embrace audiences that startups aggregate
– Rely more and more on marketing analytics
– Continue to worry about Amazon

45. billr@giantstepsmts.com
212 956 1045
www.giantstepsmts.com
www.linkedin.com/in/billrosenblatt/
Twitter: copyrightandtec