CEO's mussings hint at new business model: the e-book library

While trawling the blogosphere for e-book insights, I came across an interesting post by Eric Hellman questioning the future market for e-book rentals. I’ll admit it’s something I haven’t given much thought, and it could hold substantial implications for e-books.

According to Hellman, John Sargent, CEO of Macmillan publishing, spoke briefly at a Publishing Point meeting in New York City. During audience questions, Hellman asked Sargent about the future relationship between libraries and e-book distribution.  Sargent’s comments suggest he’s given some though to the publisher-library relationship in an e-book-dominated future. The following is Sargent’s response, excerpted from Hellman’s blog.

“In the past, getting a book from libraries has had a tremendous amount of friction. You have to go to the library, maybe the book has been checked out and you have to come back another time. If it’s a popular book, maybe it gets lent ten times, there’s a lot of wear and tear, and the library will then put in a reorder. With e-books, you sit on your couch in your living room and go to the library website, see if the library has it, maybe you check libraries in three other states. You get the book, read it, return it and get another, all without paying a thing. ‘It’s like Netflix, but you don’t pay for it. How is that a good model for us?’

‘If there’s a model where the publisher gets a piece of the action every time the book is borrowed, that’s an interesting model.'”

I agree.

These could simply be off-hand remarks from Sargent, but in light of Macmillan’s recent agency-model victory over Amazon, we can be sure the company isn’t afraid of trying new things.

Is a rental model possible for e-books? It seems likely. Apple has already had success with movie rentals via its iTunes store, not to mention the video-rental behemoth that is Netflix.

Could a rental market pay off for publishers? That’s harder to get a beat on. It seems unlikely that e-book publishers and distributors will allow free borrowing on the same level as contemporary libraries. After all, the physical restrictions and limitations mentioned above have always provided a significant incentive for consumers to buy their own copy of a book. However, none of these restrictions apply to an e-book, which can be copied and distributed almost effortlessly — at least in comparison to physical print. Thus, no inherent incentive exists to pay for a copy — ignoring the opportunity for added content, ease of access, etc.  It seems reasonable to assume publishers will at least try to get a commission on e-book rentals. I would not be surprised if the big publishers start making quick inroads with distributors like Amazon or Apple on a rental model.

Kindle on your iPad?

Last week, Amazon rolled out two more Kindle applications to bring their e-book distribution to more platforms — an app for MacOS and a plan to bring it to the iPad.

A Kindle application for the iPad.

At first glance, it seems counter intuitive for Apple to allow its biggest competitor in the e-reader market to develop distribution applications on its own platform. The company has been in negotiations with media conglomerates to supply content for the iPad, but Amazon’s application would steal users away from the company’s new iBooks store.  Apple’s locked-in philosophy has become infamous, best exemplified by its iTunes-iPod strategy. By controlling both the content distribution and platform, Apple dominated the competition. Why let Amazon break the chain?

It’s time for some speculation. Even though it goes against traditional Apple ethos, allowing Amazon’s app on the iPad could still hold benefits. For years, Apple users have railed against the company for locking them into proprietary platforms and services. Relaxing that legacy of control could hold more appeal in the e-reader market, where market segments are still developing.

The move may also appeal to users already using Kindle software. Amazon already has a substantial user base. Wired reported that Kindle books outsold real books on Amazon last Christmas. Offering the service on the iPad platform could give Apple an opportunity to reach users that have already bought into Kindle, enticing them back to the fold with glossy screens and color display — perhaps before ultimately cutting the umbilical.

Of course, all this is just speculation. Amazon’s new Apple applications remain a mystery. And the development could highlight a greater controversy in the making: Who distributes e-books and who makes e-readers? Currently, it looks like that battle will converge on the iPad, with retailers all fighting for the vaunted platform.

Amazon's new model: speak loudly and carry a big stick

In the past few years, Amazon has become one of, if not the, premier book retailer. Now, as the online retailer attempts to cultivate its e-book market, that strength is paying off.

One account, published in the publishing-industry news letter Publishers Lunch, says the retailer is pressuring all but the biggest publishers (i.e. Random House, HarperCollins, Hachette Book Group, Simon & Schuster, Penguin, and Macmillan) not to pursue the new agency model introduced by Apple earlier this year. Independent publishers looking into the agency model risk being dropped from Amazon all together. In the newsletter, Publishers Marketplace‘s Michael Cader says:

“At least one independent publisher of scale was told categorically by Amazon in a recent phone call initiated by the retailer that Amazon would not negotiate agency selling terms with any other publishers outside of the five initial Apple partners. This publisher was told that if they switched to an agency model for e-books, Amazon would stop selling their entire list, in print and digital form. In conversation, Amazon is said to have reiterated that as matter of policy they are declining to negotiate an agency model with any publisher outside of the five who have already announced agreements with Apple’s iBookstore. Another sizable independent publisher we spoke to has not discussed an agency model with Amazon yet, but is resolved to work with Apple regardless. ‘We’re committed to going forward with Apple,’ a senior executive told us, underscoring, ‘we don’t see how we could allow one retailer, no matter what threats they make, to block our authors’ works from being available at another retailer.'”

It’s hard to say what Amazon’s stance on the agency model will mean in the long run. The agency model appeals to publishers by giving them the power to price books. The retailer then receives a portion of that price. Apple revealed its plan to implement the agency model in conjunction with iPad content earlier this year.

This difference in the two companies approach could make all the difference. After all, what good is an e-reader without content? Some (see Mashable’s Chistina Warren) have even described the divide as an “e-book war.” And it probably is; to the victor go the market.

The crucial question becomes how Amazon will be affected. Will loosing (if they loose) indie titles make a difference? It’s just another dimension to the industry’s zeitgeist question: what will people pay for content?

Expanding e-books to mobile

Mobile devices come with us everywhere these days — all the more reason to load those things with e-books!

Convincing people to buy — or haul around — another electronic device these days proves a hard sell. Pocket space is limited, and no matter how big purses grow — their ballooning size probably isn’t a coincidence, in my opinion — having to keep an extra device with you is a hassle. So, it seems extremely intuitive to have e-books work on a platform people already carry.

Amazon’s Kindle seems to have caught on to this concept. The e-book retailer has already come out with applications for iPhone and iPod Touch, Windows PCs, and Blackberry. Now they’ve announced a content partnership with devices running the Android operating system, bringing e-books to many main-stream smart phones.

Expanding to mobile devices should have been an easy call. What remains to be seen is how dedicated e-reader devices will fare after the same functionality becomes widely available on devices users already have or offer multiple functions. Will people prefer a device that only displays e-books? That question probably depends on the quality of the device experience. History has shown that fanism sprouts around devices that offer something unique or extraordinary. All the pre-order iPad hype could indicate such potential. For now, however, on-the-market e-readers may not have the experience edge to make buying and carrying an extra device worth the trouble. If so, the Kindle brand could be on the verge of a much-needed transition to mobile.

News media's pre-launch love affair with Apple's iPad

Media companies have big plans for Apple’s iPad. Just ask Wired Magazine and Adobe.

Of course, Wired is far from the only publication seeing dollar signs in the iPad’s glossy reflection. The New York Times Media Group has been struggling over the best subscription price to offer for their iPad distribution system — anywhere from $10 to $30 a month. The Associated Press recently announced “AP Gateway,” a division focused on developing new content and distribution models for mobile devices, and you better believe an iPad app is top on their to-do list. The Wall Street Journal and Condé Nast also have plans to harness the tablet’s potential using custom applications.

Media companies seem to think the iPad holds the answer to what ails them, namely the trouble getting people to pay for content. On the iPad, they propose, people will be willing to subscribe again.

Time for good-news, bad-news. On the positive, news media seem for once to be anticipating a trend. Perhaps as a result of the lesson they learned from their belated entry onto the Web (link to 10,0000), media companies have picked up the pace, announcing iPad applications before the device even hits stores this April. Traditional media is not known for experimentation, and any willingness to innovate is refreshing.

The bad news is, even though they’re lined up behind an Apple device, there’s no guarantee big media’s dreams of a workable subscription model will come to fruition.

Wired seems to be a good example of what I’ll call the “enhanced content” model. They propose offering subscribers an enhanced reading experience — whether through value-added content or better content management — will justify the monetary exchange. Most people, myself included, believe this to be a good approach. Traditional news content has become undervalued, so it falls to news media to find ways to increased content’s value to readers. Of course, there are other approaches, but this seems to be the most straight-forward and the one well represented by Wired’s current iPad strategy.

In the case of The New York Times,  the application they plan for the iPad will reportedly be something similar to the New York Times Reader currently available for personal computers. However, the company may charge twice as much for the same functionality on the iPad. While moving the same content to a different device may qualify as innovation, I believe it does so in definition only. The move to iPad does not justify, in my eyes, such a jump in quality, and does not fall under the enhanced content approach.

In the end, I think — and hope — many companies will take the initiative to enhanced content. However, this means radical shifts in the way news media operates, bringing in new innovators, programmers, and designers. Legacy media’s ethos — and wallets — may not fit the change. At least for a Wired subscriber like myself, it’s refreshing to see the edgy tech-magazine continuing to innovate on what could be the future of magazine content. As for the rest of the news media, without innovation, their love affair with the iPad may be a one-night-stand.

Penguin's plan to 'reinvent' books on the iPad

During a presentation today in London, Penguin CEO John Makinson showed a video of how the publisher plans to utilize the iPad in the coming age of e-books. The presentation looks great, but it left many asking the same question: Can we even still call it a book?

Are the interactive reading experiences Penguin has in mind even books?  Makinson says the publisher will develop games, online communities, and multimedia content that corresponds to these new ebooks. According to The Huffington Post, Makinson said, “The definition of the book itself is up for grabs.” That’s a hard one to swallow, considering books have arguably been published for more than 600 years.

The shift in conceptualizing books — from text on paper to fully integrated applications — is a startling one.

Makison’s remarks made obvious his vision for increased e-book sales in the future. According to paidContent: UK (the origin of the videos as well), Makison said he expects e-book sales to hit 10 percent next year, rising from just four percent in the U.S. this year. He also hinted that his focus on the iPad could be just as much a function of Apple’s new “agency model” and the chance for a paid distribution model as the increased functionality of the device over other e-readers.

What does this mean for Penguin? The announcement has already received criticism from some (see: Slate’s Big Money) as a “we’re still relevant” cry from struggling publishers.

What does the mean for the future of books as we know them? That could much more complicated. Still, the move to revolutionize one of our oldest traditions — as old as the written word itself — will surely attract debate.

AP Gateway goes mobile, plans to serve iPad content

The Associated Press announced Friday it will soon create a new business unit called “AP Gateway” to focus on distribution of content to mobile platforms such as e-readers. Here’s a copy of the full press release via Tomorrow’s Book.

While the scope of AP Gateway will extend beyond e-readers, the predominance of the iPad in its announcement is certainly a vote of confidence in the new Apple platform.

Also notable was AP CEO Tom Curley’s statement on the nature of mobile content:

“Rather than just repurpose our content across formats, we now have a real opportunity to innovate and create differentiated experiences of the news across formats that will excite all of us, from producers to consumers of news.”

Now, I’m not so naive that I don’t recognize this is standard boiler-plate for news ventures today. No one endorses simply repurposing content anymore. However, as the iPad and e-readers gain importance in the eyes (and wallets) of news companies, the possibility of reader-specific content could soon become reality. In my opinion — and arguably the AP’s opinion — the iPad may have the market draw to kick of that trend.

Doing the Math: NYTimes details price of publishing e-books

New York Times writer Motoko Rich did something my j-school professors nostalgically refer to as “doing the math.” Rich’s article, “Math of Publishing Meets the E-book,” lays bare the costs publishers face in the evolving world of e-book sales. The main question Rich tackles is this: do publishers save enough through eliminating printing costs to justify reducing the price of e-books? While on its face, the answer appears to be yes, Rich still reports that publishers are weary of shifting costs during the print-to-e-book transition.

Here’s the much-simplified price layout:

For an average, $26 hardcover, a retailer typically pays the publisher $13. Of this, the publisher pays:

• $3.25 to print, store and ship the book
• $0.80 for cover design, copy-editing and typesetting.
• $1 for marketing (may be higher or lower depending on title)
• $3.9o in royalties to the author (about 15%)

Out of the remaining $4.05, the publisher must pay overhead for editors, designers, office space and utilities before taking a profit. Any profit may then be used to recoup unrealized author advances.

For the e-book, Apple has agreed under the proposed “agency model” to act as a agent/retailer, taking 30% commission of the price determined by the publisher. So, for a $12.99 e-book, the publisher starts with $9.09. From this they pay:

• $0.50 to convert text into a digital file, typeset and copy edit
• $0.78 in marketing
• $2.27 to $3.25 in royalties to the author (debate rages on over whether the 25% royalty should be calculated using the gross revenue or the consumer price)

This leaves $4.56 to $5.54 for the publisher before any overhead.

Doesn’t that make e-books more profitable? Maybe. This simplified snapshot leaves out revenue recouped in sales of paperbacks and shifting sales margins. Remember, e-books only make up a small percentage of publisher revenue — 3 to 5 percent — and if that begins to increase, publishers could be trapped with the printing costs of their old model and the revenue of the new, e-book model.

Where have I heard that one before? Oh yes, in newspaper industry printing costs. In the near future, publishers may face the same dilemma many newspapers are grappling with now: at what point do you stop the presses and go entirely digital?