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Chelsea Green Blog

No. We don’t own the trees.

Seth Godin recently posted an article to his blog titled, “Do you own trees?” In it, he (justifiably) tore into the newspaper and book publishing industries for being so tied to paper as a publishing medium. But he’s misunderstanding the reasons for the stubbornness of the publishing industry. He lead with the following fact from the New York Times to establish his argument:
Today’s New York Times reports an astonishing fact: Book publishers wholesale their ebooks to Amazon for precisely the same price as their paper books. Amazon loses money on every ebook for the Kindle they sell because publishers don’t discount zero-cost ebooks. Apparently, the publishers don’t count the paper, storage, inventory, shredding and shipping expenses in their cost calculations. Either that, or they own a tree plantation or a printing plant. And of course, they own neither.
We do count the paper, storage, inventory, shredding, and shipping expenses in our cost calculation. Of course we do, we’re businesses just like any other. And it is these expenses that make ebooks so alluring to many of us. But these costs just scratch the surface of book production. Godin incorrectly assumes that Amazon is losing money on their Kindle books because the publishers set the price. In fact, Amazon set the prices publishers receive for ebooks—they elected to lose money on each book. Here’s why: If Amazon’s Kindle is going to fly, Amazon needs an inventory of ebooks to sell. They do not have the luxury of an inexhaustible supply of digital content out in the wild for the Kindle to pick up and use—as Apple did when they inserted the iPod into the already thriving MP3 frenzy. Digitizing books cannot be done by the consumer at home. (Yes, a person could scan each page of a book into a PDF, but with the sorry state of OCR technology these days, the pages would be little more than image files which are useful for little more than reading. And the process would be mega-tedious. Plus the Kindle foolishly doesn’t support PDFs.) Digitizing books for consumption is most easily accomplished by publishers before we un-digitize them in print, and Amazon knows that. So they wisely chose to loose money on ebooks for the sake of building an inventory, while at the same time taking care of the publisher it depends on for content. Also, Godin’s “zero-cost ebooks” is—pardon the pun—fiction. Any book, bound or digital, has manuscript development costs: an author advance, copyediting, proofreading, book layout, cover design, etc. These are the major costs of producing a book—spent long before the paper is considered. The manufacturing costs of a bound book account for roughly only 15% of the list price—sometimes a little higher if you’re a green publisher like we are and use as much post-consumer recycled paper as we can, as often as we can. With margins in the book publishing industry as tight as they already are (between 3-10%), if Amazon asked publishers to part with their highly-polished, well-researched, expensive content for prices much lower than current wholesale prices they could have put many of us out of business, even if it is digital content. Godin continues:
I worry about my esteemed friends in the book publishing industry as well. The amazing thing about the Times story today was the report that the mood at BEA was ‘unease’ about ebooks. The fastest-growing, lowest cost segment of the business, the one that offers the most promise, the best possible outcome and has the best results… is causing unease! All because of the trees.
Here, Godin is right on (except for the running tree joke). The industry is ignoring the most promising aspect of our business. The next digital revolution—now that the music industry is converted and the movie industry is mid-stream—will be the publishing industry. It is inevitable and vital for the survival of the industry. Paper books are hugely wasteful. They require an astronomical amount of resources that the planet and the industry can not afford for too much longer: paper, shipping, storage, chemicals, re-shipping, etc. Digital books are infinitely reproducible, require no shipping, take infinitesimal storage space, and, most importantly of all, require no paper. The margin on a 99 cent digital copy, even of a massive volume of 10,000 pages would still rival (if not surpass) the margins on a $7.95 280 page trade paperback. So there are many “no-brainer” advantages to going digital—as long as the consumer will read from a screen. (Which they already do, and will in the future.) The issue preventing the industry from mass adoption of the ebook format is not that we publishers own stock in logging companies, as Godin humorously suggests. But rather it’s many issues. It’s death (of motivation) by a thousand cuts. In my estimation there are 4 general barriers to mass adoption of ebooks by publishers.
  1. No protection. The publishing industry is not blind. We’ve watched the music and movie industries grapple with piracy. A 3MB book file is much easier to distribute than a 2GB movie file—which is getting easier. Do we throw ourselves into the piracy frenzy? (The answer is yes, of course. But not just yet, as there is no widely accepted avenue for purchasing ebooks. A consumer’s only option right now for building a digital collection would be—for all intents and purposes—piracy.)
  2. No format. The ebook format wars are still in the ‘limited skirmish’ phase. Open war has not yet begun, let alone been settled. My money is on DRM-free PDFs due to the existing PDF ecosystem and consumers’ distaste for never REALLY owning the items they buy. But where’s the protection in that? Do we bet our jobs on the honesty of readers? I argue yes, absolutely. But you can see why this thought gives publishers reason for pause.
  3. No tools. Until this industry agrees upon an ebook format (or two), there will be no tools for ebook creation. Right now publishers create PDFs by the truckload for internal use because of their incredible portability. But PDFs for distribution scare publishers precisely because they’re so portable. Publishers are waiting on easy-to-use tools that will create a portable and protected ebook right from Illustrator or Quark. (Hopefully with a bunch of tasty meta data, but that’s an issue for another day.)
  4. Entrenched systems. To build on the tree metaphor: the publishing industry is tall, old, and has very deep roots. Most of our industry tools (and modes of thinking) from author to bookstore (publishing, printing, distribution, fulfillment, etc.) are—by my rough estimation—as old as time. Retooling the industry to get it out of our current rut will require money, training, and new staff. All of which are slowly trickling in.
I’m proud to be at Chelsea Green because, as this new web site indicates, we’re up for the challenge of leading the industry to this new digital, greener, and hopefully more profitable future…even without the cash-cow tree farms.

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