Interesting Times for ePublishing: Chaos, Creativity, and Competition

The publishing industry is floundering as it tries and often fails to adapt to rapid technological change. But on the margins, innovators thrive.

Trend Report Illustration of of books dissolving into an ipad

Source: Bigstock

New technologies are appearing so rapidly that the publishing industry – already slow to respond to changes a generation ago – is poorly positioned to take advantage of them. Consequently, unless some killer app appears to solve current conundrums, revenue growth for the epublishing industry, including subscription revenue, is likely to be flat to negative looking ahead five years.

Look at this revenue forecast for ePublishing revenue out to 2021:

(Source: Statista) This analysis breaks the ePublishing market into three categories: eBooks, eMagazines, and eNewspapers.

  • eBooks (fiction, non-fiction & academic eBooks)
  • Digital editions of consumer & trade/business magazines (eMagazine)
  • Digital editions of daily or weekly newspapers (eNewspapers)

The forecast here is that revenue for eBooks will be absolutely flat, while digital periodicals will grow. However, the rate of that periodical growth, not obvious above, is worrying:

(Source: Statista) A growing segment is better than one that stays flat, but when the rate of growth is on a precipitous decline, the future is not as bright. Let’s take a deeper look at these segments.

eBook Publishing

In this forecast, revenue for eBooks is absolutely flat. Others agree or report declines. In a world where reading time is screen time, books are in direct competition with everything else. That means eBooks have to present a compelling argument to attract new users, and Statista forecasts that they will lose that argument:

(source: Statista) From a high of 92 million eBook readers in 2015, the set of digital eBook users will diminish annually, dropping to 88.45 million in 2021. As we say above, although the number of users is dropping slightly, Statista projects flat revenue. That means the revenue per eBook user is forecast to rise slightly.

Book industry vet Lauren Wise, writing at pressbooks.com, has a mixed view, but agrees that competition with screens is a big issue. She thinks eBooks will “thrive,” but thrive is not the same as grow:

  • While the majority of adult fiction sales came from ebooks in 2016, the concept of “digital fatigue” isn’t going away anytime soon. With people spending so much time in front of screens on a daily basis, more and more have been opting for paperbacks over e-readers. Of course, ebook sales will continue to thrive in 2017, due to more advanced e-readers and the affordability of creating ebooks. So don’t write off paperbacks any time soon.

A 2017 IbisWorld report sees slowing growth rates as well.

  • The industry is likely to grow at a much slower pace over the next five years … The E-Book Publishing industry has grown moderately over the past five years. E-book sales surged on the heels of new mobile device introductions in the early years of the period. However, industry-relevant revenue has slowed over the five years as e-book sales have matured as a product category. In addition, there are signs that consumers may be tiring of digital media, and that many continue to consume printed material, either entirely or in tandem with e-books, when seeking longer-form book content. Over the next five years, the industry will grow modestly. Following the initial surge, e-book adoption is expected to slow and the industry will grow mostly in line with overall publisher sales.

You just cannot talk about the eBook market without talking about Amazon. Robert Springer at eContent argues that the initial burst of eBook sales was a result of anticompetitive pricing by Amazon, pricing it abandoned after losing a lawsuit to Apple:

  • For the first few years of ebooks’ rise, Amazon helped keep prices down – often pricing best-sellers at just $9.99, offering a substantial discount to buyers. But when Amazon finally lost its price-fixing lawsuit to Apple – and had to offer credits to qualifying ebook buyers in June – the average cost of a best-seller shot up to about $15. It’s entirely possible that buyers turned away from ebooks at that point.

But Amazon has a strategy to re-energize the eBook market, by taking a page from the streaming music services. The giant bookseller has become a book-renter with its Kindle Unlimited service, which has proven quite popular. From just $9.99 per month, subscribers can read anything from the 1 million eBooks available. However, that popularity hides a destructive agenda, according to Mark Coker at Publishers Weekly:

  • Kindle Unlimited devalues what the customer thinks a book should cost and reduces author earnings. Authors earn only half a cent per page read. Producers ultimately shoulder the burden of ever-lower prices. Authors must either lower their production costs or accept less for each sale. Unlike manufacturers of commodity products, authors can’t outsource their writing to China. In the future, writers willing to write for less will reach the most readers at Amazon. … Amazon’s product pages for KDP Select titles encourage readers to read the book for free as part of their Kindle Unlimited or Prime subscription. An author who would otherwise earn $2.80 for a single-copy sale of his or her $3.99 200-page book will now earn about $1 or less with Kindle Unlimited. It also means that Amazon is training its most voracious customers to consume books for what feels like free, rather than purchasing single copies. Even single-copy purchases of 99¢ e-books will begin to feel expensive.

I am not ready to call this “streaming books” model a villain, but the trend here, as everywhere, is that technological change is driving prices, revenue, and profits down. Media giants are grabbing onto DRM as the best way to maintain their rentier’s rights. Several years ago, Paul Krugman wrote, “Well, what I think we’re hearing is the sound of renters and those who, explicitly or implicitly, work for them, demanding their natural right to earn good returns even if the resource they control isn’t actually scarce anymore.” He wasn’t talking about publishers and eBooks, but the underlying idea still applies: Those who have earned a good buck on controlling access to books are now in a bind, because technology allows online retailers, like Amazon, as well as independent authors who self-publish, to take that control away.

In the meantime, industry revenues will be flat as it all continues its decades-long slow-motion earthquake. And most likely, numbers of users will be too, if trendlines continue. On the other hand, someone clever may figure out new ways to use emerging digital systems to revolutionize the industry, the way Steve Jobs, the Macintosh, and the LaserWriter revolutionized desktop publishing. Subscription services like Scribd and Readly that aggregate titles may be the answer here, or create further downward pressure on revenue. Maybe indie authors and patron subscribers will be that revolution, but that’s a topic for another column.

eNewspaper Publishing

Although the newspaper industry has fallen off a cliff, it turns out that there is still life, after a fashion, at the bottom. Take a look at newspaper revenues, with both print and digital components shown:

(Sources: NAA; BIA/Kelsey; Pew Research Center; graph by Statista)

Although total revenue has dropped by about 60% since 2006, the digital component of that continues to grow. At $3.5 billion in annual revenue in 2014, this data suggests that ePapers are an increasing contribution to newspaper bottom lines.

It’s worth pointing out that getting anything like real data is laughably hard. The Statista graphic at the top of this column reports total digital ePaper revenue at $1 billion in 2015. Is it closer to $1 billion or to $3.5 billion? Hard to say.

But with 22% of newspapers not even offering a digital version, it seems like it should be possible to grow just with new customers. And in fact, the number of digital newspaper users is predicted to grow, from 14 million users in 2014 to 35 million in 2031 in 2021 (see graph above).

Whether you are a fan or foe of America’s 45th president, he has been a help to media outlets in the news business, according to Editor & Publisher, Forbes, and The Motley Fool.

In fact, newspapers are doing a better job than magazines at increasing digital revenue as a percent of total revenue. Take a look at the leaders:

(Sources: Borrell Associates; Adweek; graph by Statista) Note that that’s 2014 data! With the current boost to news coverage in play these days, I imagine that newspapers – especially the large outlets like the Times and the Post – continue to grow digitally.

That E&P report is particularly interesting, positing that this is giving newspapers an opportunity to get creative and sell themselves to news-hungry digital natives, in the hope that they may stick around after the “Trump Bump,” according to E&P’s Gretchen A. Peck, “The business of disseminating news has been even more dynamic and opportunity-rich.” She cites newspapers experimenting with subscription enhancers including on-site promotions, mobile push notifications, and partnerships with streaming services.

With print advertising declining less rapidly, and with digital growth still positive, there’s a chance that newspapers are finding a way to navigate the new technology needed to connect with modern news-hungry readers.

eMagazine Publishing

The broad revenue and audience trend lines for digital magazines are very similar to the ones for eNewspapers (see above). But the reasons, the technology, and the opportunities are somewhat different. And although newsmagazines are also benefitting from the “Trump Bump,” they are not the only ones doing well:

(Sources: comScore; MPA; Nielsen; graph by Statista) News magazine brands are certainly among the leaders, but the other strength of magazine brands – authoritative content within a defined niche – is clear here as well.

But compare the above data set of digital users to the following graph of total reach, which includes print as well:

Note that most of the news-oriented titles either drop down or off the chart when you look at print and digital combined. This speaks to the decline of the print newsmagazine, the advantage of timeliness for news-seekers online, and the value that printed paper continues to have for the more timeless (and visual) content in print magazines. Indeed, these two graphs show the importance of a digital-only or digital-first strategy for news-oriented magazine brands (a lesson for newspapers) – and it shows that some niche-content magazine brands still have a valid print-plus business model that’s worth pursuing.

Just as the “Trump Bump” has given eNewspapers a tiny bit of breathing room to marshall their digital resources and even experiment with ways to attract and retain subscribers, so too the somewhat more enduring appeal of niche-specific and timeless print content is giving magazine brands the opportunity to look for new and improved digital options for eMagazine success — among them, outreach to younger audiences.

Those opportunities include, according to Ron Matejko of Publishing Executive, shifting away from digital “flip-books” towards mobile apps, improving IT staff expertise and infrastructure, and finding new ways to shift audience development online. Matejko writes compellingly about the somewhat dim prospect that publishers generally will be able to actually grab these opportunities:

  • It’s been almost 12 years since digital publishing was first introduced and there was suddenly this “new push” to incorporate digital with print for readers and clients. Here we are, 12 years later, and we are still trying to figure digital publishing out. Technology is constantly changing, so how can we possibly keep up? Perhaps, the greater question is, will we ever catch up? In the meantime, as quickly as these changes are coming, publishers must adapt or risk being left behind.

Insider Take

From 40,000 feet up, ePublishing looks like a huge muddle. As publishers of digital books, newspapers, and magazines — who have not generally coped well with past technological opportunities — grapple with an increasingly diverse array of online innovations, the resulting free-for-all will see a few winners emerge. Those will be the ones who take advantage of opportunities to regroup and experiment, and who find ways to compete with nimble and digital-native competitors. 

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