THE ETHAN ELLENBERG LITERARY AGENCY

ELECTRONIC DILEMMA
by Ethan Ellenberg

Here, I'd like to offer a different perspective on the relentlessly optimistic pronouncements regarding the electronic publishing of full-length books.

It's too big a subject to really tackle at length in so short a piece. I'm going to approach it like a large ball of yarn, just pulling at the largest and most obvious threads, the ones that stick out the most. The threads I'm going to consider are readability, availability and pricing.

Readability

Whether we are talking about electronic books readable on personal computers or dedicated reading devices or reading directly off the net, all models touting the benefits of electronic publishing have one fundamental assumption in common. People will read as easily off of computer screens as they do the printed page for their pleasure reading. It's not clear how true this fundamental assumption is presently and it's not clear how true it's going to be, but it's important to keep this assumption in mind at all times when one considers electronic book publishing.

If it's not true that people enjoy or will come to enjoy reading off of computer screens, than an important element of consumer appeal is lost. If electronic reading will always be work reading or information gathering and pleasure reading will predominantly remain the paper book than far less of the electronic book revolution makes sense.

Sampling the currently available electronic devices and software programs and sifting through the claims of enhanced functionality that electronic publishers make, when it comes to pleasure reading at least, the electronic publishing industry is intent on offering a far inferior product (books that are less enjoyable to read) to the public. The book electronic book publishers talk about is not the book you enjoy reading or owning. For other forms of reading and for certain consumers, it may well be a superior product but for pleasure reading, it's not currently true. If the electronic book is an inherently inferior product, it will have limited appeal. And, in order to survive as a business, it will have to compete against printed books in other areas.

Availability

Beyond the readability question, let's look at another fundamental assumption behind electronic books. A great deal is made out of their availability. Because they are available as some form of download, they are theoretically available over any Internet connection, anytime, anywhere in the world. That does make electronic books far more available than any traditional book.

Yet, how great an advantage is it in practical terms? Would anyone's chief criticism of the publishing industry be that books are unavailable? This needs to be considered.

Books are one of the chief beneficiaries of the Internet revolution. Amazon allows online ordering 24 hours a day and books can arrive as early as a day later. Amazon has become a gold mine of information about books, generating many more sales. Nothing remotely like it has ever existed before. For those who like to shop in an actual store, mega-stores have enormous inventories, and it's less likely now to go home from such a store without the particular book you are looking for. So, over the last decade there have been some positive developments in book availability that mitigate the availability argument.

There have also been some very negative events regarding book availability. The consolidation of the wholesaling industry and the closing of mall bookstores has reduced the availability of books in the marketplaces we all frequent. More and more locations that display and sell books are a fundamental need of the whole industry. If electronic books are available in everyone's home, school and place of business, you could make the case that they represent a solution to the problem of book availability.

Yet, I'd like to make the following distinction--the difference between being available for sale electronically and being available for sale physically. Having millions of books available for sale over the Internet in the form of downloads won't necessarily lead to increased sales. Book sales, like all other sales, need to be promoted. One of the key components of most sales has been the physical presence of the item for sale. The Internet has changed that, but it hasn't eliminated it. The theoretical availability the Internet provides without a concomitant sales promotion apparatus in place, may not lead to many additional sales.

This is something I can't stress enough. Internet availability will not correct the lack of books available for sale offline. Online availability vastly increases the potential for sale and delivery, but it doesn't necessarily close those sales. There's another issue that needs consideration. If electronic book publishing is so inexpensive, then thousands and thousands of new and old books are going to crowd the information and sales systems that are offering books to the public electronically. If there isn't concomitant growth in some selling and intermediating presence to handle the growth in books for sale, the very volume of electronic books could undercut the entire enterprise.

There is a difference between 50,000 new books reaching the public each year and 500,000. In any other business, creating more product doesn't necessarily create more demand. It can even have the opposite effect. This is something the electronic model must look at far more closely. We also can't forget that unlike Amazon, which sells and delivers the paper book, the electronic book delivered is an electronic file: an item it's not clear the public will accept for pleasure reading.

Price

Price is another area where the electronic book is expected to revolutionize publishing. I would agree that theoretically, here is where its greatest advantages lie. If the book is downloaded from a server, its hard costs across the board are greatly reduced. The old paper, print and binding have become bits of electronic code whose cost is minimal. If we are going to compare the cost of maintaining a server, checking a credit card and downloading an electronic file to the system of having books delivered to book stores and often returned, here again we have staggering price advantages. If the consumer does want this form of book on paper, they can print it on their own printer, thereby transferring the cost of printing from the producer to the consumer.

It would seem that here is where the full potential of electronic books is realized. If the publisher retains all the cost savings itself, all other things being equal, this would be a bonanza for publishers, the same revenue, at perhaps half the cost if we focus on production and distribution expenses. However, there is one fundamental hidden assumption here. That assumption is that e-books will simply be an additional revenue stream, like audio books. If e-books represent no more than an additional revenue stream and they can support the same cover prices as p-books with a far lower cost structure for the publisher, they will obviously be a publisher's dream.

But is this likely? I think it's hard to credit this model for the long term. There is a profound difference between the e-book and the p-book in value for most people. They won't feel they are getting the same item when they buy the e-book and if they are being asked to pay the same price they are going to feel cheated. If there is no saving by buying the e-book instead of the p-book, it's hard to see many people buying the e-book. In this scenario, they will most likely ignore the e-book. The consumer is very aware of the difference between a hardcover book and an electronic file, I don't believe you can justify this model for publishers that publish both.

This would mean that if e-books were to work the real calling card of the electronic book would be a greatly reduced cover price. What would the impact of large price differentials be on both the e-book and p-book markets?

If there's a 50% price differential between the p-book and e-book, the publisher would run the risk of siphoning off readers from the p-book to the e-book. The e-book might not be as much fun to read, but at half price, you may find some takers.

It seems to me this is a dangerous strategy. Publishers who publish both p-books and e-books can't simply shed the whole infrastructure and sales distribution systems that make this possible. They will have to have all the same overhead necessary to print and ship books even as they create the infrastructure to sell e-books. If they begin to convert $20 hardcover sales into $10 e-book sales, it's not clear the cost savings on individual e-books will make up the revenue loss. It seems at best it will be a zero sum game. We also have to consider the fate of the trade paperback and mass market paperback formats, which command smaller cover prices than hardcover books. What will be their fate in the face of inexpensive e-books?

A secret assumption of e-book publishing seems to be that the increased potential availability in the form of downloads and the lower prices will per force lead to more unit sales. I don't believe this can be counted on in numbers great enough to shift the whole economics of book publishing to the e-book model. If e-books lead to significantly less revenue per unit and the savings from manufacture and distribution cannot make up this loss, publishers will simply be losing revenue.

Only by selling considerably more new units of e-books will they be able to make up their revenue losses from the sale of e-books if e-books undercut their p-book sales. If e-book sales represent new, unduplicatable sales that never would have occurred in the p-book, the publisher has a new income stream with its own economic pluses and minuses. That would be great. Like the audio book, it would just be an add-on. But the danger would be that the e-book is too close to the p-book not to cannibalize it and so the e-book will undercut the publisher's other, primary business, the p-book.

If the economic forces I've described play out this way, it would mean that one sound publishing strategy would be for a publisher to only publish e-books. Some already exist. Yet they're a small, untested minority. They don't provide an answers to fundamental questions: can e-book publishing succeed on its own merits and can mainstream publishers who must maintain their core businesses of paper book publishing successfully integrate e-publishing into their financial structures?

Conclusion

Boosters of the electronic book hail it as the wave of the future. I believe the landscape is much more problematic than that. I believe that for pleasure reading, the e-book is inherently an inferior product compared to the paperbound book and that concerns me. It will most likely have its place but it's not clear how appealing it will be to the large public that enjoys reading books for pleasure.

The great potential availability of electronic books seems to have triggered in some minds the fantasy that this alone will automatically create new sales. It will in some cases. But it's not a cure all. Demand is the key to new sales and availability alone does not create demand. If electronic book publishing is limited to making thousands of books available for download and nothing else, it will add little to publishing revenue for publisher or author.

Price may well be the most perilous part of the integration of electronic book publishing into the present landscape. If e-books are marginal, their impact will be small. If they are to be successful, they may have to be much cheaper than printed books. If they are much cheaper, they could well undercut both publisher and author incomes. Only a substantial increase in additional unit sales will pay for what e-books may well do to p-books.

Are we really going to be winners if the new Grisham can be had for $10 instead of $20?

This article originally appeared in RWR, March 2001

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