It may seem that the book industry has changed a lot in the last 20 years, but in fact, the industry is basically the same.
- Authors, except for a precious few superstars, barely get by
- Book sellers survive on razor thin margins
- Publishers, who collect over 60% of every dollar spent, are continually cutting costs to stay profitable.
But thanks to the Kindle, we’re about to finally hit the tipping point. Within 5 years the book industry as currently configured will no longer exist. What will the industry look like in 2017 and who will the winners and losers be?
Above all, in 2017 books will be electronic. Already, 19% of US households have at least 1 eReader device and based on the rate of adoption, penetration will grow to 75% or more by 2017. This brings us to our first big loser: Bookstores.
US Household Penetration of eReaders Will Exceed 75% by 2017
Bookstores: If you thought that bookstores already had it tough, prepare for a wholesale collapse. With high fixed costs, it doesn’t take a big volume decline for a modestly profitable bookstore to start hemorrhaging red ink. As bookstores close and the number of places to buy print books falls, consumers will have a greater incentive to go digital. This in turn will drive more bookstores out of business until they become as hard to find as travel agencies.
Publishers: Publishers will be the second big loser between now and 2017. At the core, publishers are the venture capitalists of the book industry. First, they pay all of the costs to take a book from manuscript to shelf. For a “typical” book, this runs around $20,000 to $25,000.
Launch Costs for a "Typical" Book
Second, they, not the retailer, take the risk that a book will actually sell. Unlike most industries where once the retailer takes the merchandise they own it, books are sold on consignment. If a book doesn’t sell, retailers just send it back. As a reward for providing the capital and taking on the risk, publishers currently get over 60 cents of each dollar sold.
Publishers Receive over 60% of Every Dollar Spent on Books
In the ebook world, the value of publishers plummets. On the production side, the cost drops to just a few thousand dollars while on the sales side, with a zero cost of goods sold and unlimited shelf space, the need for consignment disappears entirely. As the need for publishers’ capital and access to distribution wanes, authors will no longer be content to get just a 7% slice of the pie. This brings us to our first winner: authors.
Authors: Over the years, to save money, publishers have continually cut back the services they provide authors, especially when it comes to marketing. Today, most authors arrange and pay for their own book tours, hire their own publicists, set up their own websites and manage their own Facebook pages. Without the need to print books or get them on shelf, most authors will start choosing options like self-publishing, where they get 70% of sales instead of 7%. This brings us to our next winner: Amazon.
Amazon: While Amazon is already the leading player in book retailing, they are poised to become the dominant publisher as well. With the move to digital, Kindle Direct Publishing will become THE way that books are published. While Google, Apple and Microsoft have the potential to compete with Amazon head on in books, with so many other things on their plate, we expect they will effectively leave the book market to Amazon. This brings us to the final winner: All of Us.
All of Us: While some people will be nostalgic for print books the same way that people are today for vinyl records, easy access to books, lower prices, and having more people who can earn a living as authors will all result in a new golden age for reading. The results of a recent Pew study show that the benefits are already emerging – a full 42% of ereader owners started reading more after they got their device.
While I will miss paper, unless you are a bookstore or a publisher, the future for books looks pretty good.