How will newspapers survive the digital revolution?

(A version of this story appeared in the Malay mail on the 26th February 2009.)

Some years ago I was invited to talk about publishing at a Rotary Club event at a downtown hotel. During the Q&A it was inevitable that the question of e-books should arise. My comments at that time were that it was still several years off.

First there was this question of technology, I said. Current screen resolutions were not good enough for reading many hours at a stretch, and internet access had to be much faster. Secondly there was the question of copyright -- authors and publishers would want to know how they'd get paid and how their rights would be protected before they allowed their books to be digitised. No one wanted a repeat of the music industry fiasco.

Now with the Kindle and its electronic paper making screen reading easier, and more companies offering broadband speed of 10mps at very affordable prices (except in Malaysia where one wonders if there is some sort of hidden policy to keep broadband speeds and internet penetration low, despite all the lip service), that day appears to be here.

But the Kindle costs USD 359.00 (appr RM 1300.00) with book downloads costing another USD 10.00 (appr RM 37.00) a pop. So is the Kindle likely to take off and replace the book? Probably not. It is a product looking for a market. Amazon thinks it has found one. But I don't think so. The Economist quotes Steve Kessel, a member of Amazon's Kindle team, "It's the convenience -- they think of a book and can be reading it within 60 seconds."

I can only say that Mr Kessel is not a serious reader. Only those hooked on bestsellers know exactly what they want to read next. Serious book buyers have little idea what they want to read until they see it while browsing the shelves. Most book buying is done on impulse. And seriously, I cannot imagine people who live from one bestseller to the next actually forking out RM1300.00 for an e-book reader. (I came across a 1932 Matsushita mission statement many years ago. It included this line: to make all products as inexhaustible and as cheap as tap water. When that happens to Kindle, it will be another story.)

When the iPod first came out, it filled a need that many had. Like me, there were many people out there with large CD collections. But they could play them only one at a time sequentially, and could only take a few with them when they travelled. The iPod changed everything by making it possible to bring along your entire CD collection in your pocket wherever you went, and play the songs in whatever order you wanted. The online buying thing came about much later. Even today, 90% of all iPod capacity is filled from own CD collections.

While the Kindle may not be the answer yet, I think digital media would still be the way to go for reading the news. I still read the daily papers, mostly out of a 50-year habit than anything else. I will miss the funnies otherwise, and some of my favourite columnists. (Talking of which, I was quite pleased at the news of Dato' Johan Jaafar being appointed a director of the NSTP and the chairman of Media Prima Bhd. Congratulations, Dato' and all the best. I don't necessarily agree with all his views but I know he reads and thinks before he writes. That article he wrote after March 8 was priceless. I saw him on that general elections show, and I thought he looked frightfully uncomfortable. When I turned on my laptop I realised why.) But my news comes mostly through the internet every morning.

With more and more news being consumed via smart phones and other mobile devices, newswires are now increasingly going to the consumer directly. Bloomberg has had over one million downloads for its iPhone version. Reuters too is offerings its stories directly to the consumer on advertisement-financed websites. In 2008, only 25% of AP's revenue came from newspapers compared to 55% in 1985. Traditionally, newswires have been wholesalers and the newspapers their retailers who repackaged the news before they sold it.

So will newspaper survive? That is a big if, after print media consuming dinosaurs like me pass on. Circulations are tumbling all over the world. Many are closing down. It costs less to advertise in the e-media than in print. Most newspapers have internet editions that they give away for free. (Sorry, the subscription model does not work.) In the same issue of The Economist, Norman Pearlstine of Bloomberg says mobile users are willing to pay for ring tones, so why not for news? Here's why: ring tones are extensions of the ego. One uses them repeatedly for a long time until one gets tired of it. News remains news for a very short time. And there is no associated ego trip.

I think newspapers will be around for a while yet. I hope so. (I sure will miss Blondie, otherwise.) But they do need to take a new look at the entire model, for fear of becoming irrelevant. Maybe the print and digital media can co-exist.
 
Maybe the word is not 'can', it is 'should'.

Peter Carey warns of threat to Australian publishing

In Alison Flood's story in The Guardian, Peter Carey talks of it as if it is an 'end of the world as we know it' scenario. He says it is a 'battle for the sake of our readers and writers' and a "cultural 'self-suicide'". (Is there another form of suicide?)

Another writer, Kate Grenville, says that it is 'A tragedy which would force many Australian authors to stop writing,' while Thomas Keneally is convinced it would cause "irreparable harm". It appears that the entire Australian book industry, from major authors to publishers, booksellers and agents, is up in arms about a proposed review of Australia's copyright laws.

Currently, the report says, Australian publishers are given 30 days to bring out an Australian edition of a book after its release anywhere in the world. If an Australian edition is released, Australian bookshops are required to sell the Australian version, and they can't import the book from overseas. As a result, books are more expensive in Australia than elsewhere. This has, apparently, allowed the country's local publishing to flourish, at the expense of cheaper overseas editions.

Carey's fear is that if the current copyright laws are taken away "global companies will decide that their Australian offices will be much more profitable as distributors of product than publishers of books. If this sounds creepily colonial, it is because it is." He (and the others) argue further that if not for the present government support, Australian authors (like themselves) would never have become internationally renowned. Grenville also says that her "experience shows how uninterested publisher are in our work", particularly if they are of literary nature.

But a government spokesman says, "Any policy reforms in this area will be aimed at enhancing Australia's longer term growth prospects."

An Australian publisher visited me some time ago. She was, of course, trying to persuade me to buy some Australian titles. I balked. And then I asked why books from Australia were so expensive? Her excuse was the small market size and logistics.

A typical Australian book would cost about RM60.00 as opposed to RM35.00 for one of similar quality from Britain or the US. When a customer walks into a bookshop, all books are equal. They do not necessarily have more loyalty to books from any specific country (unless they are particularly chauvinistic). Price is important, and with Australian titles costing almost twice more, it is not surprising that they are rarely found on the shelves of Malaysian bookstores. Granted, the Malaysian market is small, but how many Australian books get into Britain or the US?

(I had a minor misunderstanding -- or that's what I learned later -- with a Malaysian author who had her book published in Australia some years ago. Understanably, no distributor from Malaysia or Singapore would import it, and she could not understand why I was reluctant to bring in a book that would have cost at least twice as much on the shelf as another equivalent title -- notwithstanding the fact that she was an 'unknown'.)

The truth is Australian books are available in this country -- in stores that deal with remaindered books. Yes, that is right. There is a huge trade in Australian remaindered books, a trade from which the Australian author does not get one cent. (In fact, Australian barn sales are almost legendary.) And these remaindered books are extremely popular, particularly children's books. I (and several people I know) have for years acknowledged that Australia produces some of the best children's books in the world -- far better produced and more wonderfully inventive than similar stuff from Britain and the US. Seriously. I know of adults who collect and read them voraciously. But they are not found in regular bookshops because they simply cost too much. (Now, India is getting into that market with surprisingly creative and well-produced children's books at a fraction of the price, so watch out.)

For example, it is almost impossible to get Penguin Malaysia to import books from Australia and New Zealand. They either flatly refuse, or else give you such a ridiculously long delivery time that you'd think you'd grow old and die first. When Elizabeth Smithers was a guest in Kuala Lumpur in 2007 we had to use quite a lot of (governmental) muscle before they finally agreed to import some copies with great reluctance. To us, it was like extracting the books from them with forceps; to them it must have been like we were doing it without anaesthetics. (By the way, they still remind us of that.)

But it is not just in children's titles that they are outstanding. I have browsed the shelves of several 'remaindered' stores in KL and I have been impressed with many of their titles. 

It is fine for Carey, Grenville and Keneally; they have arrived. And, that point about problems faced by 'literary' authors is taken. Literary writers all over the world face similar problems. Still, they have been recognised, as more Australian writers will be in future, because they are good. As for publishers and booksellers, what is there not to like about high prices and a 'closed shop' policy?

It is quite apparent that Australia has more to look at than its copyright laws as it increasingly prices itself out of the market. The world will not stand still. There is a potential new 800-pound publishing gorilla in the room. It is called India. And, many smaller ones snapping at the heels too.

The Guardian

The book industry -- times are a changing

A story in the Publishers Weekly says that Borders has agreed to buy titles from HarperStudio on a non-returnable basis. The average book buyer will ask, "So what's the big deal?" But to people in the industry it is a radical shift, perhaps the sort of change that is required for the industry to survive and bring back some sense into it.

I will start with a primer on how the book industry currently operates. (Okay, this is how it operates in the US, the UK, Australia and Malaysia -- we think it's cool to ape everything they do in the US and UK without understanding why.)

In a simple world, publishers publish. Then the distributor's undertake to distribute the book for a fee of, say, between 50-60% of the RRP. They then sells the books to the bookseller for a discount of, say 30-40%, usually depending on volume. (The actual discounts vary, but this is an example.) The publisher meets the printing cost, royalty payments and overheads from his portion. The distributor costs are warehousing, transportation and administration. The bookstore has to pay his rental and his overheads. Not much meat in there, really.

Then comes the first distortion. The distributor sells the books to the book retailer on an SOR basis, that is, on sale-or-return terms. So books that are not sold will be returned to the distributor who will then issue a credit note. And the distributor likewise will return the books he cannot sell (including the returns he gets from the book retailer) to the publisher. The publisher then pays the author a royalty on what has been sold and then pulps or remainders the rest. (It costs more to pulp it than give it away or sell it cheap.)

There is a huge trade in remaindered books with many book retailers practically specialising in it. The general rule in this business is that the less you are allowed to choose the cheaper the books cost. Of course, the author earns no royalty from this type of sale (and this trade might even be in violation of the fine print on the copyright page that says 'no reselling'.) One problem with the SOR model is that bookstores can order 100 copies of a title even when they know they can only sell 25 because they can return the rest. (The rest are used to decorate the shop to make it look good.) Returns in this country are normally allowed within a period of one year, but it is usually done within six months. Some do it in three, just when the payments are due. After this most books are considered dead because few are reordered, except by independents and chains specialising in back lists. (The real bookstores.)

The next distortion came with the advent of mega-bookstore and supermarket chains. These stores started ordering books in thousands (and in the case of Harry Potter, hundreds of thousands) demanding huge discounts of between 75-85%, and bought their books directly from the publisher. This put a lot of pressure on the latter because of the high printing costs and, God forbid, probable massive returns within three months. The only way a publisher could handle this was by raising the marked price on the book. (Now you know why books are so expensive.) Books became commodities like rice, sugar, or shoes. People who sold books this way knew as much about them as hamburger-flippers.

In Malaysia right now, book distributors are holding their breath, waiting for the other shoe to drop -- with the holiday season over, the returns are going to start soon. If the returns are as big as many people think they will be the repercussions to the industry could be serious. If it is larger, the effect could be catastrophic, and some people could go under.

Multiply the above a hundred fold and you get and idea of what they are facing in the UK and US. Add to that the past leveraging power of the mega-store chains that took out huge loans to expand ruthlessly, to stock up with huge inventories that they knew they could return, and sell them at massive discounts to kill the competition (and, to a certain extent, themselves).

Sensible people have been warning about this for two decades (just as they have been warning about the hubris on Wall Street). But reason has no answer for unmitigated greed, until the latter blows up in the face, that is.

Some publishers are not going to survive to see this, but firm sales could be a game changer. Some sanity could return to the industry, at last. Book retailers will only buy what they think they can sell if distributors will not take returns. Ditto with publishers. With no requirement to wallpaper the mega-chain stores premises with their books, publishers will not have to publish 1,000,000 copies to sell 100,000, and the subsequent lower overheads could mean lower prices for the consumer. It could also mean less carpet-bombing by publishers – less titles, but more carefully selected ones.

Of course, there will be fewer JK Rowlings. But that might not be such a bad thing.