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What's The Hold Up?
The most hotly discussed subject in the publishing arena of late has been the debate over electronic books and the decision by many major publishing houses to delay the release of high-profile titles. Big publishers such as, Simon & Schuster, a subsidiary of CBS Corp (CBS), and News Corp.’s (NWS) Harper Collins, have announced that they will hold back the release of the electronic editions of many popular books for months after the initial hardcover publication date to prevent possible cannibalization.
Executives at the publishing companies have stated that this move came in response to what they described as “cut-rate” pricing of the e-book versions. The rationale for this action was that e-book retailers, the largest of note being Amazon.com (AMZN), have priced these digital versions below cost, with tags ranging from $7.99 to $9.99, thereby undermining the sales and “value” of the more expensive hardcover editions and, perhaps more aptly, eroding publishers profit margins. Simon & Schuster’s management contends that the digital price does not account for the cost of paper, printing, packaging, artwork, and traditional distribution methods (truck and/or air freight). Publishers decry this trend as heralding the beginning of the end of the industry, as the world knows it. Executives and supporters of the delays claim that this step is necessary to protect the integrity of traditional publishing and the worth of the author’s talent and intellectual property. Furthermore, they assert that e-book retailers have set unreasonable prices to support sales of their proprietary digital readers, such as Amazon.com’s Kindle.
On the surface, this controversy has quickly taken the form of yet another pivotal battle in the war between new technology and traditional methods. As such, there are those who argue that the inevitable evolution and practicality of new technology should be embraced and incorporated into the publisher’s existing business model. It stands to reason that the digital platform and lower pricing ought to significantly increase demand and widen distribution potential, thereby, substantially increasing volume and broadening the author’s reading audience. Thus, should the publishers welcome this shift in the market dynamic and establish a firm position, the risk of losing devastating market share to the Amazon.com’s of the world would be diminished greatly. Although profit margins would be constrained at first, it would ensure a more level playing field going forward. Moreover, opponents of the deliberate delays state that the publishers are taking freedoms away from the consumers by creating artificial scarcity. They argue that in this Internet age, limiting the availability of readers’ preferred format ultimately hurts the author by impairing publicity power, as consumers will likely opt for other titles or choose not to purchase anything at all. There is also valid concern that the delays will encourage piracy, as readers may well ultimately seek the titles they want via other, perhaps illegal, channels.
From the author’s perspective, there is also a rift between purists and those who are more enticed by the benefits that the digital platform offers. Overall, authors have not openly exhibited overwhelming alarm with regard to the e-book delays. However, there are some who, while opposed to the extinction of the traditional print format, feel that the digital platform and the related prospect of exclusive e-book publishing deals offer greater potential for more lucrative royalty agreements and wider exposure. One such individual is renowned business author Stephen R. Covey, who is currently facing a legal struggle to hand over the exclusive selling rights of the digital content of two of his books, “The 7 Habits of Highly Effective People” and “Principle Centered Leadership” to Amazon.com. The point of contention in this case is Covey’s claim that there is no reference to digital content in his original contract literature, thereby, giving him the right to distribute this content through alternative channels. This case has sparked a frenzy of publishers scrambling to secure digital-content rights to backlist titles and renegotiate contracts to include digital content nomenclature.
In the near term, it appears that publishers’ attempts to stem the margin deterioration, caused by the growth of the e-book business through delayed release, is a logical course. Similarly, entertainment conglomerates with film production arms such as, Viacom, Inc. (VIA-B) and Time Warner, Inc. (TWX), are delaying the release of DVD’s to avoid cannibalization of theater release sales. However, much like the aforementioned entertainment outfits, publishers will eventually have to accept that the digital media format is here to stay and adapt accordingly. Indeed, in recent years, film production companies have enhanced DVD content and shortened the span between theater releases and DVD releases, in order to capitalize on the higher-volume and higher-margined DVD business and help offset the effects of piracy. Based on the evidence from the recent predicaments faced by both the movie, and particularly the music industries, publishers may do themselves a service by being quicker to adopt the evolving media platforms and the related shift in consumer sentiment, rather than trying to combat or defer the inevitable.