Feature article: Bookseller + Publisher

Published August 2010

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The digital learning curve

In January 2010 Melbourne University Publishing CEO Louise Adler commissioned a report on digital publishing. Digital specialist Clare Marshall interviewed publishing professionals and analysed trade studies and media reports. This is an edited extract of her report.

As the largest English-language market for ebooks, the US has become the testing ground for many of the key issues surrounding digital publishing, from price points and release dates to author contracts and digital rights management.

While many have lamented Australia’s relatively slow digital take-up, the upside is that the local book industry is able to observe how these issues are being resolved in the US—and, to a lesser extent, the UK—and learn from their successes and failures.

Author contracts

Like readers, most authors believe that ebooks cost far less for publishers to produce and distribute than print books, and many expect an increased royalty rate as a result. The current industry standard for author royalties on ebook sales is 25% of net receipts, as opposed to 8-10% for print books. The UK Society of Authors argues that the standard rate should be increased to 50% for all authors and to as much as 75% for established authors. Many US authors are also putting pressure on their publishers for increased royalty rates on ebooks.

Last year, British author Ian McEwan signed with independent ebook publisher Rosetta Books for double his usual royalty rate. Rosetta brokered an exclusive deal with Amazon US, which gives McEwan over 50% royalties on ebook editions of his key backlist titles. Amazon is also offering a 70% royalty rate for authors to self-publish through their website, thus cutting out publishers entirely.

The McEwan example sent publishers around the world scrambling to secure the digital rights to their lists. Most author/publisher contracts have always specified that the publisher has the right to produce the work in multiple editions and formats, which would logically include ebooks. Almost every agreement specifies that the author cannot publish or allow the publication of any competing product that might injure the sales of the print book. However, some authors and agents have challenged the general nature of these clauses in relation to digital sales.

Digital rights management

Digital Rights Management (DRM) is a generic term for access control technologies used by hardware manufacturers, publishers, copyright holders and individuals to place restrictions on the use of digital content. In digital publishing, DRM determines whether or not readers can copy, print and forward ebook files, as well as how many different devices can access each file. DRM is also used to manage territorial rights.

DRM aims to support authors and publishers by restricting digital piracy and protecting territorial rights. It is generally applied to ebooks by retailers, not publishers, according to the particular level of access they choose to allow their customers. Overly restrictive DRM can be off-putting to consumers, just as too-lenient access can disconcert authors and publishers worried about protecting their copyright.

Opponents of DRM, who widely refer to it as ‘Digital Restriction Management’, claim it places needless restrictions on consumers and increases the risk of censorship. They point to the recent controversy surrounding Amazon’s remote deletion of George Orwell’s 1984 from hundreds of Kindles as a classic example. Amazon deleted the offending ebooks at the publisher’s request due to a copyright infringement, thus sparking fears about the fragility of digital content and its potential manipulation by restrictive regimes. In response, the Free Software Foundation launched a petition against remote deletion and DRM.

While some in the book trade would like to test DRM-free ebooks, most publishers feel that some form of control over digital content is necessary. However, almost all agree that the DRM process needs to be made less complicated for the consumer.

Territorial issues 

Territorial copyright issues will be as difficult to negotiate as ever in the digital world—perhaps even more so. Territorial rights refer to the complicated practice of selling book rights in different territories, which require separate negotiations and contracts in each case. This is driven by the practice of splitting rights in author contracts.

Some in the industry see the adoption of a global copyright standard as the solution, arguing that faster, if not immediate, access to multinational titles is the key to a healthy book trade. Others warn that a global standard would make the already dominant US and UK markets the default gatekeepers of the digital publishing world. This would almost certainly reduce the number of locally produced publications in territories outside of the US and UK. Furthermore, those against a global standard argue that territoriality performs an essential quality control function, in which on-the-ground experts are able to select and manage international titles in their own unique markets.

For now, it seems that ebooks will operate within existing territorial copyright restrictions for as long as subsidiary rights sales exist. Subsidiary rights sales provide a healthy source of revenue for publishers, especially those in the US and UK, so are unlikely to be done away with any time soon.

Piracy

The piracy of ebooks is not yet widespread. At the time of writing, the majority of pirated books remain scanned copies of printed books or manuscripts, which are then printed or made available online. However, illegal filesharing websites do exist and can generally be relied on to have the latest blockbuster available for download.

Most in the book trade believe that piracy will never be completely eradicated. DRM software can always be cracked and there will always be a minority of consumers who will choose the free illegal download over the legitimate eBook. However, there are certain steps publishers can take to reduce the risk of large-scale piracy.

Piracy generally occurs when motivation meets opportunity. If an ebook is too hard to find, too difficult to access and too expensive, the motivation exists. Delaying the publication of ebooks to protect print sales can also be seen as encouraging piracy. Publishers can combat piracy by frustrated consumers by making their ebooks available through a broad range of retailers at a fair price. They can also consider publishing digital editions simultaneously with print.

Chain of supply

The advent of digital publishing has many in the book trade worried about the potential fragmentation of the traditional supply chain. How will established relationships between authors, publishers, printers, distributors and retailers be affected by the switch to digital? Who will be cut out of the chain, and at what cost? The most extreme example is the author who self-publishes his or her own ebooks and sells them direct to the reader on his or her own website, thus cutting out publisher, printer, distributor and retailer.

In fact, the chain of supply for ebooks is not entirely different to that for print. Ebooks are another format for print publications and will generally be created, produced, warehoused, distributed, sold and marketed in a similar manner—often by the same people. Publishers will continue to discover, develop and promote authors. Distributors will use their existing channels and relationships to make clients’ ebooks available as widely as possible, and will often take on the role of digitally ‘warehousing’ ebooks. Though undoubtedly threatened by Amazon and Apple, bricks-and-mortar retailers can capitalise on digital sales by upgrading their online sales facilities or partnering with dedicated ebook retailers. Even printers can participate in the digital arena thanks to print-on- demand technologies.

As digital sales increase, some links in the traditional book supply chain may merge or eventually be cut out altogether. For now, though, the general consensus in the book industry is to maintain the status quo. Publishers want to focus on producing good books, regardless of format, and are content to leave distribution and retailing to the experts.

Pricing models

The price of ebooks relative to print has received more mainstream press than any other issue in digital publishing. Readers and some retailers have fixed ideas about ebooks costing less for publishers to produce and distribute than print books, and expect a significantly cheaper product as a result. The challenge for publishers is to price ebooks in a way that is both fair to the consumer and allows creators and publishers to be fairly compensated.

An aggressive war over ebook pricing has erupted in the US, sparked by a public dispute between Macmillan and Amazon. Dubbed ‘The Great ebook War’, the conflict arose after Macmillan disagreed with Amazon’s decision to discount its ebooks to US$9.99. It also refused to release ebooks simultaneously with print editions. Macmillan argued that US$9.99 price points were unsustainable and that, along with simultaneous release, they undermined the value of the print product. Amazon responded by removing the buy buttons from all Macmillan titles on its regular and Kindle store.

The launch of Apple’s iBooks Store and, more importantly, its new agency model, gave Macmillan the leverage it needed to renegotiate with Amazon. Under the agency model, publishers keep possession of ebook files and pay a 30% commission to retailers. This allows publishers to set the retail price of ebooks and means that retailers have no ability to change that price. Under the traditional bookselling model, publishers sell titles at a wholesale price to retailers, who then decide at what price to sell them to readers.

Publishers are excited about the agency model, not because it earns them more money (it doesn’t), but because it is a more sustainable business model for the industry as a whole. Publishers argue that US$9.99 price points for ebooks reduce the chance for healthy retail competition, undermine the cultural value of books and are unable to fairly compensate authors and producers. Publishers need profit margins on bestsellers in all formats if they are to invest in new authors and books with smaller audiences.

Release dates 

The timing of ebook releases in relation to the print equivalent is another contentious issue.

Supporters of the simultaneous release of digital and print editions argue that a delayed release date kills sales of ebooks. Delaying the release of a digital edition means it misses out on the marketing and publicity buzz generated for the print edition. More than anything else, ebook buyers value immediate availability. If a book is promoted in the press but is not available in digital form, ebook buyers are unlikely to return and purchase it three months later.

Supporters of the delayed release of ebook editions argue that it protects sales of print books, particularly hardbacks. They point out that there has always been a delay between the original hardback edition and the cheaper paperback, and that readers were quite content to wait. Whether readers will remain so patient in the high-speed, instant access digital world remains to be seen.

Following its recent battle with Amazon, Macmillan US agreed to publish ebook editions simultaneously with print in exchange for greater control over pricing. This is widely seen as an attempt by Macmillan to keep ebook readers on-side after increasing the price of their books.

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