The Battle for a Digital Pricing Model that Works Part 2: The Fall of the Old Republic

By Rebekah Hunt
The Economist reported, in August of 2006, that print journalism has been in decline since 1990. Jobs in the industry fell by 18% between 1990 and 2004, Knight-Ridder sold off its newspapers, and New York Times share prices had been cut in half within four years.The obvious explanation, and the one most often given for these trends, is the mercurial rise in internet use over the past decade.
It is most likely true that the free availability of information on the internet has seriously impacted the public’s interest in reading a physical newspaper, adding up to large losses in the newspaper sector. But what about book publishers who, as the Times reports, aren’t faring much better than the papers? Has the rise in worldwide availability of digital media contributed to book industry losses as well? In the same way that Apple killed the arena-rock star, has the internet killed the print media star?
The short answer is yes, but it’s not as simple as that, so don’t go into mourning for the paper trade just yet. According to the Times, a steep decline in paperback book sales began in the 1980s, before the widespread adoption of the internet as a primary media source, “when retail chains that edged out independent bookstores successfully introduced discounts on hardcover versions of the same books.” This accomplished two things: it crippled the already wobbly publishing industry, and it changed consumer expectations of what a book should cost. I am going to repeat that, since it is essentially the crux of the entire issue: changed consumer expectations.
Reread that, breathe it in, take it to heart, because consumer expectations are the soul of the market. However much we may love our books, the print media are not the beleaguered Rebel Alliance, and the internet and Apple are not the evil Galactic Empire. It’s not a David and Goliath struggle here. Just like Sony, Geffen, and BMG, publishing houses are massive corporations with bottom lines and products to sell. The real Rebel Alliance is made up of consumers, bloggers, independent authors, self-publishers, and content creators of all types. Basically, people who write stuff and people who want to read stuff. To follow the analogy even further along this line, the internet is the Force, in that it “surrounds us and penetrates us; it binds the galaxy together” (in the immortal words of Obi-Wan Kenobi).
The most important effect the internet has had on the publishing industry is that it has changed consumer expectations of what media should cost, how easy it should be to access, the scope and variety of options that should be offered, and the level of control the consumer should have over purchasing options. The immediate availability of every type of media online, the relative difficulty of the acquisition and consumption of printed media, as compared to things like songs or television shows, and the initial resistance of publishers and authors to offer their books digitally created an uncertain place for book publishers in the market. This point was proved when book giant Borders filed for bankruptcy and shut down its stores.
Since newspapers and book publishers deal not only in information, but also in a physical product, they are experiencing some difficulties producing and selling their products in tandem with their digital content. If their digital content is offered for free, it cannot replace the revenue from sales of the physical product. By the same reasoning, the physical product cannot fund the free digital content if it is already losing money. Since publishing companies have been forced to cut budgets everywhere they can, downsize staff and reduce page counts, it seems impossible for them to retain the readership they so desperately need. The mainstay of the newspaper industry is in advertising dollars, but the book industry only sells content. So, how will the book industry harness the power of the Force and make money in the new digital universe?
Again, the music industry is a good place to look. According to a recent article on electronicbook-readers.com, the Napster/iTunes effect on the music industry is a leading indicator of what is possible for the future of book publishing. “CD sales have declined thirty percent in the last five years and digital downloads have not completely made up that gap created by the technology.” They say; however, “…different means of consumer consumption and distribution are responsible for the economic decline of the music industry.” They explain that it is the choice that consumers now have of listening to music before they purchase it, along with a sharp decrease in consumer perception of the value of digital content that are responsible for the decline in sales.
There are multiple giants for publishing houses, magazines, and other print media to slay if they don’t want to follow Borders into the tar pits of history. The largest of these, as with the music industry, are the challenges posed by digital distribution. The music industry has undergone massive change in response to the consumer-driven popularity of digital download sites. While this change was painful at first, most of those resisting it were at the top of the industry food chain making millions of dollars on overpriced, overexposed, overprocessed, records anyway, and the market has enthusiastically ignored their plight. As a result, the industry has been forced to evolve. With the rise of iTunes and pay-as-you-listen consumer sites like Pandora, the music industry is alive and well, and poised to take on any challenges the new market presents. But how will the publishing industry fare?
Stay tuned for next week’s blog, the Dark Side of the Force (digital piracy)/A New Hope (the publishing market evolves); and the week after that for the Return of the Jedi (an ebook pricing strategy that works).
Image by Declan Fleming. Used with permission under Creative Commons License: Attribution-NonCommercial 2.0 Generic.