Ten Bold Predictions for Ebooks and Digital Publishing in 2014
It’s been another exciting year for the publishing industry – perhaps the most dynamic in the history of the business. In 2013, all ebooks by publishers became subject to retailer price controls and ebook prices plummeted. At the same time, ebook revenue growth has tapered off even as many of the largest publishers still reported digital gains. A handful of ebook subscription businesses were launched and libraries won some key victories in their fight to bring ebooks from all publishers to their patrons.
Nobody saw it coming. Well, almost nobody. A team of publishing experts predicted in late 2012 some of the astounding developments we saw in 2013 for Digital Book World. Read their predictions here.
Seeing as though 2013 is just about over, we’ve gathered more publishing experts to predict what extraordinary events are to come in book publishing in 2014. This year, we had so many insightful predictions to choose from – it was hard to pick just these ten. Stay tuned in the coming days for more predictions, those that hit the cutting-room floor.
In the interest of being truly bold, we’re going to start with the boldest predictions first. Enjoy.
1. Barnes & Noble will close or sell Nook and go private.
For a moment, it seemed as if Barnes & Noble would rise to challenge Amazon in the ebook business. When Apple entered into the market and leveled the pricing playing field for all retailers when it came to ebooks published by Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, one of the side effects was to help Nook gain a toehold in the ebook business.
According to popular thinking, Nook gobbled up as much as 25% market share in ebook sales in the U.S. in the heady days of 2010 and 2011. Microsoft and Pearson made sizable investments in Nook in 2012, much needed cash for a long battle with Amazon, Apple and others and a vote of confidence from two respected companies. In late 2012, then-Barnes & Noble CEO William Lynch told investors that its money losing device and digital content sales business would scale soon and start to turn a profit.
In 2013, not only did Nook continue to lose money, but its sales of content and devices actually fell. In its latest quarter, the nook division booked $109 million in revenue versus $160 million in the same period a year ago.
“The digital side is becoming a downward spiral for them,” said Andrew Rhomberg, founder of ebook discovery start-up Jellybooks and a frequent commentator on ebook and digital publishing forums (including this one).
Rhomberg and several others we spoke with feel that the only way to escape mounting losses from Nook is to sell or close the business. In its last quarter, Nook lost $55 million; it lost $58 million in the same quarter a year ago.
“Ultimately Barnes & Noble has to give up on Nook,” said Brad Stone, a journalist who has spent over a decade covering Amazon for various publications and who is the author of The Everything Store, a new book about Amazon. “E-readers are one chess piece on a chess board that now includes tablets and phones and set-top boxes and this company isn’t equipped to innovate in all those areas.”
Microsoft was thought to be a likely suitor, but those rumors quickly died down.
Once free of Nook, Barnes & Noble might consider going private. The bricks-and-mortar bookselling business might be a profitable one for years to come – as it is currently for Barnes & Noble and hundreds of independent bookstores – but it’s not the kind of growth business that makes investors want to open up their wallets.
“[Len] Riggio [Barnes & Noble’s largest stockholder and chairman] will take it private and manage its decline,” said Rhomberg.
Earlier in the year, Riggio explored the possibility.
2. Amazon will go the way of Barnes & Noble…and open its own physical stores in 2014.
Amazon dabbled in physical retail over the past few years, opening up several locations where customers could have orders shipped to storage lockers for easy pick up. Retailers like Staples and RadioShack rented Amazon the space, reasoning that it would help generate foot traffic. When executives at some of these physical retailers realized that it wasn’t helping them, they gave Amazon the boot.
The company also opened up a pop-up store in the middle of a mall in San Francisco. Clearly not meant to be permanent, the store recently closed. But Amazon founder and CEO Jeff Bezos has long been in favor of having a physical presence.
“Bezos and colleagues have always said they’ve considered physical locations, but that it would have to meet their requirements for return on invested capital,” said Stone.
A more permanent bricks-and-mortar Amazon store would act as a showroom for Amazon products like the Kindle and for physical versions of its books, which other retailers have often been resistant to carrying. According to Stone, Amazon could also use the store to house its lockers for online order pickup. And to keep customers interested when they weren’t buying a Kindle or picking up an online order, the company could stock its shelves with its current best-sellers from its sprawling Web store.
A final benefit would be a showroom where customers could touch and feel upcoming Amazon innovations that could be harder to sell online.
“If it [Amazon] wants to change the game in the mobile market with features like 3D screens, it’s going to have to show customers why that matters,” said Stone.
3. Trade publishers will sell and acquire assets to “verticalize” their businesses.
The past three years saw more financial activity in trade publishing than in most of the rest of the 2000s. The big deal was the merger between Penguin and Random House, but there were other significant deals: HarperCollins acquired Thomas Nelson and Hachette acquired the adult list of Hyperion, for instance.
In 2014, as publishers try to find competitive advantages against each other and the growing threat of self-publishing, they will build more digital marketing capabilities around vertical markets of interest.
“Huge growth in digital marketing will drive awareness that marketing in verticals is more efficient and therefore drive the publishers to beef themselves up in those verticals where they can market effectively and to be less aggressive about publishing in verticals where they can’t market effectively,” said Mike Shatzkin, a publishing consultant and Digital Book World Conference chairman.
Many publishers already have vertical businesses and are reaping the rewards of a specialized focus. F+W Media (which owns and operates Digital Book World) may be one of the better examples. It operates about twenty “communities” of interest – each publishes books and ebooks about topics like design, knitting and woodworking and operates specialized marketing operations tailored to each community’s unique needs.
More trade publishers will start to see the benefit in this in 2014, said Shatzkin, and will acquire or divest properties to become stronger in certain areas, like romance or crime.
Some companies that are unable to verticalize quickly or efficiently enough may have trouble in 2014.
“Expect more company acquisitions, mergers and in some cases shutdowns,” said Dominique Raccah, CEO of Naperville, Ill.-based independent publisher Sourcebooks.
4. The illustrated book business will become severely challenged.
Unlike “immersive reading” – that is, novels, narrative non-fiction and other long-form, mostly text-based content – illustrated books haven’t translated well into ebooks, commercially, that is.
Publishers and authors continue to innovate with new digital publishing technologies, creating new and impressive forms of digital content that delight readers. The problem is, for many of these new products, there just aren’t enough readers yet.
At the same time, much of the information that used to come exclusively from books purchased in stores – recipes and gardening advice, for instance – is now available for free or very cheaply on the Internet or through apps.
“There will be increasingly choppy waters for illustrated books, particularly those that are not in DIY [do-it-yourself] categories that can find retail shelves outside of bookstores,” said Shatzkin. “You’ll see diminished production and you will start to see some smaller, specialty publishers becoming obviously challenged.”
The good news for illustrated publishers looking to transition some of their print business to digital is that the cost of creating the innovative publishing projects that their content calls for is coming down, according to Ron Martinez, founder of Aerbook, a digital production start-up and frequent commentator on digital publishing issues.
“Illustrated ebooks will enter the market in far greater numbers this year as production costs plummet,” said Martinez. “It’s an existential question for illustrated book publishers. As the market shifts to digital, if they can’t get their books into the market inexpensively, their market position will deteriorate in serious ways.”
Whether these new digital products will find large enough groups of buyers at price points publishers can live with remains to be seen. Still, while many illustrated publishers will be challenged in 2014, many will continue to run viable businesses.
“There will be illustrated books published for years and years and years,” said Shatzkin. “Globally, it’s not going to melt down to one publisher next year.”
5. Publishers will go after new revenue streams as ebook revenue growth continues to taper.
In 2013, ebook revenue growth hit an inflection point and tapered off. Somewhere between a fifth and a third of book publishing revenue in the U.S. comes from the sale of ebooks – a number that was quickly getting bigger every year, until this year, when it stagnated.
With publishers nervous about the growing power of Amazon as their largest customer for both physical and digital books, many of them will start to look for new ways to generate revenue.
“Publishers are not going to be able to subsist or rely on endless streams of cheap digital downloads to replace lost print revenue,” said Richard Nash, a publishing entrepreneur who was most recently vice president of community and content at Small Demons, a digital publishing start-up that has announced its closure. “Publishers will try to figure out where to get the revenue if not from digital downloads.”
Many publishers will launch businesses in conferences and education, things that are hard to replicate and commoditize, Nash said. They may also find ways to go after larger, institutional customers, similar to how the professional ebook subscription service Safari counts major corporations and the Department of Defense among its clients.
“Publishers, authors, agents and retailers will continue to experiment with new kinds of content, new ways to reach readers and new business models,” said Raccah.
6. More publishers will endorse the subscription ebook model by doing business with Oyster, Scribd and other similar services.
The consumer-facing, mass-market ebook subscription business has long been a tantalizing dream that many said would never become a reality. Publishing experts predicted that the issues surrounding book distribution and monetization for authors, agents and other rights-holders would be too complex for any firm to navigate.
Amazon launched its Kindle Owners’ Lending Library (KOLL) in 2011, which allows Amazon Prime subscribers who also own a Kindle device to “borrow” one ebook for free every month, angering many publishers. The limitations and its catalog – mostly made up of self-published titles – leaves KOLL a little short when it comes to being the Spotify or Netflix for ebooks.
There are of course professional subscription ebook services like Safari and a few others, but these aren’t really the same as a Netflix or Spotify for ebooks either.
And Spain’s 24Symbols, a larger, more ambitious attempt at the idea has been around for a few years but has yet to gain mass-market traction.
Then, in the fall of 2013, Oyster, eReatah (now Entitle) and Scribd all launched viable, consumer-facing ebook subscription services at low monthly price points and with catalogs from some large publishers.
“This is a strategic response to Amazon,” said Rhomberg. “One or two more of the big five might selectively open up their catalog to subscription services for the sake of creating alternate channels to Amazon.”
7. More publishers will launch magazines and websites catering to reader interests and start selling ebooks directly to customers.
Some publishers have already started down this road. To name a few: Earlier this year, Simon & Schuster launched a romance-focused multi-platform online portal called Hot Bed; vertical publisher Demos Health has publicly eschewed traditional marketing and poured resources into a new health-focused portal; and F+W Media is deeply invested in this strategy, as mentioned above.
“Publishers are going to find they have content around which to publish magazines and websites,” said Shatzkin.
Using these new portals, publishers will try to entice readers to buy ebooks directly from them. F+W Media has done this for years. HarperCollins recently launched a series of sites that are meant to engage fans and then entice them to buy ebooks; a site focused on the world of Narnia has been the most publicized example.
“More publishers will invest in building lists of customers and experiment in direct retail,” said Martinez. “It will be toe-in because there are real issues with pushing their lists on their own site versus Amazon.”
Publishers employing this strategy will want to be careful not to cannibalize their Amazon rankings, said Martinez.
Some publishers may go so far as to provide their own reading platforms for their customers to read their ebooks on.
“We’re going to see increased activity by a lot of publishers who will either create their own or license from third parties e-reading apps which will allow them to work more on a direct basis than they do today,” said Joe Esposito, a digital media management consultant. Esposito points to the third-party reading software Bluefire that many companies use to power their own reading apps. “Go to the Bluefire website and look at the client list,” he said, adding, “it’s always growing.”
Related: See Joe Esposito in two sessions discussing Amazon and the future of bookselling at Digital Book World 2014. Register.
8. Publishers will move toward data-drive decision making.
Data has been a prominent topic of discussion in publishing over the last several years. For decades preceding the current era in book publishing, decisions about acquisitions, sales, production, marketing and rights management were made by seasoned professionals who used their internal compasses more than charts and figures.
Today, the industry is going through a data revolution. Through ebook retailers, social media platforms, consumer insights companies and specific vendors like App Annie and Iobyte Solutions, publishers have access to more data than ever: data about book sales, how readers read books, the readers themselves and much more.
“Data will continue to go more mainstream in the book world, impacting every aspect of the book publishing process,” said Sourcebooks CEO Raccah, who prides herself on making data-driven decisions. “And data insights will push change onto all parts of the book publishing supply chain.”
Many larger publishers have formed fairly complex data departments and are now moving to integrate data-driven insights into daily operations.
“We’re going to see a much bigger move toward data-driven decision making in publishing,” said Dana Beth Weinberg, a professor of sociology at Queens College in New York who is studying authors and the publishing industry. “A lot of the houses are starting to look at what information they have on hand and to try to figure out how to leverage it. They will start looking at new and existing authors and make decisions about where to put their marketing dollars. They’re going to be looking for new data if they don’t already have it.”
The bad news for publishers focusing on using data more in the coming year?
“There’s a growing awareness that the existing data are not as good as everyone wished or hoped,” said Weinberg.
Related: Dana Beth Weinberg discusses the latest data on authors, publishers and self-publishing at Digital Book World 2014. Register.
9. More price experimentation.
In 2013, prices for best-selling ebooks plummeted, led by retailer discounting of top titles, particularly at the end of the year. But there were other factors, too, such as publishers trying price promotions for back-list books and the rise of self-published best-sellers.
With nearly a full year of new pricing data under their belts, publishers and retailers will continue to experiment with ebook prices. If history is any indication, that experimentation will push prices down.
“Ebook prices are going to continue to go down,” said Shatzkin.
Retailers will continue to jockey for position among consumers and, when it comes to moving digital units, lower prices do the trick.
“Prices are going down because it’s a good way to get people to discover something new,” said Nash. “So everyone will be doing it because it works.”
10. The “big five” publishers will make their full ebook catalogs available to libraries for purchase.
In 2012, librarians were not happy with publishers. Many of the largest publishers in the world (Simon & Schuster and Penguin, to name two) were not selling ebooks to libraries. Some of the others were selling them at terms librarians hated (HarperCollins limited the number of times a library could lend a purchased ebook and Random House introduced high pricing, for instance).
In 2013, the largest publishers warmed to librarians and now all of them do ebook business with libraries in some capacity. However, Macmillan doesn’t sell front-list ebooks to libraries. Simon & Schuster is only in a pilot phase with its library ebook program.
“There has been momentum in 2013,” said Alan S. Inouye, director of the Office for Information Technology Policy of the American Library Association. “Major publishers have seen that having their front-list available to libraries doesn’t damage sales. Macmillan will also see the light and Simon & Schuster is going down the path of more library access.”
Of course, lost in the library ebook hullabaloo is that every other publisher almost without exception was already selling ebooks to libraries.
Related: Join the American Library Association at Digital Book World 2014 for a special workshop on libraries, ebooks and discovery. Register.