The Polarisation of Publishing

Publishing whatever sector, geography and format has always adhered to Pareto’s 80/20 law and in many cases less than 20% have generated even greater than 80% of revenue and unit sales. This obviously leads to a polarisation of the market, with in many cases, no more than a handful of publishers and channel operators dominating each sector. Many don’t like it, cry monopoly, but its not going away and the dilution of one operator will just be replaced by another.

We recently raised the question of the impact of the migration from print to digital revenues and asked what it would mean to organisations, supply chains and the remaining print based operations. We all know digital is happening and continues to accelerate and although we may not be able to predict where the line will be drawn, the impact will be significant and not preparing for it may be like a publishing ‘Pearl Harbour’. Perhaps today’s biggest conference circuit agenda should be on , ‘How to survive in a downsized print world.’

When Chris Anderson first coined ‘long tail economics’ in 2006, many were cynical and merely asked where the money was. It challenged the fundamental principles of the economies of scale and scope on which the 20^th century was successful. However, today no one can deny that the long tail is here and not only has it arrived, revitalised the forgotten back list, inspired many authors to do it themselves, but it has challenged the industry’s obsession with front list. Penguin’s recent acquisition of self publishing operation Author Solutions, is not just about feeding the machine, it also about trying to accommodate the new long tail world and get involved in a mass movement. Amazon have once again shown great strategic vision and application with their Kindle DP programme, which could now become a significant jewel in their crown and although other players are trying to emulate it, they are playing catch up and are clearly behind the curve. Open research and access is also going to have a significant impact on some markets and change the balance of power across the value chain. However, we still to see some more moves and there are some real opportunities today that are just begging to be taken.

Only this week we read in Publishers Weekly about the demise of print back list sales which is in part down to reduced shelf space and also part down to digital offering what we believe is a more logical and better home for these works. This again impacts the balance of the market both in terms of front versus back list and also physical versus digital. the interesting question is, if the physical back list market becomes less predictable and attractive does this give publishers the confidence to digitise their back list or raise the risk that digital migration may not be rewarding? Will they merely sit on their assets, revert them, digitise them with no marketing effort, or let them slide into an orphanage? Digital may only be seen to be worth the effort if it generates sales and if the digital shelves are full how do readers find and differentiate the back list from the rest?

We are no longer talking about ‘long tail’ economics but ‘long market’ economics.

So what will be the organisational and economic impact of the seismic changes that are taking place today?  It is not just a case of responding and generating new revenues, but one of managing and protecting old ones too. We and many others believe that the 80/20 law will still prevail but that the market will become even more polarised and middle ground will change radically. One of the leading thinkers and a Director at Bloomsbury, Richard Charkin, recently is quoted as saying that, ‘publishers should now start to act and think as start-ups.’ A very scary thought for some, but a stark reality for many.

In some media sectors competitors are now working together to share investment and importantly risk and reward. Do we see a similar collaborative publishing environment, or a continuation of the ‘winner takes all’

Many still believe that digital is just about pouring the physical book content into a digital container. Whilst others believe that digital wizarderly and extras will prevail and digital content will become a full blown multi media experience. Reality will be somewhere in the middle but what is clear is that publishing will continue to polarise and in doing so create some exciting opportunities which will demand market and organisational change.

The democratisation of reading and writing is happening and the question is who will be prepared, fit, and responsive and succeed in the Brave New World of digital and physical content?

Some say the today’s weather is becoming more volatile, extreme and unpredictable. Welcome to publishing tomorrow.

The Future is Free?

Last week BBC Radio 4 covered an interview with Chris Anderson, editor-in-chief of Wired magazine on his new book 'Free: The Future of a Radical Price'. Anderson best know for his writing on ‘Long Tail’ economics, has now moved on to a future where the customer no longer pays? He believes that digital product prices are now falling until the point when they reach zero and that this is creating a new business model where companies grow rich by charging their customers nothing at all.

‘We go from an economy where things get more expensive, such as oil and food - the economy of atoms - to an economy where everything gets cheaper, which is the economy of bits.’

He cites Google, Wikipedia, Craiglist as a disciples of the new model and that although their consumer offer is free, the likes of Google are extremely profitable. Someone has to pay, but in his model a few paying customers can cross-subsidise everybody else. Open-source computer software such as Linux, is free to users who can then alter and build upon the system, but only as long as they make it freely available to everyone else. Even the likes of IBM now create free software and cargo and baggage on airlines can cross subsidise passenger flights. He cites Flickr Basic being free, whilst Flickr Pro is sold to premium subscribers.

As games move more online then Anderson believes they are moving to his free model and that the majority of players will play for free and that the games companies will make their money from other means.

So what about ‘books’? We have seen the emergence of the free back list ebook offer to promote new front list. We have seen increasing use of free digital marketing materials, including the whole book for a limited time period. However, unlike other media sectors, we are still currently stuck in an ownership model based on collecting book libraries. Perhaps, the future of digital books are online and on a rental basis and it is easy to envisage these being cross subsidised. However, as the majority of books are still physical and the industry remains in denial over digital being cheaper, we may not adopt the Anderson model at the same speed as others.

The Long and Short of It

The Times Online had an interesting article which questioned the theory of Chris Anderson’s ‘long tail’ economics. Its conclusions are based on a new study by Will Page, chief economist of the MCPS-PRS Alliance, the not-for-profit royalty collection society. Page finds that more than 10 million of the 13 million tracks available on the internet failed to find a single buyer last year. 80 % of all revenue came from around 52,000 tracks and of the 1.23 million albums available, only 173,000 were ever bought, meaning 85 per cent did not sell a single copy all year. This would support the old 80/20 rule that states 80% of inventory only returns 20% of profit whilst 20% will return 80%. The conclusion long established in inventory and production management that you cut the 80% and focus on the 20% that makes money.

Chris Anderson in his book The Long Tail predicted that the internet economy would shift from a relatively small number of “hits” at the head of the market, toward a “huge number of niches in the tail” and in doing so question the 80/20 rule.

The issue is not who is right and who is wrong. as history will always be rewritten to fit the facts. The explosion of digital material is now skewing the debate. Once material is digitally available the operational cost is relatively small, but the value of the collection as a source of search, discovery and purchase, is huge. Would you buy from Amazon or ABE if they didn’t have the depth and range of titles available and all that differentiated them was price? Service also adds a value factor, but the range and availability of ‘stuff’ is often the initial draw. Why do people use Google search?

We would also suggest that the long tail may be cyclic in its appeal. As we replaced our CDs with MP3 and went to storing our collections digitally, we obviously trawled the tail and bought from it. However, when we have consolidated our collection, we revert back to more current material, which is bound to skew towards the old 80/20 rule. So we offer that there is an added dimension of time that needs to be considered and we would not expect that last year was one where the emphasis was on rebuilding the collection. If we are correct in our thinking then the real value of the tail may be seen as we shift from owning collections to now paying to play them by renting them online. This model has not happened yet, but we would expect a shift to occur more in the book world than the heavily converted music world as people realise that owning ebooks may not be as wise as renting them on demand.