An American Editor

April 5, 2010

Will Apple’s iBookstore be Publishing’s Waterloo?

Publishers have bet the store, so to speak, on Apple’s unproven iBookstore. Publishers knew what they had with Amazon, Sony, and Barnes & Noble, but forsook the known to engage with the unknown. If the iBookstore fulfills publisher dreams and becomes a real competitor to Amazon, it is likely that the agency model will expand. But what if the iBookstore becomes a Newton?

The problem is that if the iBookstore doesn’t fulfill all of the big 5 publisher’s prayers, they may not be able to retreat, having burned their bridges behind them. And if they do retreat, they may do so in the face of much more powerful Amazon than the Amazon that originally sent them into Apple’s arms.

The iBookstore experiment has several problems, not least of which is that it will be impossible to know how the agency model fares against the wholesale model on a same-publisher basis because once a publisher chose agency it was crammed down all ebooksellers. This would have been an important experiment for publishers. It is important to know whether agency decreases, increases, or has no effect on profitability and revenues. For the agency publishers, this knowledge will be lost.

Another problem is the possibility of being Newtoned. It is pretty clear that the initial adopters of the iPad are the hardcore Apple fans. But there are only so many of them and no one knows how many of them are ebook readers. Long-term viability is significantly more important than short-term sales spikes. And for publishers, of even greater importance is how many ebookers will purchase an iPad and shop the iBookstore.

iPad’s shortcomings have been well discussed in the media. Chief among them for ebookers are the difficulty of reading in bright light (outdoors), lack of annotation, and the weight. eBookers are generally, as I use the term, avid readers, the people who buy more than 5 books a year. The casual reader, the person who buys 1 or 2 books a year won’t make the agency model and the iBookstore a success for publishers; ebookers are needed. How happy will ebookers be with the weight and limitations of the iPad?

What happens if the iPad and the iBookstore are Newtons (flops)? What is the backup plan? Have publishers cut their own throats by forcing ebooksellers to accept the agency model? If the agency model is a flop with consumers, will publishers simply have given Amazon the dominant position they were trying to undermine?

The iPad is a nice gimmick and for all the hype, I don’t find it a compelling buy — and I’m looking for a larger screen ebook device. When I sit down to read, that’s what I want to do — read, not just for 5 minutes but for hours. And I buy lots of books; last year I bought more than 200 books (so I’ve got a huge to-be-read pile to which I am constantly adding). But I can’t imagine reading on a 1.5-pound device for very long; it would be uncomfortable to hold and would constantly require both hands. And I like to read in the sunshine when the weather is nice, something I can do on my Sony Reader. Convenience and comfort are two reasons for buying an ereading device. So the iPad is not on my list and the iBookstore, with its proprietary DRM is also not on my list.

What will publishers do to keep me buying books? Higher pricing is certainly not an incentive to buy books; if anything, it is an incentive to buy significantly fewer books, especially as I just lease the ebooks rather than own them. Locking me into a proprietary DRM leasing scheme and a particular ebookstore — whether Amazon’s or Apple’s — doesn’t appeal to me.

If ebooksellers like Smashwords continue to price aggressively, I am more likely to buy books from their indie publishers than I am to buy from the big 5 at inflated prices. So I and others like me, who do not fall for the Apple hype, are a problem for the big 5 and the higher agency model pricing. Don’t get me wrong. I am not one of the ebookers who believes that $9.99 is the magical sweet spot; I’m willing to pay more or less than that price point, but I’ll only pay more if I perceive the value in doing so. That’s where publishers fall down: they fail to convince me of the value of their ebooks.

The big 5 have declared war on me (and like-minded ebookers) with agency model pricing and aligning themselves with the iBookstore. This may well be their Waterloo, yet it is a battle the publishers cannot afford to lose. If the iBookstore’s sales numbers do not at least meet the sales numbers of the wholesale model, publishers will have won the battle (imposition of the agency model) but lost the war (decline in sales and revenues).

What remains to be learned is how the agency model publishers will evaluate whether the agency model is a success or failure. If the goal is to kill ebooks, then a decline in ebook sales will equal success; that is a fool’s goal, however, because ebooks are clearly the growth area of the future. If such a decline is not accompanied by a parallel increase in pbook sales, all the big 5 will have accomplished is lowering their overall sales and revenues. How will they view success or failure if the ebook market continues to grow but their share stagnates or declines?

Will they have succeeded or failed if Amazon’s, Sony’s, and B&N’s ebook market share continues to grow and the iBookstore only captures a very small percentage of the ebook market? How will the big 5 view the experiment if Smashwords’ share of the iBookstore market is greater than their share? Most importantly, if the iBookstore is a failure, how will the big 5 extricate themselves from the debacle?

Needless to say, it is much too early to determine success or failure, but it is not too early to plan a retreat. Placing all one’s hopes on unproven entities (the agency model and the iBookstore) is begging to be Waterlooed.

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