By Paul Budde
More than a year ago I wrote a brief analysis for the Book Industry Strategies Group. As mentioned at the meeting in June I am concerned about the strategic issues in the industry and I have taken this opportunity to review and update my report from last year.
As mentioned, I am taking a from-the-sidelines position in relation to the workgroups but this analysis may help the chairs of the groups to see if I can be of any assistance to them.
I also realise that because I am not a direct participant in the industry some of my comments are easy to make, but at the same time I hope that an objective critical view will help to focus on the core issues.
I am also concentrating – as my role in the Council indicates – on the digital aspects and therefore will leave many of the day-to-day issues largely untouched; however I acknowledge that the two need to be addressed in parallel.
While it is the Australian situation that is being addressed within our Council, many of the issues apply also to the global market. And, furthermore, from a business perspective our scenery is very much the same as that of other industries that face transformation (retail, publishing, broadcasting, telecoms, banking, healthcare, education, energy, etc).
In essence the book industry has a golden future. More books are read than ever before and new (international) book markets open up every year. Writers have existed – and have been in demand – for 5,000 years and they are not going to die out any time soon. Nor will there be any decrease in demand for more content.
It would appear that this is an industry that cannot go wrong. But it has problems because of its structure.
The book industry has been around for 1,600 years and it is about to be turned upside down again. The late Romans and the Irish Monks changed over from scrolls to books and now we see the reverse happening – from books to scrolling. The impact of this change is so profound that most in the industry have trouble grappling with it.
Nevertheless there are many innovations happening in the industry – coming mainly from small new players in the market and from outside the established players. But at the core industry thinking still takes place in protectionist isolation. It is just another silo in which many of the vested interests are more preoccupied with the protection of their existing business structures than they are with embracing the opportunities that new developments are offering them. Also it is essential, before looking at the government for assistance, to first have a very clear, strategic, high-level view of where the industry needs to go.
Industry needs a digital transformation
Interestingly, I became involved in this industry for the first time in the late 1980s, at which time it was claimed that the content providers of Australian culture – in this case, the authors – were becoming an endangered species. It was also said that the key reason for this was that they were underpaid (an average annual wage of $25,000 was quoted at that time).
Now, 25 years later, that same message is being repeated by the industry (the authors). Doesn’t this mean that there is something structurally wrong within the industry? Surely if it were something else it would have been fixed by now.
In the digital economy we see disintermediation taking place. New technologies are delivering the same product in a different format and/or different ways, for a fraction of the cost. Traditional cost structures are dictated by analogue business models. Digital technologies don’t have those high costs and they therefore can deliver the product significantly cheaper. As the traditional industry has been slow to adapt to this situation we have seen others entering the market. These are enormously destructive developments for the traditional industry, and linear solutions are not the answer.
In order to survive the industry will have to embrace the same digital structures as the newcomers; and hopefully, because of their integral understanding of the market and of the content that comes from within the industry, they should be able to maintain their leading position in the market. However if they fail to use those digital tools they will be outmanoeuvred by the low-cost digital operators in this market.
Customer service is king
Here the best lesson can be learned from the retail industry, where customers have clearly indicated: “you don’t deliver the customer service that we expect from you, so we will bypass you and go elsewhere (on the internet)”
The book industry will have to start looking very seriously at their customers and see what they can do to enhance the customer experience. And there is no other way to do this but through the digital media. The ‘portal’ was already mentioned back in early 2011, and I am puzzled why this is not yet in place – and even more puzzled by the small amount of progress that has been made. It will not be long before a third party steps in and establishes such a portal, one that is independent of the current book industry.
In my opinion this would be one of the most urgent issues on the digital agenda. Waiting another year could mean another lost opportunity. Think Amazon in setting up such a portal – we don’t need to re-invent the wheel, but we can make it a comprehensively Australian service.
As I flagged last year, the industry at large is often far more occupied with what is good for them than with what the customers want – a very dangerous attitude – and in the book industry there is a striking dissimilarity between the interests of these two groups.
For example, as a result of lobbying – aided by well-known but perhaps ill-informed Australian cultural ambassadors – the government overruled the Productivity Commission’s advice to open up the market. This protectionism leads to significantly higher book prices in Australia than elsewhere. Naturally customers are not happy with this and they are going online to buy their books. Some progress has been made since that time but in essence the situation remains unchanged.
At the meeting in June we also mentioned the fact that often the industry confuses the following two elements:
- Australian culture and the need to foster and protect that culture
- An out-of-date industry structure that needs to transform itself.
Promoting national culture
Most people will agree with, or at least have sympathy for, government policies that promote Australian culture. But the best way to do that is through direct subsidies, as is happening in other cultural sectors (music, dance, film, arts, etc). Why isn’t this happening in literature? And if the aim is in fact to protect and advance the position of Australian writers, why isn’t the industry lobbying for this?
Subsidy schemes for writers are in place in many European countries – France, for instance, and in Canada also.
This should be the focus of any requests for government assistance; and it should be linked to a comprehensive plan of what we (as in, the industry) think our future model will be. Without a clear vision from the industry even an obvious avenue like ‘cultural assistance’ will not be open to us, as the government will want to see a strategic plan around it.
I also mentioned the opportunities in relation to the subsidies available under the digital economy and NBN policies. But again swift action is necessary, since most of the money has already been allocated. It does not appear to me that the industry is in any hurry, or in any position, to effectively apply for funds under this option – again because of the lack of a strategic industry plan.
Industry protectionism will fail
It seems to me that this all-important cultural issue is mixed up with ‘manufacturing’ and retail issues and this makes it impossible for the book industry to use it as an effective argument to get government support.
Keeping the cultural element embedded in the other industry issues means more government rejection. Promotion of Australian content is not going to be achieved by limiting competition and customer choice – and, more importantly, it is not going to work. Competition will eventually do away with the inefficiencies that make books bought in Australia more expensive than those bought overseas.
By protecting the industry (rather than supporting content/writers/innovations) potentially at least an inefficient industry is maintained – one that will at a certain stage have to change anyway, or it will die. And the government has clearly indicated that it does not support most of the recommendations made by the industry. As mentioned above, to a large extent the current regime focuses on protecting the old industry structures and this enables other more innovative companies – organisations that do see the changes as a business opportunity – to fill the gap (Amazon, Google, Facebook, Apple, YouTube). In this battle the industry has already lost and continues to lose valuable time that it should be using to build its own new business models.
‘Forcing’ the industry to accept change will also force them to look at new opportunities.
As with other industries, far more new jobs will be created than existing jobs will be lost. Over the centuries new technologies have only added to the economy and the growth of the workforce. This does not mean that the industry should not start work on a transitional educational and re-skilling exercise – the longer that is postponed the more jobs will be lost, instead of being transformed into new jobs.
More power to the author
The new opportunities are plentiful and they are already possible. Each author should have their own page on the web and/or social network sites, and should engage with their customers (readers). And indeed many now do. Readers love this and they are already becoming the authors’ best sales and marketing people. Apart from direct book sales other services can be added – book readings, presentations, merchandising, tours, alternative book outcomes online, etc. Australian content is of interest to the rest of the world and this offers great export opportunities for our authors.
Authors can also set up shop elsewhere on the internet. As happens in other markets, authors will have to follow their customers in order to sell their products. If they speak a different language, or frequent other parts of the internet, then that is where the authors need to be.
Currently many of these activities are done together with the publishers, and here lies a conflict of interest. Under the current industry structure the interests of the publisher (selling physical books) and the author (selling content – intellectual property) are not necessarily the same.
E-publishers are very different beasts
Not all authors may want to become as deeply involved in this marketing area, but many celebrities (and a number of authors fit into this category, some perhaps simply within niche markets) have people managing it for them. That should also be the role of the (digital) publisher and it is already happening on YouTube, iTunes and many other internet-based services. And here lies the threat to the publishers – similar to the newspaper publishers, the book publishers are also experiencing competition from outside their traditional industry and they don’t have a good response to this. There is a real problem here as it requires cannibalisation of a very profitable business model, changing over to a model that is completely different and requires completely different financial, production and marketing approaches. However, as the newspaper industry has taught us, by not making the right strategic choices you will lose your existing market and will be unable to compete in the new market, a lose-lose situation.
Unlike my more seriously negative projection for the future of newspapers and longer-term broadcasters, I do not believe that the traditional book industry will disappear. The book is a medium in itself and will happily survive and thrive next to other book formats (e-books). Books are also an important gift article and this is not likely to change.
However the growth will be in the digital area, with e-books in particular replacing some of the more lucrative sectors of the book market; and the current business models of the publishers would not survive if those elements of the market are taken away from them by digital intermediaries (Google, Amazon,etc).
As we are seeing in other markets traditional sectors do not necessarily disappear – they shrink and growth takes place elsewhere. The trick is to avoid the latter and build business models to support growth in these new digital areas.
Special attention should be give to educational books. This segment of the industry has embraced change and is now providing multimedia reading and work material; and a major part of these new developments are now e-based. New products are being developed from an ‘e’ basis, rather than according to the traditional book format, and physical books often still fit into such a model.
Hyperlinks, animation and video are increasingly being added to that format. This segment of the industry has worked hard on national standards and international connectivity, and they have done a wonderful job. It is a great platform from which to promote educational material produced in Australia.
In South Korea, under a $2 billion education initiative, e-books are going to replace the physical books in schools. In my work with the United Nations it has been stated that e-books are the only way forward to improve education in the developing countries.
The book industry in particular is working in a global market. Within that market there are many niche markets – including regional ones – but the context is international. Australian products are well respected and much sought after – it is up to the industry to grab the digital opportunities that are in front of them.
Great new opportunities exist for those who understand their profession and who are good at what they do. The mediocre players, and the segments depending on regulatory protection, will not fare as well in such a global, free, transparent and open environment. But, importantly, within the digital economy you don’t need to be a mass market producer to be financially successful. Tribes and communities are what the digital economy is all about.
Yes, changes will happen to the industry. There will be winners and those resisting change might become losers.
If more books are sold electronically, or in e-book format, fewer bookshops will be needed. There is already an oversupply of these and this will most certainly create more problems in the future. (I first commented on this last year and we all know what has happened since then). However retailers who are able to embrace the digital economy and extend their services to customers in their homes as well as in their shops, and who are building so-called lifelong relationships with them, will flourish. Customer service will always be of the essence.
It may be too late on the global level, but in niche markets there is certainly still room for e-retail. Booksellers should most certainly explore this avenue, including second-hand bookshops. Customers like to browse through these treasures and an e-format will make this far easier for them.
Changes in the retail environment are not confined to the book market. Many of the shops that existed 20 years ago have now disappeared; however today there are more retail outlets than ever before, and many are selling different goods and services from the ones that have closed down.