Why do people buy books? If this were Family Feud, survey says: to be read. But in the real world, I have never found that convincing. To be sure, books get read but if you consider the life of a book, most of the time it is sitting on a shelf. Moreover, it is rarely the case that it is sitting in a box somewhere out of sight. That is, most of what a book actually does is put itself out there on display that its owner actually owns it. This is why books often make great gifts. Even if the recipient doesn’t want to read it, it adds to the collection on display. That is why when giving books as a gift, no one says (well rarely), “so and so hardly has any books so I should get them one.” Instead, the more books you own the more likely someone will give you one as a gift and hope that you don’t have it already. And what is the best way to counter that risk: buy something that has been recently released.
This narrative makes perfect sense to me and also, I believe, reflects what goes on in the industry. Physical books are very, very seasonal. They are bought at Father’s Day, Mother’s Day and Christmas. Magazines and newspapers — other sources of reading fodder — are not seasonal at all. So do people wait around until holidays to get their year’s supply of books? Unlikely. Go into a bookstore these days — one of the big ones — and you will see that it isn’t a book store but a gift store. A fraction of the floor space is devoted to books. The rest may as well be Williams Sonoma or a Department Store. But it is gifts all the way around. Want to get a box of chocolates? Go to a large “bookstore.” And want to understand why Amazon is building physical bookstores? Think about gifts.
While this is a theme I have long explored (especially in Information Wants to be Shared), I am revisiting it today because there has been much discussion over book sales figures of late. As Justin Fox outlines, eBook sales from large publishers have flattened out leading some to suggest that people are return to print. Fox points out that this is hardly the case as eBook sales from independents and self-publishing continue to grow strongly. It is just that the large publisher eBooks aren’t. That said, physical book sales were up last year. So what is going on? Even Fox, who is dispassionate in his analysis, begins his assessment with a graph entitled “how we read our books” with the notion that this is driving demand.
The reading frame is what drops the analysis into problems. First of all, it will focus people on eBooks versus physical books in terms of how people like to read. People have strong preferences there but I suspect that these days people have chosen their medium and that is that. An eBook has to be pretty darn expensive for me to consider buying a physical copy (actually, it has to cost much more!). What that means is that the cross price elasticity between the same book on Kindle versus physical books is pretty inelastic. (I don’t know this for sure but that is what I am conjecturing here).
This is an important point because it hits upon how large publishers are viewing eBooks. If eBooks are seen as competing with physical books, then you are going to worry about the price of eBooks and want them to be priced higher so as to keep up demand for physical books. But if they are not competing, then the analysis can change significantly. In particular, if I am shopping for a gift for someone am I more likely to buy them a book I have read and liked or something else? The point being that if the price of an eBook is reduced in the Summer and that leads to more people buying that book as a gift in November than they are competing but are complements in the market.
This also hits on analyses such as those from Mike Shatzkin. He argues that big publishers are having trouble getting big hits because prices for eBooks are too high. This means that they can’t pick up an unknown author with a good book because no one will shell out $14.99 to read it. For Shatzkin, he argues that eBook prices are kept high so as not to reduce physical book sales. To overcome the ‘discovery’ issue, he suggests having a promotional period for eBooks. However, he argues that is a tough sell as physical booksellers won’t be happy. So publishers don’t try that.
Actually, his analysis of why publishers resist is likely spot on but Shatzkin accepts the ‘reading dicta’ in his analysis. Fox falls into the same trap when he talks about publishers becoming disrupted. He notes that they had limited incentives to push eBooks:
In book publishing, everybody knew that e-books were a potentially disruptive technology, and none of the big publishers ignored them. But apart from some experiments with short, cheap digital-only releases (my Bloomberg View colleague Tyler Cowen’s “The Great Stagnation,” which was later made into a physical book, was one of the most prominent), they mostly resisted that notion — pushed hard by Amazon — that digital books should be seen as a new kind of product with a much different pricing approach. To the publishers, they’re just another book format.
This approach seems to have succeeded in keeping the print business reasonably healthy. It’s also probably responsible for some of the slowing of e-books’ rise. But it also means the book publishers are largely absent from the low end of the e-book market, which is where most of the growth and innovation are.
In the reading frame, it is easy to dismiss the romance and sci-fi that makes up the independent eBook base as low quality and not what the big publishers are looking for. But that is the logic that leads to The Martian being missed.
But I have news for you. There was always an issue getting quality books to be found. And the big publishers likely always missed some. These days the misses are reduced because of independent publishing. But it is important to understand why. The Martian didn’t become big because it wasn’t quality. It became big because otherwise it would have been a Type I error. Why it didn’t become one is because it was possible now for it to be read.
Herein lies my point. The majority of book sales by big publishers come from purchases as gifts. That is their monetisation product. But the way they get to be gifts is to be read by readers. Reading is a referral product. eBook users are pure readers. Price low to them and you likely do little to physical book sales for reading. But getting a hit on an eBook for a book that makes a suitable gift and you have your big hit. In other words, book publishing is the same as it has always been. What digitisation does it put that into sharp reality. The large book publishers — at least internally (it is hard to imagine that it is a good idea externally) — need to understand their role in generating the next big gift. Once they do that, I suspect their business will become a whole lot more relaxing and for readers, much better, as eBook prices and their role in generating gift referrals becomes stark.