The ailing book industry - external disease or self-inflicted?

In preparing for the release of Salvage I’ve learnt a lot about the workings of the book industry in Australia. It has been an illuminating process, revealing many barriers and challenges for emerging writers and publishers to establish themselves. In this article I have taken a critical, if somewhat green look at the book industry based on my observations thus far.

The book industry is ailing in Australia. There are very few Australian authors able to make a living solely from writing. The future outlook is somewhat gloomy; according to PwC, in 2015 the Australian Consumer Books industry was worth $1.19bn, just 4% more than what it was worth in 2011. PwC forecast the industry to grow to $1.24bn by 2020; meaning that the average annual growth would be just 0.9% annual growth per year over a nine year period (PWC, Entertainment & Media Industry Outlook 2016). This is well below average CPI growth and so will put further pressure on those who make a living from books.

But is this low growth the product of external forces; changing times, different tastes and new technologies? Or is it caused by internal forces; a self-inflicted stagnation brought about by an industry that is unwilling to change and failing to adapt to the realities of modern consumerism? I’ll look at external factors like technology, demand and supply, and internal influences such as industry structure, and book promotion

The Technology

Technology is not a barrier to book growth for the book industry. Compared with other hard-copy mediums (like newspapers and magazines) the book has proved far more resilient in maintaining demand for physical copies. For those that do want to transition away from hardcopies, the technology is readily available to consume books in the digital world. Smart phones, tablets, laptops and desktop computers all have relatively easy access to software and apps allowing consumers to read e-books on their device. For those who want something a little closer to the traditional book experience, e-readers are also available. Audio books are the fastest growing book category globally, providing another option for people to consume books. And for those still preferring the traditional hard-copy, online stores with fast and relatively cheap delivery options make it just as easy to browse and order books in the absence of good local stores.

The Demand

Demand for content is perhaps stronger than it has ever been. At their heart, books are about story-telling and not too far removed from the movie industry. Movies remain in plenty of growth and attract many times the revenues that the book industry enjoys, despite the fact that many movies are adapted from books. The growth of the subscription video category also suggests that the demand for story-telling is as healthy as ever. The declines that we are seeing in some print categories (newspapers and magazines) are driven by changes in technology not a drop in demand for content. The news, celebrity gossip and classifieds that previously drove newspaper and magazine readership has transitioned to the online world and has driven significant growth in this space; celebrity sites, real-estate sites, recruitment sites, car sales sites, news sites, etc. Demand for content in whatever form is higher than it has ever been, and there does not appear to be an inherent issue with demand for the book industry.

Supply

Supply may be a problem, but not from the fact that books are no longer being written. The terms of submission to all the major publishers in Australia points to the fact that more being written than ever before and the publishers are struggling to keep up. They often limit submissions to certain days or weeks of the month, and indicate that due to volumes, they will be limited in their ability to reply. Some highlight they are so busy and get so many book submissions that they will not reply at all, even to say a submission has been unsuccessful. This strongly suggests that publishers have the choice and the capacity to print many more books than they currently do each year. Combine that with competition from international books, the rise in self-publication (again, technology enabled) and services that re-print old books and this suggests that the supply of books is not an issue.   

Revenue

The writer’s ability to earn is the first major stumbling block for the industry. Consider the ludicrous nature of a billion dollar industry where the very creators of the product cannot earn enough money to sustain themselves. This speaks volumes as to the sustainability of the book industry, creating multiple barriers to the creation of good books. It is not uncommon to hear about writers who have delayed their writing for years due to the challenge raising a family, paying a mortgage and making a sustainable living from their writing. How many potentially great authors have been lost entirely to other industries due to this very real barrier? For those that do enter the industry and find some success, how stifling it is to their output to have to balance their time between writing and some other means of work just to pay the bills? How many more great books could be written if these authors were able to dedicate their working life solely to their craft? So while supply of books might not be an issue, the supply of great books is, due to the big challenge of the writer getting paid adequately for their work.

Promotion

Compared with other story-telling products, there is very little in the way of mass promotion when it comes to books. Movie releases, theatre productions and content websites tend to be supported by relatively large investments in TV commercials, billboards and the like. This allows a broader audience to become aware of, and generate excitement and interest in the release. The ultimately goal of this advertising is to drive sales. This investment complements unpaid promotion like reviews, interviews and word-of-mouth. The book industry does very little of this, relying almost wholly on reviews, word of mouth, awards and in-store promotion (dictated by the distributors). While recommendations can be the best type of endorsement, it means that the book industry is only really talking to habitual readers and doing very little to generate interest from less regular readers. We know from examples like Harry Potter, The DaVinci Code and 50 Shades of Grey that good books are capable of appealing to far larger audiences. But these books have achieved their success despite the book industry, not because of it. By limiting the promotion, the book industry may be limiting the potential sales of many great books. The demand for story-telling and content is as strong as ever, but books are attracting a lesser share of it due to a lack of promotion by the industry.

Structural

Structurally there are problems in the book industry, likely the major driver behind the revenue and promotional challenges discussed above. Authors, publishers, distributors and retailers are all trying to make a cut on each book sold. An author will walk away with 10-15% of the Recommended Retail Price (RRP). As discussed this is on average not enough to adequately support themselves. Stores walk away with a 40-45% cut. Given the shrinking number of bookstores each year, this also appears to be a narrow margin when it comes to covering the physical and staffing costs of the store. The distributor takes between 20-30% of the RRP, leaving between 15-20% for the publisher. The publisher needs to cover the cost of editing, cover design and printing of the book in their margin. Is the distributor’s cut justified in the job they are performing? If they operated like a movie distributor and invested in promoting the book and driving sales, then this distribution layer would be far more justified. But my experience suggests that their current role is more of a gate-keeper, controlling which books gets into stores and which do not. Sadly their assessment of which books to let through is based on a price position, not quality or saleability. So they are keeping potentially good books out of stores and limiting their success and they are perpetuating the revenue dilemma by demanding a low price to protect their own margins at the expense of the author. This appears to be the biggest structural problem in the industry and a terribly short-sighted approach to the distributors own longevity.

Conclusion

There does not appear to be any significant external factors limiting the potential growth of the book industry. Rather, the sickness in the industry appears to be a structural malady, driven primarily by a distribution layer that is not playing its part in driving sales for the book. There is no doubt more that could be done at every step of book production cycle to improve profitability for the industry. But the price-driven approach by the distribution layer, and their lack of investment in promoting new releases appears to be both limiting the number of good books being written and released, while simultaneously failing to maximise demand on the books that are released. Distributors need to either step-up and take a more active role in promotion and distribution, or else publishers should look to take this back in house and reinvest some of the savings to authors and stores to ensure greater profitability, and ultimately a healthier industry.