January 31st and February 1st this year saw the launch and inaugural conference of CREATe — the RCUK research centre for copyright and new business models in the creative economy. It's a seven-university, national scale academic consortium primarily led by law academics, intended "to help the UK cultural and creative industries thrive and become innovation leaders within the global digital economy".
I was invited along as one of the speakers, with a brief slot in which to describe how the analog to digital shift in the creative media has affected me. The conference was frenetically paced: I don't think I'll surprise anyone else who was there if I confess that I came away with my mind churning, but physically exhausted. As nobody got more than six minutes on stage during the case studies session, I had to deliver an abbreviated version of my talk. So I'm publishing the whole thing here, below the fold ...
I'm Charles Stross. I'm a full-time science fiction author, multiple award nominee, winner of two Hugo awards, with about twenty novels in print from major publishers (SF imprints of Macmillan, Penguin, and Hachette). I do this for a living; as I like to explain it, "I tell lies for money".
In my defense, it's better than what I used to do for a living. I started out as a pharmacist, then by a drastic sideways hop acquired a computer science degree and ended up working as a technical author and programmer in the first dot-com boom. And, as a side-effect, I first stumbled blinking onto the internet in 1989.
There have been ebooks on the internet for nearly eighteen years longer than I've been on it. If ebooks were people, some of them are old enough to be grandparents — legally. Project Gutenberg got started in 1971, after all, and one of its first homes was an ARPAnet connected mainframe.
And there have been ebooks off the internet — even commercially sold ebooks — for a long time as well. Anecdotally, I know of SF authors who tried selling novels (on floppy disk, for PCs) as far back as 1985.
During the pre-history of ebooks, various blind alleys were experimented with, mostly unsuccessfully. Nobody needed a $5000 PC to read books with in 1985, so some sort of value seemed to need adding. Infocom's text adventure games were marketed as "interactive fiction" and there's still a marginal but healthy sub-culture of IF authors and consumers to this day. Later, Voyager experimented with Apple's HyperCard as a delivery for books in hypertext form, distributed on floppy disk and CDROM.
But it took a very long time for the internet to take off as a sales channel for newly written trade fiction.
The problem with the interactive fiction and hypermedia attempts prior to 1998 was that they relied of physical media for distribution — and the media were much more expensive than ink on wood-pulp, not to mention limited to an audience who owned the even more expensive display device. (The actual cost of goods in a paperback or hardback is around 10% of the suggested retail price.)
To make matters worse, developing a hypertext with "value added" content is inherently more expensive than sitting down in front of a text editor and bashing out a linear narrative text. (You want music and special effects, both of which cost money.)
Then the internet came along. And the big incumbents in the publishing industry tried to ignore it for as long as possible.
To be fair, the big publishing incumbents are the little brothers of big media — typically the publishing subsidiaries of large multinational media conglomerates with magazine, newspaper, and sometimes music and TV/film publishing arms. They observed the damage caused to the music biz by file sharing and a botched approach to monetization, and then the film industry, with growing horror. However, during the late 90s and early 00s, ebook uptake was impaired by fragmentation. As late as 2007 there were around half a dozen battling ebook file formats and corresponding platforms, with no clear winner until Amazon bought MobiPocket and used their system as the basis for the Kindle (into which Jeff Bezos pumped many millions of dollars, effectively subsidizing the early adopters.)
In addition, sales of commercial ebooks were hampered by contract boilerplate.
Books are sold by reverse auction; highest-price editions appear first, then over time the price is lowered, through limited editions, hardcovers, trade paperbacks, mass market paperbacks, and so on.
However, books are also sold through distinct sales channels. Hardcovers and trade paperbacks are sold as trade goods, on sale-or-return credit. Mass market paperbacks are essentially disposable items, like magazines, where the covers are stripped and returned for credit if they're unsold.
Were ebooks a sales channel or a reverse-auction price point? Nobody in 2005 had a clue. Publishers set up internal web/internet divisions, which then made a bid for control over the new ebook channel, and the trade publishing divisions then tried to sabotage the internal empire builders by forcing them to sell ebooks for a higher price than the corresponding paper edition. Chaos ruled!
What forced them to focus was an external threat: Amazon.
Amazon's goal is to use the internet to collapse all existing producer-to-consumer supply chains, and position themselves as the sole intermediary. Jeff Bezos picked the book retail channel as his first target for disruption because it looked moribund, chaotic, and vulnerable. Amazon's deep-discounting of books threatened publishers with a price war and was eroding the traditional retail channels, which had been left weak since 1992 when WalMart effectively destroyed the US mass market channel by reducing their number of wholesale suppliers from around 470 to 90 across the USA (destroying a bunch of local specialist wholesale market information and creating the gap that B&N and Borders expanded into).
Bezos' pushed development of the Kindle, and sold it to the Big Six as a safe ebook platform with DRM and standardization. Trouble was, it was a walled garden: the publishers only realized around 2009-10 that they'd handed the DRM keys to Amazon, locking their customers into a vertical silo, and Amazon were now free to squeeze them for deeper discounts.
The publishers response was to look for a white knight, in this case Apple with the iBook store and the Agency model. This then led to a DoJ anti-trust investigation (ironically favourable to Amazon, the 500lb gorilla with the 90% market share) and leading to the slowly emerging situation of oligopoly, in which three primary DRM platforms lock customers into specific sub-markets — Adobe Digital Editions, Kindle, and Apple's FairPlay.
(There is some movement on the DRM requirement within the publishers; Macmilan dropped the requirement for DRM on genre fiction titles last year, for example, having finally worked out that piracy was less of a threat to their long-term future than being bent over a barrel by Amazon. Who play hardball with publishers in pursuit of steep discounts. Did I say hardball? More like rollerball. And they play dirty.)
So. What does all this mean for me, as an author?
Rewind to 2003.
I have a literary agent, on comission, to handle contractual negotiations with traditional publishers. They buy the territorial rights to my manuscripts, polish, edit and turn them into books, then publish those books through trade and mass market channels. They then pay me a royalty. Royalty terms are recondite and vary with channel, number of units shipped, discount off SRP at which they were sold, number of returns, and so on. Very roughly, the publisher covers production and manufacturing costs, splits the profits with author, and the distribution chain takes the other 60-70% of the price the end-customer pays.
Forward to 2013.
As a successful novelist my picture is ... unchanged, except that there is a new distribution channel: ebooks. Ebooks are not subject to sale-or-return accounting; every sale is final. Ebooks never go out of print, so contract reversion terms are different. The retail price is typically lower but the sales channel has fewer middle-men so the royalty rate is higher. Production costs are, surprisingly to most people, nearly as high as for dead-tree books (ebooks still need editing and proofreading and marketing).
Mass market paperback sales are down around 50-70% in the USA. (In the UK the mass market channel disappeared in the early 1990s; all paperbacks are sold as trade books.) Ebooks are now up to 60% of gross sales, from 6% in 2008-09 and 0.6% in 2005.
Hardcover or trade paperback sales are, mostly, unaffected by ebook sales. These are premium products sold to people who like buying lumps of dead tree. They may dwindle over the coming decades but the hardcover market is still okay.
So ebooks are the new mass market paperbacks; easily distributed, cheap, disposable reading matter.
But what's life like for unsuccessful novelists?
Here's where things get interesting.
The barrier to entry for publishing has all but collapsed. Anyone with a credit card and an address can self-publish a book via Amazon. It probably won't sell; the new author's biggest enemy is obscurity. But once in a blue moon, something catches fire — E. L. James for example — and word of mouth (which is still the best marketing tool an author has) causes it to explode. With no physical product to go out of stock, there's no deferment of gratification for the customer: so an obscure ebook can go bestseller overnight under the right circumstances.
(However, if you self-publish it probably won't be you.)
Good self-published writers are equally likely to be headhunted by publishers as to break through on their own. John Scalzi (multiple Hugo-winner and New York Times top 10 bestseller) self-published his first novel on his blog before it was acquired by Tor. But John had form as a journalist and AOL editorial content provider before he did that. Beginning authors generally have little or no ability to judge the quality of their own work, and may therefore self-publish prematurely.
The flip side is that self-publishing provides another avenue for authors with a track record who are currently out of favour with their traditional publishers (for failing to meet ever-rising sales targets) to reach their market. I know of several experienced authors in my field who have switched to self-publishing. They generally end up spending extra time on production and marketing rather than the primary specialty, writing, and they don't usually make more money by self-publishing, but they're no longer entirely dependent on the goodwill of a publisher who may be being held to profit levels set by the accountants of a media conglomerate. They can, in other words, specialize.