For the past decade, it has been a ubiquitous term in the publishing and media worlds—disruption. But looking back at the top stories of 2012, and considering what’s on tap for 2013, it may be time to update those PowerPoint slides.
The events of 2012 suggest that the book business has been pretty much fully disrupted. But let’s not say that like it’s a bad thing. While we understandably worry over the fate of today’s publishers, libraries, and bricks-and-mortar bookstores—institutions upon which our literary culture was built—the flipside is a digital world with significantly more readers and books. As tablets and e-readers proliferate and the smartphone and mobile market surges, we now contemplate a world of immediate, affordable access to an ever-expanding library of works that will never go out of print and can reach new, global markets—in some cases markets where traditional publishing and book distribution infrastructures did not exist.
As 2013 dawns, the industry is poised to look beyond the disruption of its traditional business, and to embrace the opportunities that come with change. We won’t pretend that’s going to be easy—a look at our editors’ picks for the top 10 news stories of 2012 certainly indicate that it won’t be.
So, what do PW editors consider the biggest publishing industry stories of 2012—and how are those stories likely to play out in 2013? Read on.
1. A Conspiracy to Fix E-book Prices?
Did five of the big six trade publishers, worried that Amazon’s $9.99 price for e-books would erode the overall book market, illegally conspire with Apple to introduce the agency model as a way to stabilize book prices? So alleged an April 2012 antitrust suit filed by the Department of Justice. Just five months later, federal judge Denise Cote approved a highly controversial deal between U.S. attorneys and three publishers (Hachette, HarperCollins, and Simon & Schuster) to settle the suit. In December, on the heels of its blockbuster merger with Random House, Penguin also joined the settlement—a move that will now pull Random House into compliance with the DoJ terms—even though Random was not sued by the DoJ.
The settling publishers have all strongly denied any wrongdoing—but we may yet learn more about what really went down in the coming months, as Macmillan and Apple have vowed to fight the charges, and a trial is set for June 2013. “It is hard to settle when you have done nothing wrong,” Macmillan CEO John Sargent said in a year-end letter. “Call me old-fashioned.”
If Macmillan does continue the fight in 2013, it’ll be interesting to see what else besides “old-fashioned” Sargent may be called. While his principled stand may be admirable, it is hard to see what Macmillan stands to gain by fighting. After all, Macmillan has already redrawn its agency agreements in response to market pressure, essentially complying with many of the broad strokes of the DoJ settlement. And the legal bills, Sargent concedes, “look like the unit sales numbers for Fifty Shades of Grey.” By not settling, Macmillan ducks the burdensome compliance measures mandated by the settlement. But instead it faces a time-consuming, costly, unpredictable trial that it could easily lose—in approving the settlement, Judge Cote called the DoJ suit a “straightforward price-fixing case” and brushed aside more than 800 public comments filed in opposition.
Trial or not, as we head into 2013, more legal wrangling over price-fixing claims is on the horizon. A separate, $70 million–plus deal to settle identical price-fixing claims with 54 states and U.S. territories still has to be approved by Cote, before its terms—which include modest refunds to e-book consumers—can be implemented. A third case (a consumer class action) also grinds on.
Then there are the broader questions: will the settlement harm the overall book market or enable Amazon to regain its dominance, as publishers have claimed? Or will the deal “restore competitive balance” in the e-book business, as the DoJ claims? As Judge Cote wrote in her final order, “the birth of a new industry is always unsettling.”
2. The “Big Four”?
Industry observers had been expecting a major merger at the top of the publishing food chain for some time, and in late October, it arrived. In a deal months in the making, Pearson and Bertelsmann announced their plan to create the world’s largest trade publisher: Penguin Random House. The combination of trade publishing’s two largest players will create a company with worldwide revenue approaching $4 billion, and a market share in the U.S. estimated at somewhere north of 25%. More consolidation at the top may also be on the way in 2013.
Immediately following the merger announcement, word leaked that HarperCollins’s parent, News Corp., was considering a play for Penguin—a proposal shot down quickly by Penguin CEO John Makinson. Undeterred, News Corp. is reportedly now eyeing Simon & Schuster. In 2013, the big six will become the “big five”—and by year’s end, possibly the “big four.”
What’s driving this latest stroke of consolidation? Makinson told PW one of the most important aspects of the merged Penguin/Random House is its ability to do more to keep bricks-and-mortar stores viable. Random House’s CEO Markus Dohle echoed that, saying that the combined company’s scale would allow it to experiment and make investments “that sustain physical retail, while also investing in the digital space.” Certainly, the size of the new company would give it more leverage in its dealings with both Barnes & Noble and Amazon.
Authors, agents, booksellers, employees, and readers, however, are wary. “Fewer publishers to submit to means lower advances,” noted one agent. One independent bookseller said Random House was already a “gorilla going through my checkbook,” adding that a combined company would be an “elephant.” Authors Guild president Scott Turow called the merger “survival of the largest” and wrote that while the new “mega-publisher” would have better leverage with the current bookselling giants, “that leverage would come at a high cost for the literary market.”
The deal must still be consummated—and approved by regulators—but barring any unforeseen obstacles, that is expected to happen by mid-2013. Until then, the two companies will continue to operate separately. But we’ve seen this movie before, and eventually the new entity will have to address overlap among imprints, personnel, and operations—and hashing all that out could begin later this year. We’ll be following with interest.
3. Libraries and Publishers Clash Over E-books
In January 2012, major publishers and the ALA began a series of discussions on the issue of library e-book lending. A year later, despite some initial optimism, the situation surrounding library e-book lending has actually deteriorated—and frustrations are running high.
In February, Penguin dumped Overdrive and pulled out of the market entirely, before starting and later expanding “a pilot project” that offers windowed access to a portion of its list. In March, Random House nearly tripled its e-book prices to libraries—although, in sharp contrast to other houses, Random at least offers libraries access to its complete catalogue. The question now: what happens when those two companies merge in 2013?
Of the other majors, Hachette, which had pulled its frontlist titles from libraries in 2011, followed in 2012 by more than doubling prices on nearly 3,500 backlist e-books it licenses to libraries. Simon & Schuster and Macmillan still refuse to sell e-books to libraries at all—although Macmillan has said it will launch some kind of limited effort in 2013.
If you’re looking for a glimmer of hope, consider HarperCollins. In 2010, the publisher drew the ire of librarians when it capped e-book lends at 26 per copy. But over the past year, librarians have found that model may be working for them. Also, it is worth noting, the vast majority of independent e-book publishers do work with libraries.
But for librarians and readers alike, negotiating the patchwork of policies, prices, and new vendors and services has become way too complicated. For readers, how many plug-ins and systems must they be forced to negotiate just to find and borrow a library e-book? For librarians, how many different catalogues and Web pages must their libraries maintain and manage—and, oh yeah, does that book expire this month?
In 2013, libraries and publishers are in need of a breakthrough—and currently, that’s not in sight, as publishers remain fearful that a new generation of digital readers will eschew buying their next read for borrowing it from the library, despite mounting evidence that e-book borrowers also buy.
“In 2012, we saw a lot of excellent data emerge that demonstrates that library borrowers are book buyers, and that in the reading ecology, library use and book buying are connected in myriad ways,” notes Brian Kenney, White Plains Public Library director and PW contributing editor. “But based on their actions or inactions, it’s pretty clear that many publishers just don’t care.” That, he says, makes the e-book impasse all the more frustrating, as more and more patrons come to their local library every day looking for help with their new e-readers and tablets. “We’re devoting bigger and bigger chunks of our most serious resources, our staff, to helping people enter a market in which we are barely allowed to participate,” Kenney observes. “And you wonder why we’re so ticked off?
4. Copyright Clashes
In terms of both law and policy, 2012 will likely be remembered as one of the most eventful years in copyright in the modern era. Among the year’s highlights: the resolution of publishers’ long-running litigation against Google, and major rulings in support of fair use, including in the Google-related Authors Guild case against the HathiTrust and in the Georgia State University e-reserves case (the GSU ruling, which is on appeal, also included a rebuke to publishers; an order to pay the defendants’ legal bills—roughly $2.8 million). On a broader note, there was also the stunning withdrawal of a fast-tracked, publisher-supported copyright bill, the Stop Online Piracy Act (SOPA), and a straight-shooting—although quickly retracted—policy paper on copyright reform written by a young Republican staffer named Derek Khanna.
Developments in the protracted Google lawsuits dominated the headlines. After seven years of expensive litigation, publishers in early October finally “settled” with Google over the scanning of out-of-print library books. While the deal’s final terms are confidential, in essence, the publishers more or less dropped their case, “agreeing to disagree” on the underlying copyright issue.
Just days later, however, a federal court did weigh in on the copyright question at the heart of Google’s scan plan. In a major defeat for the Authors Guild, Judge Harold Baer granted summary judgment to the HathiTrust, a digital preservation initiative made up of a coalition of Google’s library partners, ruling that the scanning fell squarely under fair use—a ruling, experts say, that could prove a fatal blow to the guild’s main suit against Google.
The Authors Guild actions against the HathiTrust and Google are still winding through appeals. And, barring a settlement, the guild’s main case against Google could be given a new trial date this year, after the appeals court rules on a procedural issue. But with Baer’s HathiTrust opinion on record—and unlikely to be overturned on appeal—the guild case against Google looks to be a longshot.
In 2013, look for the Authors Guild to seek a settlement. Although one can understand the fear that motivated the initial suits over Google’s scanning, and one might even admire the guild’s principled stand, those principles do not appear as firmly rooted in law as they are in the hearts and minds’ of the guild leadership. More importantly, seven years later, the market threats and the chaos once predicted have not come to pass, and the e-book market has moved on. Certainly there are bigger issues to which the guild might better dedicate its resources, rather than tilting at such digital windmills as library preservation efforts, or the scanning and online indexing of long out-of-print and orphan books. As AAP president Tom Allen told PW when asked why the publishers decided to end their case: “The world has changed a lot.”
5. The Self-Publishing ‘Revolution’
Over the past few years, there’s been much speculation—and suspicion—about the potential of self-publishing. But in 2012, self-publishing turned a corner. A quick look at the numbers alone might bear that out—there’s the $116 million Penguin paid to acquire Author Solutions. Or the nearly 400,000 self-published books in 2012 from authors using the services of firms like Smashwords, Author Solutions, Vook, Wattpad, and Scribd—and, of course, Amazon.
Behind the numbers, what clicked for self-publishing in the last year? First and foremost: the shift to digital reading. “I expected e-books would grow fast,” said Mark Coker, Smashwords CEO, at a self-publishing panel at the 2012 Miami Book Fair. “But they have grown faster than almost anyone predicted, and it has been a boon to self-publishers. Up until just a few years ago, you had no choice but to work with large publishers because they controlled the printing presses, they controlled the distribution, and they controlled the knowledge of professional publishing. These are the three things we are looking to unlock and make available to everyone.”
In 2013, self-publishing will continue its growth—a boon to authors and, in some ways, for traditional publishers as well. In 2012, PW named Fifty Shades author E.L. James our Publishing Person of the Year, and it’s worth noting that James’s work was essentially first self-published through an online community before being picked up by Random House. Without question, we’ll see more success stories like that, as authors with books that once would have sat ignored on industry slush piles use self-publishing to demonstrate their talent, drive, and hustle. With Penguin’s deal for Author Solutions, and Simon & Schuster announcing the formation of its own self-publishing operation, Archway, clearly traditional publishers see an opportunity with self-publishing.
But self-publishing will also pressure traditional publishers—for example, through higher royalty rates, lower e-book prices, and quicker time to market. “Self-publishers have an opportunity to outsell, outcompete, outdistribute, and outmarket the larger publishers,” Coker explained at the panel. “The major publishers can’t put all of their prices down to 99 cents or $2.99. Their business models aren’t set up to compete there.” In addition, self-publishing has now extended to organizations that used to partner with traditional publishers for book projects—for example, Newsweek/Daily Beast writer David Frum’s e-book Why Romney Lost, which was published just days after the election using Vook.
In 2013, it will be fascinating to watch the impact on the industry as self-publishing gains more traction and more credibility. But in 2012, self-publishing largely left behind the stigma of “vanity publishing” it has dragged around since the days in which firms charged would-be authors exorbitant fees for garage-loads of bad books. Authors today no longer question whether self-publishing is viable. The conversation has instead turned to how to self-publish well.
6. Tablets Emerge
After a relatively short “dedicated e-reader” era—just four years dating from the Kindle’s release in 2007—in 2012 we firmly arrived in the age of the tablet. Over the past year, sales of multimedia tablet devices easily surpassed dedicated e-ink e-readers, which have now begun a steep sales decline. According to the research firm iSuppli, dedicated e-readers peaked at about 23 million units sold in 2011, and sales are expected to crater around 10 million units sold by 2014.
Over the same period, meanwhile, iSuppli expects sales of tablet devices—led by the iPad—to surge to more than 120 million in 2013 alone, with more than 300 million units projected by 2016. And that’s not all. Add in smartphones—essentially another platform for mobile reading and media consumption—and we can see an even broader future for books and media on the near horizon
In 2013, consumers will be reading more on handheld multimedia devices—which are cheaper and more powerful every year—whether on the go or at home, on a tablet or a smartphone.
In his predictions for 2013, Smashwords founder Marker Coker called tablets the “new paper,” and said that thanks to tablets, books will become “interwoven in the hyperlinked fabric of the Internet.” Forrester Research consumer media analyst James McQuivey explains why: because “there is no other device that has achieved that kind of multipurpose utility.” Indeed, the notion that reading would somehow be protected by a device of limited functionality (if you can’t check e-mail, then you’ll be forced to read), never seemed like a confident or inviting industry position on the e-book.
E-ink devices won’t go away—backlit screens do bother some people, and emerging services like Txtr’s 19 euro Beagle e-reader will entice consumers. But as 2012 closed, the king of digital reading—the dedicated e-ink reader—has been dethroned. Long live the new king, the tablet.
7. B&N Partners with Microsoft, Pearson
For a total five-year investment of more than $600 million, Microsoft in 2012 bought itself another chance to participate in the booming consumer digital hardware and content market. Nook Media was officially born in early October when Barnes & Noble and Microsoft completed a deal that gave the software giant a 17.6% stake in a new unit made up of B&N’s Nook digital business and its college stores. In addition, on December 28 Pearson made an $89.5 million investment in Nook Media, giving it a 5% stake—and trimming Microsoft’s stake slightly to 16.8%.
B&N, meanwhile, got what it needed as well—a cash infusion to help fund, among other things, the further development of its Nook reading devices as well as its plans for international expansion, where the e-book market is still maturing. In 2012, B&N’s first international stop with the Nook was the U.K., where the company established the Nook e-bookstore and introduced a number of its digital reading devices through a variety of retail partners.
In boosting B&N’s finances, Microsoft’s cash infusion also made it easier for B&N to continue to operate its trade bookstores. But in making its investment, Microsoft also made clear that it was planning to be involved in the digital book marketplace for the long-term. The first direct fruit of the investment was the November release of the Nook for Windows 8 app, a free e-book reader and book-buying app designed to run on Windows 8 personal computers and tablets.
Much more is expected from the B&N/Microsoft relationship in 2013, and it will be worth watching whether B&N will spin off Nook Media into its own company, as some investors have urged, and what such a move would mean for B&N’s trade bookstore business, which finished the year with 689 outlets, but with plans to close 15 stores by the end of its fiscal year in April.
8. Amazon Publishing Faces a Backlash
For Amazon’s long-expected new publishing program, 2012 started out on a positive note—a deal was struck with Houghton Mifflin Harcourt to distribute Amazon Publishing titles under the New Harvest imprint. But over the course of 2012, it became clear that booksellers—wary of feeding the beast that wants to eat them—were not going to carry New Harvest titles. “We have no plans to buy them,” Paul Yamazaki, head buyer at City Lights in San Francisco, told PW in July. “Amazon has been so predatory in their practices.”
The end result? When Amazon published its first blockbuster acquisition in September, Penny Marshall’s My Mother Was Nuts, first week print sales according to Nielsen were light, with fewer than 2,000 copies sold, Kindle sales, of course, appeared more brisk. In November, with the publication of “Four Hour” guru Tim Ferriss’s The Four Hour Chef , the blockade continued—and discussion of the publishing industry response more or less became part of the media campaign for the book in places like the New York Times and NPR.
Of course, it’s no surprise that the publishing community might be resistant to Amazon’s effort to become a publisher. In 2013, it will be interesting to see how Amazon publishing grows in the face of resistance, and what effect that might have on the industry at large.
But while the industry may bristle at and reject Amazon’s efforts, let’s hope it also is paying attention. Amazon knows how to move product.
9. Tor Drops DRM, Hachette Pushes Back
As the e-book market has matured, simmering beneath the surface has been the issue of digital rights management software (DRM). Not only does DRM not stop piracy, critics argue, it devalues e-books, restraining readers from making common uses of books they’ve legally purchased. Most importantly, DRM is what enables platform lock-ins, giving enormous power to players like Apple and Amazon. “Once your customer is locked in to a retailer’s DRM-locked format,” explains PW contributor Cory Doctorow, “your customer becomes the retailer’s customer.”
While a number of smaller presses have ditched DRM, in 2012 Tor, a division of Macmillan, became the first major publishing imprint to abandon DRM on its e-books. “Our authors and readers have been asking for this for a long time,” acknowledged Tor president Tom Doherty. “DRM is a constant annoyance to them.”
Throughout 2012, the drumbeat against DRM grew louder. At the London Book Fair, Pottermore CEO Charlie Redmayne spoke about the decision to forgo DRM on Harry Potter e-books. And at a Copyright Clearance Center seminar in March, Hachette’s senior v-p for digital, Maja Thomas, acknowledged that DRM was merely “a speed bump” for would-be pirates, and that removing DRM could possibly benefit publishers. In Frankfurt, a Tools of Change panel “debated” DRM—and it wasn’t much of a debate. Both sides basically agreed DRM was about as effective as a car alarm in stopping “theft,” and even more annoying.
Hachette officials in the U.K., however, doubled down on their DRM stance—sending out letters to authors and agents who have books under Hachette’s imprints in some territories and with Tor Books in others, warning that Tor’s no-DRM policy makes it “difficult for the rights granted to us to be properly protected.” Hachette’s proposed solution: authors should insist Tor restore DRM.
In 2013, we’ll be watching to see how the DRM debate develops. Oh, and how has the DRM thing worked out for Tor? “It is still too early to tell,” noted Macmillan CEO John Sargent in his year-end letter. “But initial results suggest there was no increase in piracy.”
10. Indie Bookstores Rally, Sign Kobo Deal
With the collapse of Borders in 2011, independent bookstores became more important to the sale and discoverability of books in 2012. In the bricks-and-mortar world, independent booksellers’ 6% share of unit sales (through the first nine months of 2012) trailed only that of Barnes & Noble, while the network of 1,567 member stores that belong to the American Booksellers Association give independents more than double the number of outlets of B&N.
On its face, the 6% share of sales for indie stores through September 2012 was flat with 2011 numbers, but that has to be good news considering that book sales are moving to online retailers and e-books.
If independents and the ABA had a major disappointment in 2012, it was with the ability of their members to successfully sell e-books. Notably, the ABA and Google parted ways during 2012 when Google announced that it would discontinue its e-books reseller program by January 31, 2013, explaining that the program had not gained the traction in terms of customers or retailers (Google is now selling e-books through Google Play). ABA, however, promised members it would find an alternative to Google before the 2012 holidays and in late summer it announced a deal with Kobo that provides ABA members with the opportunity to sell not only e-books but also the Kobo digital reading devices as well. Details of the Kobo deal were rolled out to booksellers at fall regional trades shows, after which ABA CEO Oren Teicher said the association would have no problem reaching the 400-outlet target it had promised Kobo it would hit by the holidays.
While the demise of Borders boosted independent booksellers sales in 2012, their future success will be tied to their ability to become full-service outlets that can offer customers content in whatever format they wish, and to reach beyond their store walls to sell that content. This three-year deal with Kobo gives them that opportunity.