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Readers Shift to Ebooks; Publishers Take to Drink

Publishers and authors who want more time to move from paper to ebooks had best quicken their pace. Barnes & Noble (BKS) notes that a shift in consumer preferences have made ebooks more popular than paper for the company's online customers. Given the lower sales prices and the growing ability of authors to work directly with retailers, publishing will see economic and sales pressures that will make previous years look like a holiday. The results could drive publishers to drink -- or out of business.

Barnes & Noble announced that its Nook e-reader has become its best-selling product. Only a few days before the Barnes & Noble announcement, Amazon said that its Kindle 3 e-reader was the best selling product in the company's history.

However, this is more than a combination of holiday purchases and price points that made the devices the poor-person's tablet. Barnes & Noble also announced that its site now sells more ebooks than paper. That is a startling shift. Even though the company's online presence isn't as large as that of rival Amazon (AMZN), Barnes & is still the second largest online book retailer, and people are voting for electronic media with their wallets.

It isn't so surprising, if you realize that over the last 15 years, consumers have become accustomed to email, Web sites, search engines, and reading from screens. Moving to an ebook is only a radical concept to those whose living and willing blindness are tied to ink on paper. The real surprise is the speed with which consumers are switching technologies.

Then again, perhaps it shouldn't be. People like their benefit-rationalized toys. Combine e-reader sales with those of Apple (AAPL) iPads and smartphones paired with various e-reader applications, and you have many tens of millions of people who can consume digital media on the move. Having spent money on devices, they complete the purchase justification by actually buying digital books. (And there is that advantage of not having to carry additional weight or bulk to have something to read.)

This is scary territory for publishers. Ebook prices are significantly lower than those of printed books, even though the actual cost difference for the publisher is on the order of $1 to $3.50. Companies that have struggled with the ever increasing profit expectations of corporate owners will find themselves financial smacked about even more than before.

Previous pressure has translated into low pay for editors and production people, lower advances for authors, less investment in marketing most books, and a greater concentration on blockbusters. As ebooks drop prices, potential gross revenue for a book is lower. Even a 70 percent cut of a $10 e-book copy ($7) is still lower than a 50 percent -- or even 40 percent â€" take of a $20 paper book ($8 to $10). Revenue still favors dead trees.

Less money per title means that publishers will focus on even greater volume and put even more premium than now on blockbusters bidding wars. However, both big name and midlist authors have begun to find that they can successfully self-publish. Publishers not only compete with each other, but with the authors themselves, who can find greater rewards by going it alone. As for midlist authors, whose work used to provide reliable if not spectacular income, they, too, can directly reach audiences and make more.

In short, there will be less money for the big publishing houses that will have to spend even more up front to get the names they want. There won't be enough room or money for all the imprints and companies today, so history tells us to expect many to disappear, whether through acquisition or going out of business, over the next five years. Ironically, smaller publishing houses willing to invest resources in lesser-known authors and help them develop audiences may have a better chance of survival.


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