Legacy Publishing Isn’t Broken. It Just Has a Declining Value Proposition.

By Adam Gomolin

(This is a haphazard recapitulation of a conversation we had at lunch today, as prompted by questions posed by our recently-hired Senior Engineer, Benjamin Watts.)

I’m continuously struck by the discombobulated nature of discussions about publishing.  This haze is a problem, because if you can’t have a well structured and properly framed discussion, you can’t solve problems.  Publishing is littered with problems, and solving these problems should be the primary aim of any “disruptive” publishing enterprise.  In graduate school, I was lucky enough to study and work under top economists and mathematicians, including J. Bradford Delong and Michael O’Hare.  If you dropped Brad or Mike into a high-level discussion and asked, “Why is publishing broken?” it would take less than five minutes for them to get up from the table and insist on a detailed whiteboarding of the evolving microeconomics of book publishing before they would agree to sit down and give you an answer.

The legacy publishing system isn’t broken.  It grew 7% from 2012 to 2013 and specific genres–young adult and fantasy, for instanceare experiencing hypergrowth.  But it doesn’t have to be.  We’re not talking about “fixing” something; we’re talking about building a better, more optimal model.  They didn’t build carbon-frame racing bicycles because steel-frame ones were broken.  They built them because technological advances allowed for the production of lighter bicycle frames that made for more efficient bicycling.  Going back a few more decades, they didn’t build mechanized tractors because the ox-pulled plough was broken.  They built them because technological advances in mechanical fabrication and the invention of the internal-combustion engine made the tractor a feasible and more efficient alternative.  Legacy publishing isn’t broken.  But, much like the steel-frame racing bicycle or the ox-pulled plow, its relative value propositions have been undermined by more efficient alternatives made possible by evolving technology.

Analyzing the decline of legacy publishing’s relative value propositions first requires articulating what these value propositions are and then observing the nature of the technological change that affects them.  Legacy publishers offer three main value propositions.  First, they offer some of the best editorial services available.  Great editors help talented authors produce and elevate the quality of their work, thereby improving the reader’s experience.  Second, legacy publishers pay for the development, design, and physical production of the book.  In essence, they bet, with their own money, on the author’s commercial success.  Third, they connect writers with readers.  Prior to digital books and the internet, placing books on store shelves was the predominant form of author-reader connectivity.  Up until the last decade, the value proposition of legacy publishing was unquestionable, if for no other reason than that no practical alternative existed.

But the internet-digital-mobile technology revolution has altered how books are produced and sold.  First, the internet moved sales online.  Today, roughly 40% of printed books are sold on Amazon alone, and all ebooks are, of course, sold through the internet.  Second, the proliferation of digital publishing and inexpensive mobile readers allowed for the near costless replication and distribution of written content outside of its physical, object form.  Apple and Amazon lowered the barriers to and costs of publishing in the biggest way since the Gutenberg.

Having outlined the value propositions and technological changes, we now turn to analyzing the relative value of these propositions.  First, the editorial value proposition has been undermined by the supply of high-quality editors (many of them laid off from top publishing houses) in the online marketplace.  Second, the capital-investment value proposition has similarly declined.  For one, publishers are increasingly stingy with the size of these advances and the size of these runs, meaning they don’t incubate literary vision or invest in a budding author’s brand the way they used to.  The huge “middle portion” of the distribution has suffered as a result.  Buttressing this development, the proliferation of digital publishing and inexpensive mobile readers undermines the relative value of this proposition, because publishers don’t place their capital at risk in the manufacture of ebooks, an ever-growing portion of the market.  And, perhaps most germane to our enterprise, authors can raise capital via crowdfunding services like Inkshares or Kickstarter.  Ongoing deregulation in crowdfunding, including securities-based crowdfunding, only increases the viability of these platforms as viable capital-investment alternatives to legacy publishers.

Third, while publishers still connect authors with readers in brick-and-mortar retailers, this, too, is a proposition of vastly declining value.  For one, Amazon alone sells roughly 40% of print books and 75% of ebooks sold in the United States, which means that the value of the logistical systems and relationships involved in putting books into a store has diminished.  In addition, the internet, with its myriad communications platforms, like Twitter, Facebook, or Goodreads, allows readers to be made aware of books in new and dynamic ways.  Perhaps more than anything, the digital-mobile revolution means literary content can be sold, received, and read in ever-evolving ways that legacy publishers are ill-equipped to anticipate or match.  

Again, legacy publishing isn’t broken.  It’s just no longer the most efficient way to produce books.  Like a steel-frame racing bicycle or ox-pulled plough, technology has created viable alternatives that decrease the relative value of legacy publisher’s core value propositions–all while publishers continue to pay authors a piddling 15% (or less) of net receivables.  It really isn’t any more complicated than that.  The question we should be asking is not how to fix legacy publishing, but how do we combine technological advances with practical realities to build a model with the best possible value proposition?