Publishing and the Future of Entertainment

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The average American today has the option to never feel bored. Whether it’s streaming, social media or gaming, the internet constantly competes for our attention. We’ve already begun to see offline impacts begun by faster news cycles and fragmented communities on the internet. For this article, I’ll be focusing on a neglected corner in this tidal wave of change, the decline of publishing.

Publishing revenues have fallen by 30% in the last decade alone ($10 billion). Innovations from the eReaders to self-publishing have failed to buck the trend of people simply reading less. As an industry, publishing is simply no longer a competitive player in the entertainment landscape.

It wasn’t always like this. Publishing used to stand as an industry of power. What happened?

What is publishing

Let’s start with what publishing is.

At it’s core, publishing describes the process in which a book goes from an idea in an author’s head to a leather bound copy in a reader’s hand.

Today, publishing is an awkward spot. As a form of entertainment, it falls short of our other options on the internet that deliver quicker hits of dopamine. As a form of news and education, it’s eclipsed by journalism which is geared to optimize for attention.

Yet, publishing is also incredibly powerful. The right book at an early age can forever alter a person’s beliefs. In the words of Edmund Wilson, “No two persons ever read the same book.” Unlike news or entertainment, books have a longer shelf life, creating their imprint generations after they were written.

But readers are not obligated to purchase new novels by a publisher. Books have no advertising or subscriptions to provide revenue. As a result, the fundamental mission of publishers is to understand how a book can be sold and then execute on that vision.

Through time, the process of selling a book has evolved to encompass an incredible amount of depth. Authors first turn their ideas into proposals and pitch publishing agents. Agents then vet the idea before reaching out to publishing houses. Publishing houses will refine and edit the idea into a publishable book before printing and distributing to bookstores. Finally, bookstores stock printed books for readers to purchase. Any deviation in this chain would have massive ripple effects.

And that’s exactly what’s happening today. From the outside, it seems as if the final link, the reader, has been broken. But while it’s easy to attribute the decline of publishing to people reading less, it confuses the symptom with the cause.

Hidden in the statistics about less Americans reading is the assumption that readers are the foundation of publishing. The reality is flipped. Readers are the output of the publishing done right, they are not the core foundation that supports the industry. Like mentioned before, books have no innate advertising or subscription revenue. Content drives revenue. More specifically, good content drives readership. And authors create content. The foundation of publishing lies in its authors.

Yet, most authors make less than minimum wage from their books. 90% of traditionally published authors make less than $100,000. That means an author that spends years writing out drafts, finding an agent, pitching to publishing houses, and building a following through book signings, still might not be able to depend on writing as a career. There’s something wrong with that.

Publishing houses today are oblivious to this problem. Their solution to the slow decline of the industry has been to compete on extravagant advances to celebrity memoirs and consolidate to reduce costs. Other publishing houses have marched steadily towards high margin products like textbooks. In summary, publishing houses are trying to hone content that previously brought them success in a world where tastes change at the speed of light.

Notably, very little has gone towards the development of new authors. And that’s exactly where the future of publishing lies.

The publishing curse

For developing nations, there exists a theory called the resource curse. It occurs when a country has an abundance of natural resources yet fails to develop as a country. These countries often have lower economic growth rates and have non-democratic political systems compared to countries with fewer natural resources. Publishing has the resource curse.

From the agent to publisher to bookstores, the structure of publishing seems bloated. But all these middlemen and various institutions exist because publishing operates in an low trust, high cost environment. The cost of making the right decision is too high and the infrastructure optimizes on making the easy decision.

To start, evaluating book drafts objectively is nearly impossible for a publishing house. With hundreds of drafts being written daily, the average publishing house would go bankrupt simply reading all the drafts. As a result, publishing houses outsource this process to agents who can do most of the heavy work evaluating authors and publishing houses simply need to build relationships with trusted agents. Even this fails sometimes. After writing Harry Potter, Rowling found success in finding an agent (Christopher Little Literary Agency) but needed a year plus a lucky break to be signed by a publishing house. But overall, this structure has allowed publishing houses to focus on core operations while giving up very little equity.

Further down the stack, bookstores have an interesting operating model that borders on consignment with upfront investment. A bookstore gets a 40-60% bulk discount, contingent on volume, and the option to ship back unsold books to publishers for future credit. Although some authors have had success by guaranteeing full consignment to bookstores, the incentives of the bookstores focus on the velocity of sales. This makes it so that bookstores want and need to stock books based on deals negotiated with publishers.

When looking at the structure of publishing, it isn’t some underdeveloped system that has wiggle room. Forged through time, every player has learned the actions needed to maximize their outcome within the ecosystem. The core incentives allow for very little change.

Recent innovations in publishing such as eReaders and eBooks have been defeated by this ecosystem. Let’s take the case of eBooks. On paper, eBooks seems like the ideal innovation in publishing. There is no marginal cost in producing an extra eBook and any electronic device could be transformed into a book. Yet net sales of eBooks have been declining for the better part of the past decade and adoption rates struggle below 20%.

There are three main themes that doomed eBooks.

First, while there are no marginal costs to creating an eBook copy, it’s also not that expensive to print a hard cover. The average hard cover’s printing and shipping costs are only $2. Further, unlike paperbacks, eBooks were often released in conjunction with the hard cover launch. So for publishers, eBooks stood for a lower margin product that cannibalized their existing hard cover sales. Today, eBooks are often more expensive than paperbacks, dooming adoption of eBooks on existing work.

Second, with most eBooks sold via Amazon, Amazon was poised to become both distribution and discovery for book sales. Distribution has always been a core moat for publishing houses. An ordinary author cannot reach hundreds of bookstores without the help of the publishing house and with the decline of independent bookstores, the only viable path towards success for authors is to get signed by a publishing house. Amazon’s hold on eBooks changed that. Whether it’s the predictive algorithms or the large audience of readers, Amazon held all the ingredients for an author to bypass traditional publishing houses. This led to five of six major publishers famously turning to the agency model with Apple and eventually, an DOJ anti-trust case against major publishers.

Third, even without legal action, eBooks stood to become obsolete. eBooks was an attempt to transplant offline reading behaviors online without truly participating in the online environment. Every website is just a single click away and in this competitive environment, content is heavily geared towards near instant dopamine hits. This is why content powerhouses like Buzzfeed have been able to create huge user bases seemingly overnight. Traditionally published books weren’t forged in the same environment and simply transposing these books online meant that most eBooks were simply going to fail to attract new readers.

At the same time, despite languishing for the past decade, eBooks is finally starting to find footing again. eBooks has been able to find success outside of the publishing ecosystem and become the a key component of self-publishing. Today, $2.99 self-published eBooks are flourishing while the traditional $9.99 eBooks are failing to get the traction they were once promised.

Perhaps it’s precisely because of the power of publishing that the industry has been able to settle into an rigid local maxima structure, suffocating the innovation and talent that threatens it.

The evolution of publishing and future of entertainment

There used to be hundreds of publishing companies. They’re now mostly owned by four.

It’s been a slow and steady retreat by publishing houses towards proven investments such as memoirs and textbooks. Crowded in the same space, publishing houses have paid 8 of the 10 largest advances in history in the past 20 years despite weak sales numbers.

Strategically, this retreat rested on two primary assumptions.

First, publishing houses would maintain a monopoly over distribution. The best way to sell a lot of copies is to be on a best-seller list. And the best way to get on a best-seller list is to have the backing of a publishing house that can stock your book in every bookstore in America. While Amazon might have a larger library than any individual store, unless the algorithm deviates from optimal behavior, Amazon doesn’t have a “kingmaker” power. However, for publishers who can significantly impact sales numbers by simply stocking in more bookstores, they have a unique power in dictating the success of a book.

Second, the structure of publishing would hold. For centuries, publishing houses have been the power center in the publishing world. The difficulties in getting a book accepted by a publishing house only increased the prestige of an published author. The formal publishing houses, agents and incentive structure all reinforce this status quo. Thus, despite making fewer investments into newer authors, publishing houses were also implicitly betting on the fact that the best of the new authors would still follow and succeed at the traditional publishing path.

These assumptions have more or less held during the past two decades. But the edges are starting to come undone.

The biggest threat to publishing houses today is self-publishing. Able to take advantage of newer distribution platforms and higher royalty, self-publishing has become an serious alternative for new authors. Combined with the ease of distribution with eBooks, the number of self-published authors has skyrocketed in recent years. Most (98%) make less than $100,000 per year but it’s also allowed hobbyists that aren’t interested in writing full time to publishing their thoughts and capture the long tail.

This spells a dangerous trend for publishing houses. Authors are the foundation of publishing and with more of them moving away from traditional publishing, the future of publishing houses is in jeopardy. To make matters worse, authors have traditionally been responsible for marketing efforts to promote the novel. As a result, the transition from traditional publishing to self-publishing is much easier than the other way around.

Publishing houses are also starting to lose their grip on distribution. As brick and mortar bookstores struggle to stay open, the publishing houses’ have seem diminished reach and Amazon’s distribution is strengthen every time a local bookstore shuts down.

But I don’t think the future of publishing lies in self-publishing where the process of printing books is commoditized. Rather, I believe that there exists space for a new generation of publishing houses that act more as studios to amplify an author. I’ll refer to them as publishing studios. Specifically, these publishing studios would focus on signing authors that have already seen success in self-publishing and help go beyond characters on paper. The readers themselves would replace the agents in the ecosystem and help distinguish which novels have true potential. Consequentially, the publishing studio would take a rather small portion of publishing revenues but instead negotiate for larger percentages of other income streams such as merchandise.

To execute on amplifying the novel, the publishing studio would start by sponsoring fan-fiction to flesh out the universe and give depth to side characters. Then, building the marketing effort, the studio can create special behind the scenes interviews with the author to truly lock in the reader base. From there, a quick monetization route could be to release merchandise such as posters or small trinkets. Then, building on this success, the studio can create partnership with related entertainment forms such as art, games, toys and if successful, tv shows or movies. The end goal of this is to build an IP ecosystem that can sustain itself and grow outwards.

In a world of infinite options, sunk cost is extraordinarily influential. Compared to reading or watching something brand new, users want to see a new spin on an familiar universe. That’s why League of Legends has been the most popular game for the past decade or despite 15 years after release, The Office still draws record viewership. We want something familiar. And publishing is the perfect cornerstone to deliver a new generation of content.


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· Publishing, Industries