Presented by: Charlie Stross (Celebrated Science-Fiction Writer)

See Charlie’s related blogpost on the CREATe site.

I am a science fiction novelist, with about 20 books in print from major publishers, basically the science fiction imprints of Macmillan, Penguin and Hachette. Now, to tell you about my relationship with ebooks, I really have to go and give you a bit of background as to how the ebook market, in terms of commercial trade fiction, took off.

I’ve been on the internet since 1989, but there have been e-Books on the internet since…well, for about 18 years longer than I have been. In fact, for about forty years. Project Gutenberg got started in about 1971, and one of it’s 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 authors who tried selling novels (on floppy disk, for PCs) as far back as 1985.

During the pre-cambrian, pre-history of ebooks, various blind alleys were experimented with, inevitably unsuccessfully. Nobody thought, in 1985, ‘I want to read e-books. I’m going to go out and buy a $5000 PC so I can squint at a really crap main screen.’ So, it was obvious to anyone who wanted to sell ebooks in those days, they had to do some sort of value add.

Infocom’s text adventure games were originally marketed as “interactive fiction” and there’s still a marginal but healthy sub-culture of ‘IF’ authors and consumers out there to this day. Later, an American company called Voyager sank quite a lot of money into experimenting with Apple’s HyperCard as a delivery for books in hypertext form, there’s one of them up there, (refers to slide) Society of Mind by Marvin Minsky, 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.

Now, the problem with the interactive fiction and hypermedia attempts prior to about 1998 and the internet as an actual, viable sales channel, was that they relied on 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. “Hi. I really want to read the Society of Mind, I can buy this £25 paper edition or spend $50 on a CDROM and then $2000 on a Mackintosh.” It’s not hard to see which format sold better. The actual cost of goods on a paperback or hardback, the actual cost of the physical product, is less than 10% of the actual retail price. Paper is dirt cheap.

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 hammering out prose. You want music and special effects, both of these cost money and are actually more labour-intensive than text. Anyway, 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 companies are the little brothers of big media — typically the publishing subsidiaries of large conglomerates with magazine, newspaper, and sometimes music and TV/film interests. They observed the damage caused to the music biz by file sharing and a botched approach to monetization in the 90s, and then the film industry in the 00s, with growing horror.

Books are sold by reverse auction; high-priced editions appear first, then over time the price is lowered, through limited editions, then hardcovers, trade paperbacks, mass market paperbacks, and so on.

However, during the late 90s and early 00s, ebook uptake was impaired by fragmentation in the delivery channels. As late as 2007 there were still about six or seven ebook platforms, basically incompatible file formats with their own DRM systems, with no clear winner. The eventual winner was, of course, Amazon.com, largely because they bought a company called MobiPocket, who in the mid-00s were investing in free platforms…I don’t think anybody knows how many millions Jeff Bezos pumped into Kindle, but it’s been suggested several hundred million dollars to make it fly. He effectively subsidized the early adopters.

Now, an additional problem which hampered sales of commercial ebooks was contract boilerplate. Books are sold by reverse auction; high-priced editions appear first, then over time the price is lowered, through limited editions, then hardcovers, trade paperbacks, mass market paperbacks, and so on. However, these appear as different physical products, so people mistake an expensive book as a cheap book as different products, a hardback or a paperback. The fact that the content is the same, the work is the same, tends to escape people, obscuring the reverse auction that’s going on. Reverse Auction: the price starts high and then drops until the point at which you are willing to pay for it.

Books are also sold through distinct sales channels. Hardcovers and trade paperbacks are sold as trade goods, on sale-or-return credit. If they’re not sold after 90 days, the bookshop has to cough up the money or return the product. Mass market paperbacks are sold like magazines or newspapers, they’re disposable items, where they are either paid for or proof of destruction is given in the shape of returned covers, which are cheaper to ship than actual books.

Were ebooks a sales channel or a reverse-auction price point? Nobody knew this in 1998, or even in 2005. Publishers set up internal web/internet divisions in the mid-90s, which then made a bid for control over the new ebook channel, which effectively set them up as rivals to the book-publishing arm of the publishing company. So, you ended up with the trade publishing divisions trying to sabotage the internal empire builders by forcing them to sell ebooks for a higher price than the corresponding paper edition. So, we ended up with chaos.

What finally forced them to focus was the external threat of Amazon.

Amazon’s goal is, quite simply, 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 trade as his first target for disruption because it looked moribund, chaotic, and vulnerable – and it was. Amazon’s deep-discounting of books threatened publishers with a price war and was eroding the traditional retail margins, and traditional retail channels, which had been left weak since 1992, when WalMart effectively destroyed the US mass market channel by centralising wholesale suppliers and losing a lot of knowledge about which supermarket had sold paperbacks in which community. They cut the number of wholesale outlets for mass market paperbacks in the US from 470 to about 90 in 2 to 4 years, according to those sources in the area. In so doing, they created the market gap which allowed Borders and Barnes & Noble to expand, and they picked up the slack by selling more expensive hardcovers in smaller numbers.

Jeff Bezos (Amazon) picked the book retail trade as his first target for disruption because it looked moribund, chaotic, and vulnerable – and it was.

But the industry was already reeling as a result of WalMart, when Bezos’ started pushing development of the Kindle platform. He sold it to the Big Six publishers as a safe ebook platform with DRM and standardization. The trouble was, it was a walled garden: the publishers only realized around 2009-10 that they’d handed the keys of the DRM to Amazon, locking their customers into buying from Amazon’s vertical silo. Amazon were therefore free to squeeze the publishers for deeper discounts.

The final publishers response was to look for a white knight, in this case Apple with the iBook store and the Agency model, which led to a Department of Justice anti-trust investigation, ironically favourable to Amazon, the 500lb gorilla with the 90% market share, and leading to the slowly emerging current situation of oligopoly, with three primary DRM platforms.

Now, what does all this mean for me, as an author? Not a lot, actually.

To cut it very short, because I gather we’re short on time, mass market paperback sales drove over a cliff about three years ago in the United States, they’re down about 60% in three years. Ebook sales were negligible until 2008-2009, and then they began to sky-rocket, with triple digit percentage annual growth. Ebooks sell to the customers for slightly less than paperbacks, but they pay bigger royalties to the author, and the publisher claws back the money based on cost, and in some sense the streamlined distribution channel. So, I’m actually making about as much money from ebooks as I used to make from mass-market paperbacks.

Hardbacks tick along as they did before, because people who buy hardbacks are buying cultural artefacts, they actually want the physical product, it’ll take a generation or two for the old hardback buyers to die off.

So, I’m making about as much money as I was before. But, we’re in the dawn of a huge format shift, from mass market paperbacks as the cheap, disposable literature to ebooks as the cheap, disposable literature. And I thinks that’s as much as I’ve got time to say.