This post, by Dan Arnzen, originally appeared on Writely Done on 12/2/11.
“The times they are a-changin’ [sic]” – Bob Dylan
A quick Google search on “economics of ebooks” will result in a mix of articles either espousing gloom and doom for the book publishing industry, or discussing the unfairness of e-book pricing. Most of the discussion focuses on comparing e-books to printed books. This is not a valid comparison because the economics are completely different.
The music industry has gone through several transitions in the past. There are two transitions I want to focus on: the transition from cassette (analog) to CD (digital), and the transition from CD (physical) to MP3 (virtual). When music went from being distributed in analog format to digital there was fear that the ability to make perfect copies would kill the industry. This didn’t happen; however, the transition to MP3 and down-loadable music has been very disruptive. This is because the industry had been optimized over many years for the economics of the physical distribution of recorded music. The technology resulted in large changes in the behavior of consumers, which changes everything. Years later, the music industry continues to adapt to these changes.
Most analysis of e-books are looking at the transition like the move from cassette tapes to CD. The focus is on the lowering cost of production and consumers demanding lower prices, or how DRM is needed to prevent piracy, or how authors will starve as they receive a percentage of a smaller revenue stream.
Book publishing is making a bigger transition. Digitization and virtualization are occurring simultaneously. It is more like going from cassettes (or even LP’s) to MP3’s directly. This results in a lot of turmoil. No one knows how this will change the behavior of the consumer, and the existing infrastructure is trying to maintain the status quo on how business is done.
Supply and Demand