The Book

The simple description of the printed book is a collection of printed sheets of paper bound along one edge (the spine) and contained within a cover of heavy quality paper or cardboard; a text or document only becomes a book when the pages are bound together.

The book in this physical form is a simple, cheap, effective and well-established mechanism for the storage, retrieval and transmission of information.

The key features of the book as a technology are that it is portable, easily produced, affordable, accessible, and ubiquitous. Because it is invisible to the mind of the reader, the book does not intrude on the reading experience. From an economic perspective, the book is an information good of varying value to consumers depending on their requirements. In terms of technology, the book is a communication device, which has had a significant impact on human development over the centuries and as such commands a particular respect.

The ability of the e-book to present a multi-dimensional experience to the reader makes it a particularly valuable tool in education. For example, a history book could include video clips of events such as the D-day landings or links to web sites of supplemental information. This multi-dimensional facility of the e-book finds resonance with Christensen ([1997],2003:xxix) who identifies “Standard Textbooks” as an “Established Technology” and “Custom-assembled, modular digital textbooks” as a “Disruptive Technology” – with the ‘disruptive technology’ being identified as both a threat and an opportunity.

A reader may require a book for information, education or entertainment; the nature of the requirement will drive the production values²⁹ and purchase price of the book.

29 Book production values determine the format of the book, binding, cover design, font, paper quality, inclusion of table of contents, index.

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Discussing the cost of producing information, Shapiro & Varian (1999:3) observe,

“Information is costly to produce but cheap to reproduce. Books that cost hundreds of thousands to produce can be printed and bound for a dollar or two.” In the case of book publishing, particularly in fiction, a hardback copy is first produced at higher retail cost and followed some time later by a lower cost paperback (mass-market) edition. The early-adopters purchase the high-cost hardback enabling the publisher to offset costs against the hardback edition. This has changed to some extent with the publication of e-books but in many cases depending on genre and subject matter, e-books may be published in parallel with the hardback edition. In addition, the e-book has the potential to extend the life of a book indefinitely (subject to copyright³⁰) in terms of availability through the elimination of printing, storage and distribution costs. The e-book, with its reduced production costs and faster publication process facilitates experimentation by publishers, for example, a publisher known as a publisher of historical biography may venture into, in an experimental way, historical fiction or some other genre not related to their core list. On the other hand, e-books could be the core output of the publisher, as is the case³¹ with a specialised publisher who initially release their titles as e-books and then subject to demand may release a hardback edition. This is a reversal of the traditional release model, (which in the physical book world is hardback followed by paperback). There is a view in the industry that e-books will become the dominant format with the hardback format published subject to demand. The hardback in this case would be a special edition, would perhaps feature enhanced binding, personalised dedication by the author, etc., and it would be sold at a high price to reflect these features.

It is important not to associate the concept of the book with any particular media or format and to understand what constitutes a book as distinct from any other presentation of text.

Gleick (2011:L878) considers the book in terms of “The availability - the solidity – of the printed book inspired a sense that the written word should be a certain way, that one form was right and others wrong.” It is this concept of the ‘written word’ more so than a description of a book as a collation of ideas, a collection of stories, etc. that defines the unique and powerful features of a book along with the unique ability of the book to communicate in solitude through the process of reading.

30 See Appendix 3 for notes on Copyright law

31 Conversation with CEO of e-PubDirect 06 October 2011

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As the production, presentation, availability and access to information becomes more pervasive the book publishing industry finds itself in a similar situation to that faced by the recorded music industry at the introduction of electronic formats. The traditional business model of the recorded music industry is very similar to that of traditional book publishing; both produce a tangible good, protected by copyright law for sale to the public. Both industries have faced a shift from this traditional business model of the production and selling of a tangible good (CDs and books) to the production and selling of an intangible good (MP3 files and e-books) often with an associated service element such as cloud storage for purchased items. It can also be argued that the book publishing industry has parallels with newspaper and magazine publishing; however, the revenue model is different in that book publishers rely solely on the purchase price of the book for revenue. The revenue model for newspaper and magazine publishers is a combination of purchase price and advertising revenue.

While this situation can be described as an upheaval or a revolution, for the incumbent firms it is what Grove (1996:3) describes as a “strategic inflection point”. A ‘strategic inflection point’ is the point in time when a firm’s (or an industry’s) assumptions are challenged and forced to change. Firms who do not recognise or fail to meet the challenge will decline.

e-Books – A Redefinition of the Book?

It is clear that the publishing industry is undergoing a substantial change; some would say revolution, in how books are published, distributed, sold and used. McCleery (2007:L1494) observes, “we are living through a third revolution in the shift from print to digital media that combine textual, graphical, and oral materials.” The nature of this change is akin to Christensen’s ([1997], 2003: xxiii) “principles of disruptive innovation”. He describes innovation in terms of (xviii) “sustaining technologies” and

“disruptive technologies”. In the context of book publishing, the physical printed book is a ‘sustaining technology’ and the e-book is a ‘disruptive technology’. However, as Christensen & Raynor (2003:32) point out, “Few technologies or business ideas are intrinsically sustaining or disruptive in character. Rather, their disruptive impact must be moulded into strategy as managers shape the idea into a plan and then implement it.

Successful new-growth builders know-either intuitively or explicitly-that disruptive strategies greatly increase the odds of competitive success.” It is the moulding of the

‘disruptive impact’ into strategy, which is the challenge for book-publishers.

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Writing about the impact of the digital revolution in the market for recorded music Kusek

& Leonhard (2005:6) state, “Digital technologies have been totally and unobtrusively integrated into the lifestyle of new generations of teens and young adults”, essentially future generations of book buyers have an affinity with and expectations centred on digital product. In this context, I believe that culture, management, leadership and ‘theory of the business’ of the publishing firm must change and this change must be all embracing. In order to survive the publishing firm must examine their theory of the business. It will not be sufficient to migrate from paper to electronic format. It is necessary to look at the firm and as Drucker (1994:99) prescribes constantly test the theory of the business in terms of “Assumptions about the environment of the organisation: society and its structure, the market, the customer and technology” and seek to improve in all areas. The old certainties around book buying and how books are used no longer apply as new, more agile competitors, who are more akin to software developers than book-publishers arrive into the industry.

The old assumptions are that the book is a physical object, which is submitted by the author to the publisher for publication. The published, physical book would be distributed to retailers and purchased by an individual, and protected by intellectual property law, specifically copyright. The author and publisher are secure in the knowledge that this is a tried and trusted business model. Information and communication technology has stripped away the certainties surrounding the physical book and rather than being concerned with the book is concerned with the content (data), delivery mechanism and retail channel. The advent of B2C (business to consumer) technology in the form of internet based e-commerce (electronic commerce) coupled with the advent of the e-book format has enabled publishers to bypass the physical requirements of printing, storing and distributing the physical book and has enabled authors to bypass publishers. The e-book is essentially a software package consisting of the assets, which comprise the e-book, and as publishers are finding out, needs to be sold in the same way as software. This lack of physicality of the e-book has given rise to consumer expectation of a reduction in the retail price of the e-book. However, in my experience, the publisher is determined to preserve the existing business model, which relates specifically to the publication and sale of physical books. In the context of curriculum, publishing for the Irish market the cost of schoolbooks has become something of an annual national debate. As schools begin to adopt e-books, the book buyers are demanding a reduction in the retail cost of

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the books. The cost structure relating to physical books takes into account production costs (editorial, typesetting, paper, printing, binding, and delivery to the warehouse), distribution costs (warehouse storage, transport) and sales costs (the royalty structure, which is sales based). E-books eliminate the costs related to paper, printing, delivery to the warehouse and the physical cost of transport. The market is aware of the lower production and distribution costs related to e-books and is particularly price-sensitive in relation to the cost of schoolbooks.

One solution has been that the e-books are licensed to the student for the duration of their course of studies, e.g. 3 years in the case of the Junior Certificate curriculum. The publishers claim to provide these books at a reduced retail price. Because e-books are the considered by Revenue as software, they attract the standard rate of VAT at 23% thus negating any price reduction provided by the publisher. Therefore, the argument goes, it is Revenue rather than the book-publishers who are denying customers of discount.

Physical books are VAT exempt while the e-book attracts VAT. The dilemma facing educational publishers is that a campaign for the removal of VAT from e-books will highlight the lack of VAT on physical books and as result, the government may impose VAT on physical books in an attempt to gain an increase in tax revenue. What the publishers are striving for is to maintain the business model for physical books and apply it to e-books thus negating any need for change on their part to either their cost base or profit model or their theory of the business.