What Does 2016 Hold for Digital Publishing?

What is going on with e-books? As 2016 dawns, what’s driving a decline in trade e-book sales is one of the big questions hanging over the publishing industry. In December, the Association of Annual Publishers (AAP) reported that sales this past August dropped 3.7% compared to August 2014, and trade e-book sales are on pace to post a yearly decline. According to AAP Statshot figures, adult e-book sales from publishers that report to AAP were down 4.5% through the first eight months of 2015 compared to the same period last year Total trade e-book sales (which include children’s and YA titles) were down 11.1% in the eight-month period.

The decline in e-book sales certainly has publishers’ attention, although no one seems particularly alarmed at this point. “I am not concerned,” says Chantal Restivo-Alessi, chief digital officer and executive v-p of international for HarperCollins. “We have to remember there has been a model shift in the market, and the market is still absorbing that. There has also been an adjustment in price points, and an adjustment in consumer demand, as you would expect.”

Restivo-Alessi says that after years of strong growth, the recent downturn in e-books sales was not unexpected, and she cautions observers about jumping to conclusions. “I do think it is a moment in time, and a difficult moment to judge,” she says. “We just have to wait and see.”

Evan Schnittman agrees. Long recognized as a leader in digital publishing, the former v-p of sales at Hachette recently joined the Hatch Group, a New York–based venture support and development firm that focuses on helping startups in digital media. He says the dip in e-book sales is the sign of a book business that is starting to find balance. “It’s hard to look at parallels in the history of publishing, because each new format [i.e., trade paperbacks and mass market paperbacks] were self-contained. But e-books are not self-contained—they are about the device and the content. You cannot separate device sales from the sales of e-books. So the question you have to ask is, are we just now finding the natural level of e-book sales? Are we just now finding a more true level? Because we all know what happens when we first get a new device—we go a little crazy and buy lots of books.”

Without question, the popular trade e-book market is still relatively new, dating back to the launch of the Kindle in 2007. And, to put it mildly, the past five years in e-book history have been especially eventful, with the launch of the iPad in 2010 ushering e-books out of the dedicated-reader era and into the tablet age, in which powerful new multimedia devices have opened a world of possibility. Accompanying the iPad, of course, was the adoption of the agency model for e-books, and two years of court-protected e-book discounting, which resulted from price-fixing charges settled in 2012—sanctions that have now expired.

In a sense, 2016 presents something of a new beginning, a clean slate for e-books. In 2015, all of the major publishers finalized new sales agreements with Amazon, two-year deals for both print and digital distribution. And with the e-book price-fixing sanctions now expired, publishers have what they long desired: control over consumer e-book pricing.

Perhaps most importantly, there appears to be no seismic changes looming on the horizon: no new devices like the iPad to spike content sales, for example, and no new industry-standard changes to the existing retail model. Reading on smartphones, e-readers, and tablets has become ubiquitous. Whereas a range of factors affected the e-book market over the past five years, in 2016 the book market will be relatively unfettered for the first time since 2012. So what does that mean for the next wave of digital innovation in publishing?

“Originally, it was much more about ‘product,’ but now that is a given,” Restivo-Alessi says, when asked how things have changed since 2012, the year she joined HarperCollins. She is quick to add that there is still significant room to innovate around product offerings (e-books, digital audio, enhanced e-books, and apps), but the digital focus, she says, is increasingly on platforms, distribution models, e-commerce, and marketing innovations, including social media. “Today it is more about how many options we can create for consumers, and how many potential revenue streams we can create for our authors,” Restivo-Alessi says. “I may be in digital, but ultimately I care about the business overall. And if we can optimize overall revenue for an author, whatever the format, why not?”

Browsing the Future

When asked about the state of innovation in publishing, digital entrepreneur and publishing consultant Richard Nash says the book business is approaching a “plateau of convenience.” And one reason e-book sales are in decline, he says, is that e-books simply don’t offer much to consumers beyond convenience. “The entire story of publishing has been about making it easier to read, to remove the friction,” Nash explains. “Digital and e-commerce is good at that.” In fact, with the advent of subscription reading services, troubled as they may currently be, accessing e-books is as simple as possible. Instead of having to buy books, he says, we theoretically could have access to every book, wherever we are, with a click or a swipe.

So what lies beyond? How do publishers move off this plateau of convenience? Nash believes the answer will be found in supporting new ways of reading, browsing, and discovery. And browsing, he suggests—the consumer’s playful, meandering, inefficient search through a physical bookshelf—may be the most important element of all.

For all the emphasis placed on discovery in the digital realm, Nash says the pleasure of the bookstore experience has not been reinvented for the Web or screen. The next breakthrough innovation, he says, may be the virtual reinvention of a really good physical-bookstore browsing experience. “What if you could arrange content in a virtual reality three-dimensional space so that it is fun to browse?” Nash asks, suggesting that digital efforts focused solely on convenience ignores the pleasure that readers take in the hunt for their next great read. “We need to find the right level of friction,” he says, “the sweet spot for facilitating browsing in the digital space.”

One innovator who shares that belief is Peter Kay, an entrepreneur and former v-p of digital media at W.W. Norton. In 2015, Kay launched Ncvrs (pronounced “encovers”), an app devoted to browsing and searching for books.

Ncvrs has been described as the Tinder of books because, like the popular dating app, it enables users to swipe through a seemingly endless number of book covers and make quick decisions about their desirability. Users can decide to reject a title, indicate it as read (and whether the book was liked or disliked), or mark a title as a book to read—and then buy it via a retailer link in the app.

Echoing Nash’s remarks about the pleasure of the hunt, Kay describes the ideal book search as “[more about] the journey than the destination.” And in a note he posted on the online publishing platform Medium, he wrote that the “cheesy” comparison to Tinder actually works: some books are “one-night stands, guilty pleasures; others you hate or are indifferent to but come to accept and love over time.” He added, “The rarest are the ones you love at first sight that grow with you.”

Ncvrs is an addictive browsing experience, driven by impulsive, gut-level book love. The app currently features about 100,000 titles, including select self-published works. It uses the Amazon cover art API and creates its own capsule summaries. Ncvrs currently has several thousand users, who average about 50 swipes in a typical session. So far, 60% of the swipes are dislikes, 35% are likes, and 5% are “shelved”—favored titles and books to read later placed in your personal library. Kay runs data-mining software to find information about clusters of readers and what the like and don’t like, and in addition to an affiliate fee for book sales, he plans to generate revenue by selling data on consumer behavior.

Kay, who has also worked as a digital media executive at Random House, Sony, MTV Networks and Time Inc./Sports Illustrated, says he considers himself an “East Coast book-industry guy” and “not a Silicon Valley disrupter.” And he stresses that he wants to collaborate with publishers on getting books into readers’ hands.

The good news for startups like Kay’s is that publishers in 2015 showed they are more willing to try new things in the digital space, a trend that is likely to continue in 2016. In contrast to the early days of digital, which were marked by caution, and in some cases outright fear—of piracy, of cannibalization of print sales, and of a diminishing of the perceived value of books due to low e-book prices—publishers in 2016 appear poised to experiment, and to be more proactive.

“There is a lot of openness to working with startups,” Restivo-Alessi says. In addition to efforts to foster more innovation internally at HarperCollins, the publisher, she says, is happy to work with external partners, more and more of which are approaching publishers with ideas on how to help connect readers with authors. “Once you put the right books in front of readers, they will read them, and they will pay for them,” Restivo-Alessi adds. “We know that consumers still appreciate and value our content, and that they consume both physical and digital. So we need to find ways to be as flexible as they want us to be.”

Subscription?

Of course, startup culture is volatile. When it comes to innovation, failure is an option, and new ventures often switch or pivot their business models to address market realities, end up being acquired, or fail outright. And 2015 was no exception. Probably the most high-profile startup failure of the year was e-book subscription service Oyster, which announced that it will cease operations in early 2016, with some key staff moving to Google, in what has been described as an “acqui-hire.”

Launched in 2013, Oyster offered subscribers access to more than one million e-books for a monthly fee of $9.99. The service drew praise from readers and gained traction with publishers (including three of the Big Five) by offering a model that paid publishers their full retail cut for e-books read by subscribers. Oyster’s failure amplified criticism that the subscription model is not sustainable, especially following the failure of Entitle (formerly eReatah), a similar subscription service, and Blloon, a subscription service that allowed consumers to access more books by recommending titles and sharing their reading tastes with others. The largest remaining subscription e-book service, Scribd, faced troubles of its own in 2015, having to drastically cut back on romance offerings due to the voracious reading habits of romance fans.

Looking ahead, however, Scribd CEO Trip Adler is optimistic. He says the company , which acquired Librify in 2015, is “growing according to plan.” In 2015, Scribd added access to thousands of new titles in new content categories, among them comics, sheet music, and science and technical titles.

Restivo-Alessi says HarperCollins’s faith in subscription has not been shaken by Oyster’s collapse. “That’s the nature of the beast,” she says. “It takes some time, but at some point one or two winners will emerge. That’s the nature of innovation and the startup world. Not everyone is a winner. And that’s okay. In the process, we all learn. As long as the economics are good and value gets recognized for our authors, we don’t see any harm in participating with new ventures.”

Restivo-Alessi notes that, despite feeling some growing pains, HarperCollins has had a positive experience with subscription services so far. “We’ve limited our offerings to the backlist, and it has helped quite a lot with discoverability,” she says, noting that 90% of the titles made available in subscription services have been consumed. “Subscription services definitely have a role to play,” she says. “They do add value.”

That’s good news for similar startups, such as Playster, an all-media e-subscription service that went live late in 2015, offering access to 250,000 titles and 50,000 audiobooks. Consumers can pay ($24.99/month) for access to Playster’s full library of e-books, video games, music, films, and TV shows, or they can subscribe to a single media channel, such as books, for less ($9.99 per month for books).

ComicBlitz is another new subscription startup, devoted to comics and graphic novels, although the service faces a few challenges. It entered the subscription marketplace in October, just after Scribd started its own comics category, offering more content (10,000 titles, many from the biggest publishers) than Comic Blitz (3,000 titles) at a slightly cheaper monthly fee.

Pivots, Growth, and New Ventures

It’s often about the numbers, but one indication of the publishing industry’s general health is the number of innovative startups emerging. To paraphrase an oft-heard refrain: for an industry supposedly in decline, there are certainly a lot of savvy entrepreneurs trying to getting in, with a wide array of projects.

While success with bundling—combining print and digital content in sales—remains elusive, Shelfie, formerly known as BitLit, took a creative step forward in 2015. Using the Shelfie app, users can now photograph the print titles on their bookshelves, upload the photo, and receive a list of discounted e-books editions of the same books, available for purchase.

Shelfie, which started with about a dozen publishers, now offers access to more than 250,000 titles from more than 1,200 publishers. This year the venture added thousands of audiobooks (including about 4,500 from HarperAudio) and a proprietary recommendation engine it claims is an upgrade over the conventional “People Who Bought This Also Bought” system used by most online retailers.

Wattpad, the online writing and reading community founded in 2006, continues to offer a good example of why digital reading will be even more significant in the future. Designed for a generation that does most of its reading on a smartphone or tablet, it has become a petri dish for studying the new habits of mobile readers. Wattpad attracts more than 40 million unique visitors each month—visitors who are overwhelmingly young, international (50% of users are from outside of North America), and love to both read and write on their devices. Interestingly, Ashleigh Gardner, head of content for Wattpad, says that while Wattpad members read stories on their phones, they “don’t see themselves as reading e-books—they’re following social media.”

These days Wattpad is working with authors from Simon & Schuster, Sourcebooks, Cosmopolitan, and other publishers. The company also launched Wattpad Stars in 2015, a new service that connects writers with national brands to create Wattpad Brand Stories, a marketing effort designed to highlight national brands. For example, Anna Todd, author of the bestselling book series After, which was a Wattpad discovery, worked on a Wattpad Brands story called “Weeping Willow” for AT&T’s It Can Wait campaign about distracted driving. The story has generated more than 180,000 reads on Wattpad.

In retail, Zola Books, an ambitious e-book publishing and recommendation site founded by literary agent Joe Regal in 2011, was forced to pivot away from its original plan to build a better e-book retail operation. The site is now focused on supporting microretail with its technology, an API called the Everywhere Store that enables retailers and others to set up e-book retail outlets on their sites with a few lines of code. “We realized that the Zola we’d first envisioned was too ambitious,” Regal says, “but that we could still diversify retail by making it possible for anyone to sell books.”

Launched in 2013, Adaptive Studios has created a new business model around abandoned movie scripts. The startup gets the rights and repurposes the scripts for other media, including books and graphic novels via its Adaptive Books and Adaptive Comics imprints, and for new TV and films. This year the house hired Jordan Hamessley as editorial director of the book imprints and launched two big books (DC Trip and the graphic novel Abbadon), and it plans to release up to 16 books in 2016. Adaptive also showed that even a well-funded startup can make use of crowdfunding: the house used Kickstarter to raise $42,000 to publish Abbadon.

Another startup, Hummingbird Digital Media, launched in August by wholesaler American West Books, also enables the sale of e-books and digital audio directly to consumers. Hummingbird offers a turnkey program that allows consumers to browse through the titles available for sale and then purchase them through the Web-based storefront.

And in late 2015, Aer.io—a service that allows publishers, retailers, and authors to sell print and digital books via their websites and social media networks—was acquired by the Ingram Content Group, an early investor, in a deal that also brought in Aer.io CEO Ron Martinez and the company’s staff.. The deal will give Aer.io, originally called Aerbook, access to Ingram’s 250,000-title CoreSource catalogue and give Ingram a new social media–optimized retail and marketing service.

There were many acquisitions in 2015, including the purchase of Byliner, the literary boutique site, and Booklr, an e-book sales data analysis firm, by Vook, which has relaunched itself as Pronoun, a soup-to-nuts self-publishing platform. Vook was founded in 2006 as an early digital venture in multimedia e-book production and self-publishing. CEO Josh Brody says the revamped firm will focus on empowering authors through a suite of digital editorial, production, and data-analysis tools—for free—“that will give authors both creative and financial control going forward.”

Bibliocrunch also continues to grow, founder Miral Sattar says. Originally launched as an e-book self-publishing platform in 2011, the venture pivoted in 2014 to become a self-publishing resource center, and in 2015, its membership doubled to 26,000. In 2016, Sattar says the company plans to launch a few children’s book initiatives.

One of the most interesting new players, meanwhile, is Serial Box, a new venture in serial storytelling, and which counts former Penguin executive Molly Barton as a cofounder. Serial Box offers serialized fiction (in e-book and audiobook formats) developed and presented like a TV series. In addition to emulating TV’s episodic presentation, Serial Box is also adopting the TV writing model, employing a team of writers to produce each season-long series with material that will run for 13–16 episodes. Serial Box founders are quick to differentiate the venture from other efforts at serialized digital fiction, including Wattpad, and DailyLit, which emails serialized versions of classic and contemporary fiction to subscribers.

“We’re producing original serials, not chopping up content in order to serialize it,” Barton says. “We see Serial Box as a network, not a platform.”

Behind The Screen

It’s also important to note that much of the innovation in publishing is not consumer facing. Schnittman points out that publishers and startups alike are working hard to up their metadata game, in an effort to get more books in front of readers, wherever they are on the Web.

At the 2015 Frankfurt Book Fair, for example, Neil Balthaser demonstrated his startup, Intellogo, a machine-learning engine that can parse a large body of work for complex themes, an advance that represents the bleeding edge of metadata practices.

“Intellogo cracks open books, reads them, and understands them,” Balthaser explained. “It can understand concepts versus key words. We have trained it to understand things like characters, personality, writing styles, geographic locations, time periods..” Thus far, Intellogo can comprehend roughly 100 million different “insights” that can help publishers and retailers better understand their holdings, and thus build better marketing and merchandising campaigns.

Balthaser is no stranger to the publishing industry—he used to work for Barnes & Noble, where he helped run the Nook Press self-publishing platform. After leaving B&N, the idea for Intellogo struck him. “We had all this content coming in but no way of really understanding it,” he says of his time at Nook. “It was just a deluge, a problem that is common in our lives today, with Web content, books, and magazines. Search can help, but key words only scratch the surface. So with my background in artificial intelligence, I thought, ‘Machines can help us with this.’ ”

In a similar vein, Trajectory, a digital content distributor and software developer founded in 2011, expanded its business model to include book recommendation, unveiling what the company calls its Natural Language Processing Engine, a proprietary software platform that analyzes the language structure of a book to produce keywords and book recommendations. Using networked computers, the NLPE scans texts for language patterns and can chart up to 30 attributes of a book, including length, chapter, pace, intensity, mood, word type, and reader age. With this data, the NLPE can identify scanned books that share similar attributes and language patterns. Trajectory CEO Jim Bryant calls the NLPE “a big step forward in book discovery.”

In addition, an increasing array of powerful authoring tools are emerging. Also at this year’s Frankfurt Book Fair, representatives from an startup called PubCoder showed off software that enables creators to build powerful, top-level digital products cheaply, and quickly.

“PubCoder is a tool that allows you to add animation, interaction, and other elements, everything you would expect to see on a tablet, and then to publish that work in any format, whether as an ePub3, as an iOS or Android app,” says Enrico Gazzano, PubCoder’s cofounder. Using a simple, intuitive drag-and-drop template, elements that would take days of coding—and thousands of dollars—can be now pulled off in minutes.

“The idea is going from digital books to digital for books,” Gazzano says. “This is not just taking a print version and making an enhanced PDF, but we’re thinking about the end product—games, interactivity, cool stuff.”

What’s Ahead?

By now, you’ve no doubt seen the many end-of-year headlines in various media outlets declaring that print is roaring back to life. It’s true: print was up in 2015, posting a modest 2.8% gain over 2014, and e-books were down. But it’s also important to note that the decline in e-book sales does not take into account self-published e-books, including those from Amazon—and according to the e-tailer, its e-book sales are growing, although it declined to offer any numbers.

It’s good news, for sure, that print sales are up. But the danger in media outlets trumpeting the resurgence of print over digital, publishers say, is the temptation to portray print vs. digital as a binary choice. The reality is more nuanced.

“E-books have a hard life,” Schnittman says. “If you look at the numbers, there is a limited range of where e-books really dominate. There might be certain people who will only read digital, or print, but most readers will read a variety of formats for different things.”

Publishers hope for a rising tide in 2016 to lift all their boats—print, digital, audio (which has also had a strong 2015 in the digital realm), and everything in between. “We never believed it was going to be an 80-20, or a 20-80, print-to-digital market,” Restivo-Alessi says, adding that HarperCollins is eager to experiment with new digital ventures, and to work with partners to meet their consumers’ evolving needs. “You try to anticipate and you try to learn, because if you’re not participating, you’ll never learn and you’ll always be in catch-up mode,” she notes. “I think you have to participate, and fail, frankly, as well. We know we won’t succeed every time, but every time you fail, you learn something, you add to your experience, and you improve the next time. With every interaction and with every partner you learn something. And that’s good.”

Trade E-book Sales, Jan.–Aug. 2014 v. 2015

($ in millions)

E-books as a Percentage of All Trade

Source: AAP, Statshot

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