Business Musings: The Current State of Disruption (Planning for 2019 Part 1)
A Short Series
For years now, I’ve done a year-end review, examining what happened and where the industry stands.
I’ve been having a heck of a time starting this year’s series. At first, I thought it was because I had had such a difficult and disruptive year. But, with the help of my Patreon supporters as well as our annual Business Master Class , I felt like I had a handle on much of what occurred in 2018. Not all the nitty gritty details, but the trends and many of the issues writers have been dealing with.
I wrote down lists and links and reviewed notes and thought long and hard about things…and still couldn’t figure out how to wrap my arms around what I wanted to talk about.
I initially thought about combining the different parts of the industry under topics, and examine the topic rather than that part of the industry. But the industry is diverging in some important ways, making that way of writing these blogs exceedingly difficult.
This afternoon, it struck me: I write the year-end reviews so that I can focus on what to expect from the year to come.
So rather than look in detail at what happened in 2018, I’ll be looking at what happened with an eye toward the future.
My Patreon supporters, in particular, gave me a lot of avenues to explore for future blogs—everything from Amazon Ads to audio revenues to Kobo’s new translation program—and I plan to get to those. I’m also attending some of the industry fairs here in Las Vegas, including the Consumer Electronic Show and the Licensing Expo, so I’ll have some posts from there as well.
But those are nitty gritty detail and future posts, not what I want to think about as I head into 2019. I want to focus on some trends, as well as some important ways of looking at those trends with a jaundiced eye toward the future.
I’m going to write these as a short series, and I’m going to do it all at once. These posts will appear on my blog every Thursday well into January. If you want to read them all early, however, you can find them on Patreon for supporters at the $5 and above level.
A reminder: I write these weekly business blogs for other writers who want to make or already have a long-term career. If you’re just starting out, some of this stuff won’t apply to you. If you’re a hobbyist who never wants to quit your day job, again, some of this stuff won’t apply to you. Don’t ask me to bend the blog toward you. There are a number of sites that cater to the beginner or the writer who doesn’t really care if she makes a living. Dean and I even have a few online classes and lectures on Teachable.com that might help you figure out the early stages of your career (as well as craft courses).
For the most part, however, dealing with beginner and hobbyist issues doesn’t interest me. I’m a long-term professional writer who has made money as a writer since I was 16, who has made a living at it since I was 25, and who started making a heck of a great living at it by the time I was 35. I started writing these weekly blogs to make some kind of sense out of the disruption in the publishing industry in 2009. I did it for me, because I think better when I am writing things down.
The disruption continues, albeit in a new phase (part of what I’ll discuss below), and so I am focusing on what I need to focus on for my long-term writing career. I hope that some of these insights will help the rest of you. I also hope that those of you who want a long-term career or who have one will share your insights in the comments on all of these posts. I learn as much or more from all of you than I do from my own research.
That’s the introduction.
Let’s dive in, shall we?
The Current State of Disruption
The disruption in the publishing industry will continue for some time now. Years, most likely. I don’t have a good crystal ball for how long it will go on, but we are past the gold rush years in the indie publishing world and have moved into a more consistent business model. It’s at least predictable, now. We know some patterns and how they’re going to work.
(If you want to see how business models evolve and change, look at this blog post of mine from 2016.)
The disruption in traditional publishing has gone on for nearly two decades now. It began before the Kindle made self-publishing easy by giving writers an easily accessible audience. Traditional publishing became ripe for disruption in the 1990s when the old distribution model collapsed.
Many of you saw it from the outside—the decline of the small bookstore, the loss of bookstores in small towns, the rise of the bestseller only in chain bookstores. All of that came from a collapse in the distribution system, from hundreds of regional distributors down to about five. (I don’t off the top of my head recall the actual number.) That made publishers panic. They couldn’t figure out what kinds of books sold best in the Pacific Northwest as opposed to what sold well in the Southeast, and worse, they didn’t have time to figure it out.
(When I came into the business, a top sales person for a major book company would know that science fiction sold well in California and quest fantasy sold well in Georgia, that the Midwest really enjoyed regional books, while New Yorkers often didn’t.)
Bestsellers sold everywhere, so publishers ramped up the production of already-established authors and sent those books all over the nation. Then, when the crisis leveled out, the publishers did not return to the old ways, scared of what to do. They continued to push for huge sellers rather than grow newer books.
Writer after writer after writer got dumped by their publisher in this period, while some new writers made fortunes because they wrote books that were similar to existing bestsellers.
When the Kindle came around and disrupted publishing, both writers and readers were ready for something new. That combination of forces created the blockbuster indie sellers—which were not blockbuster to traditional publishers. (The writers were making significantly more money, but selling fewer units than trad pub bestsellers.)
Hold that thought for a moment while I remind you that another disruption—a different one—was hitting publishing at the same time. Audiobooks went digital, and exploded. It became easy to download an audiobook and listen to it on your iPod (remember those) or your favorite MP3 player. Some cars made it easy to hook up those players to the sound system of the car.
And thus, commuters wanted everything on audio, and the demand in audio grew exponentially. As so many industry analysts said five or six years ago, if the Kindle hadn’t come around, the big story in publishing would have been the audiobook.
And here’s another publisher problem: most publishers never secured audio rights to the books they published. That money went directly to the authors.
We will deal with audio later in January. I need to do a deep, deep, deep dive on that topic, and I don’t have time at this point in the year. But as we discuss the future of publishing, looking into 2019, remember that audio has been lurking as an important market for about ten years.
Let’s take a quick look at where we’re at on the disruption scale. While searching for something else, I found this nifty article on the McKinsey&Company website. McKinsey & Company bill themselves as a “strategy and corporate finance” firm. Basically, from what I can tell, they’re consultants who advise companies on changing their business models. Just because I am linking to their website does not mean I’m endorsing them.
[Note added later: and, thanks to a tip from an eagle-eyed reader, I just learned the company is in legal trouble. So really not endorsing. But the article did inspire the chart, so I’m leaving this.]
But this 2016 article is very useful, because it takes a look at the pattern of digital disruption. (And that’s how I found this, searching for someone who would describe the pattern succinctly.)
In Stage One, the disruption is detectible. Someone who is savvy can see it coming. But the disruptor isn’t earning much money. The old established part of the industry is making a fortune and the new disruptor is making pennies.
To give you a personal example, Dean had put up a few of our stories on the nascent Kindle in 2010, and in the first quarter, my Retrieval Artist novella had made $15. I was stunned and knew, in that moment, that we had just found gold. We changed our entire business model at that point, because we could see what was going to happen next. (Of course, it wouldn’t have happened as fast if the old model wasn’t already decaying.)
Most people (in all sides of an industry) don’t act in Stage One. They barely even notice what’s going on.
In Stage Two, the disruption becomes clear to everyone. How severe the disruption is going to be will be a matter of debate, depending entirely on where the people debating are standing inside the industry.
Yes, the old traditional people in the industry know that there will be some bumpy times ahead, and the disruptors believe they’ve hit the lottery. Neither are correct.
By the end of this stage, though, both sides know that the disruption has hit and it’s significant. The response on each side, however, is different. As you’ll see below.
In Stage Three, the disruption becomes a permenant part of the industry. It’s not going to go away. It has changed things and will continue to change things. In many ways, the disruption isn’t really a disruption any more. It’s becoming status quo.
The McKinsey & Company article actually says, at this point, that a “critical mass of adoption has occurred.”
Think of it this way: remember when you had to tell your friends about Netflix and binging? I do. It was a Christmas season about fifteen years ago. Dean and I discovered 24 through Netflix. The DVDs held four episodes. When we had to get out of a chair to change the DVD, we stopped watching for the evening. We recommended the show (and Netflix) to Dean’s best friend, who called us a few days later at 3 am (he knew Dean would be up), to say his entire family had paused the binge to make popcorn. They’d been going for 8 hours straight at that point.
And this was unusual. Now, if you leave your device on Netflix, and it cycles through a few episodes without you touching the remote, the device will actually ask you if you mean to continue watching or not. Because so many people stream, fall asleep and/or walk away without shutting anything off.
I don’t know when he hit critical adoption on streaming but I think it was about five years ago, maybe more. Now it’s so common, everyone does it—and no one has to explain it.
Finally, Stage Four. By Stage Four, the disruption is the new normal. It’s the way we do things. (Again, think streaming.) The industry has absorbed the disruption. The disruption has changed the way everything operates, and often creates new businesses and/or new ways of doing old things.
There’s another aspect to these changes, one that’s extremely important. It’s the effect of the stages on revenue.
I was going to try to diagram this for you on my own, before I discovered the McKinsey & Company article. I was going to draw two straight lines on a graph.
The McKinsey & Company piece suggests S-curves instead. Go to their site to look at their diagram. It’s much better and clearer than the one I have scanned here.
But this one is fine for our purposes.
The Y-axis is profit, and the X-axis is time. I’ve labeled the first S-curve as “Old” to indicate traditional publishing, and the second S-curve as “New” to show indie publishing.
In the beginning, the old model is going along almost at a plateau, bringing in steady, comfortable revenue. Then the disruption occurs, and both S-curves gain a lot of profit in a short period of time.
Eventually, though, the old business can’t adapt fast enough to the new system and, in fact, often ignores it or screws it up. By Stage Three, the old and the new are in similar positions. By Stage Four, the old (unchanged) part of the industry is at a severe disadvantage.
Stage Four is coming, but we’re not there yet. We’re in that point in Stage Three where the S-curves meet.
How do I know this? Oh, I’ll show you in the coming weeks. But the short answer is this:
The Inevitable Plateau
For years now, those of us who watch business trends have predicted that book sales would plateau. In reality, “plateau” is the wrong word for overall book sales. Those continue to grow, sometimes in ways that aren’t entirely measurable. New markets are opening all the time, bringing in new readers.
The system for measuring both readers and sales is so inadequate that we can’t count the readers we have, let alone the new readers who are coming into the book industry sideways. However, there is a lot of evidence—scattered, of course—that new readers are coming in. (I’ll deal with this in future weeks.)
Readership is growing, but individual sales are mostly declining. Traditional publishing’s fiction sales are down 16% since 2013. Traditional publishing has a lot of theories about this, delineated out in the Publishers Weekly article I linked to.
Indie writers believe a lot of the trad pub sales migrated to them. Maybe.
But some of what happened here was the inevitable decline from the gold rush of a disruptive technology.
Let’s look at traditional publishing for a moment. Traditional publishing moved to the blockbuster model at the turn of the century, meaning that the books that were published had to have a guaranteed level of sales or the author’s contract wouldn’t be renewed. The sales rose, partly because traditional publishing was the only game in town.
In that period, if you went to bookstores all over the country, and followed that up with a visit to the grocery store, as well as a visit to a story like WalMart or Target, you’d find the same group of books on the shelves. A few more in Target than in the grocery store, and certainly more in the bookstore, but still, the same books. And the airport bookstores were the same way.
If a reader needed reading material, he only had a few hundred titles at any given time in the stores to choose from. So the reader read the best of what he found, not necessarily what he wanted to read.
Then the disruption happened. Kindles and ereaders proliferated. Readers found books they’d been searching for, often for years. The readers also found some genres and subgenres that they hadn’t seen in a decade or more, usually books by indie writers that oculdn’t sell to the big traditional companies.
The boom in ebooks grew and grew and grew. (And if traditional pubishing hadn’t dicked around with pricing, their book sales would have grown even more.) That’s why the S-curves on that graph grow precipitously in between Stages Two and Three. Adoption increases revenue for a very very very short period of time.
That kind of growth is not sustainable for years, though. That’s why I say it was an inevitable plateau. If you’ll look on that graph again, though, you’ll see that both curves end higher on the y-axis—the profit axis—than they were at the beginning.
But hitting that plateau after years of rapid growth and, in the case of traditional publishing, a near-monopoly on the market, is painful. And that’s what we’re experiencing.
Also, sales are spreading out. I’ll talk about this a bit more in the next couple of weeks. But think of it this way. Instead of a lot of readers reluctantly reading the latest blockbuster because they’re trapped in the airport and can’t find anything else to read, those readers are now downloading dozens of books on their phones, and reading a variety of things—some of which we don’t have measurements of. Those readers have left the blockbusters they barely liked behind and found books/authors they like better.
So the money that would have gone to five different authors at three different publishing companies is now going to twenty authors, and only two of those authors are with traditional publishing companies. The books the readers are reading, though, aren’t the latest blockbuster by that author, but an older book that came out a decade ago. The price is lower, and the companies aren’t interested in those sales. They want the newest book to sell the most copies.
The consumer spends the same amount of money, but spreads it out over a wider range. Many of these sales are untrackable. Not all of those twenty authors report their sales to anyone, and not all of those sales were made through traditional channels. A few of the authors sold on their own websites. Some of those books came out of bundles. And some came out of a subscription service like Amazon. The traditional publishing companies lost most of the revenue, because their book sales have legitimately declined.
But that doesn’t mean people are reading less or that fiction reading is declining.
I’m not the only one who sees this. Mark Williams of The New Publishing Standard had the same reaction to the traditional publishing fiction numbers that I did. He wrote on November 18:
The big problem we have is that the fiction market, much more so than the wider book market, is so fragmented now, thanks to digital (by which I mean not just ebooks and audiobooks but online POD and most of all social media democratising the promotion of fiction titles), such that it seems like fewer people are reading fiction, but the reality is likely just the opposite.
The fragmented market is but one thing we’ll talk about in the next few weeks. We’ll look at how writers can use that market to their own advantage.
Next time, I’ll examine the sales decline in more depth. But I wanted to start here by looking at the state of disruption. It’s important to know where we stand in the changes. I’ll be referring to this graph and the level of disruption as I write more in this series, particularly when it comes to traditional publishing.
I’m also seeing a lot of opportunity for indies in the coming year, but the opportunity isn’t easy nor is it as obvious as it was in the early gold rush days. The nimble indie will do a lot better in the years to come than someone who hit a formula and wants to stick to it.
And we’ll deal with that as well in the next few posts.
So hang onto your hats. It’s going to be an interesting ride…
This weekly blog started out as one of the new revenue models for publishing…ten years ago. The cutting edge. I’ve gone from adding PayPal to adding Patreon to feeling as if I should do even more. (I just might.)
But there’s more than the standard revenue model going on here. There’s a lot of ways that readers can support a writer if the reader is so inclined. Readers who want to support but have no available cash can recommend and share online, or they can go to their local library and request books (both ebooks and paper). Any time a book gets recommended, it goes into the system, and often encourages an entire library region to get copies of that book. That helps the writer too.
I find inspiration from all of you. Knowing that you’re there, and that you’re interested keeps me interested, and willing to think about things. Knowing that you’ll help me with resources or with changes or with opinions helps as well.
Thank you all for everything you do!
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“Business Musings: The Current State of Disruption (Planning For 2019 Part One),” copyright © 2018 by Kristine Kathryn Rusch. Graph in the center of the blog copyright © 2018 by Dean Wesley Smith. Image at the top of the blog copyright © Can Stock Photo / andrewgenn.