Sales of e-book devices, such as Amazon’s (AMZN) Kindle, Sony’s (SNE) Reader, and Barnes & Noble’s (BKS) Nook are soaring, creating opportunities for electronic publishing companies, such as RosettaBooks and Open Road Integrated Media, to win a share of the growing e-book publishing market. RosettaBooks and Open Road, among the most prominent of a bevy of upstart electronic publishers, cannot compete with traditional publishers in the expensive business of developing new authors, marketing their work, and publishing print versions of their work. Instead, the e-book-only publishers are taking aim at the backlist titles of the traditional publishing powerhouses.
Backlist titles are older books, generally published before contracts considered digital media rights. They provide a steady stream of revenue to publishers and are profitable, because the books have a steady readership and publishers have to spend little to market them. RosettaBooks and Open Road, interpreting the digital rights to these works as unassigned, are bidding for these rights.
Not surprisingly, traditional media publishers, such as Random House, a part of private media consortium Bertelsmann AG, Simon & Schuster, a division of CBS Corporation (CBS), HarperCollins, a subsidiary of News Corporation (NWS), and Penguin, a part of Pearson PLC, take a dim view of what they see as outright property theft. Random House has been the most aggressive in protecting its backlist; it sued RosettaBooks in 2001, eventually settling in 2002, after some adverse rulings, and allowing the new company to distribute 51 e-books from Random House’s backlist. But Random House started the battle anew in December of 2009, contacting literary agents and asserting the digital rights to its backlist. Indeed, the ownership of digital rights to backlist titles remains legally uncertain at present, but many traditional and electronic publishers are competing as if the rights belong to the authors and estates to assign. Some traditional publishers are protecting their backlists by signing new contracts with authors (or their estates) specifying e-book rights. For example, Scribner, an imprint of Simon & Schuster, protected its right to publish e-books of all of Ernest Hemingway’s works from his estate back in 2002. But other traditional publishers are reluctant to renegotiate rights that they view as already belonging to them.
Authors, meanwhile, are increasingly inclined to view the rights to publish electronic versions of their work as their own to sell, separate from the print-publishing rights. Best-selling business author Stephen R. Covey, for example, announced in December, 2009 that he had sold to RosettaBooks the electronic publishing rights to his blockbusters, “The 7 Habits of Highly Effective People” and “Principle-Centered Leadership.” RosettaBooks will make e-book versions of these titles available exclusively through Amazon for one year. Covey had published the print versions of his books through Simon & Schuster. Also, the estates of William Styron, author of “Sophie’s Choice,” and of Joseph Heller, author of “Catch-22,” long-held backlist titles of Random House and Simon & Schuster respectively, have come to agreements with Open Road to publish e-books of those works.
Authors and estates complain of what they say is half-hearted promotion of e-book sales on the part of the traditional publishers; additionally, they argue that because electronic publishing involves far less overhead, some of the greater profits should go to them. The reluctance of traditional publishers to embrace the e-book medium and to negotiate higher royalty rates, due likely to uncertainty and disputes regarding backlist e-book rights, creates an opportunity for the new electronic publishers. RosettaBooks and others are offering more generous royalty deals, sometimes as much as doubling the standard percent of net sales paid to authors. If the e-book-only publishers can capture even 20 percent of the backlists of traditional publishers, they will likely give themselves enough of a business base to start competing for newly published work in the next five years. This is more bad news for the already besieged print-publishing industry, as e-books are the only major growth market in the present publishing landscape. Indeed, on Christmas Day in 2009, Amazon reported more e-book sales than print book sales, likely due to gift recipients rushing to fill up their new devices with content.
The likely winner from all these developments is Amazon, which makes what may well become the best-selling e-book device on the market, the Kindle. Amazon’s dominant book-retailing position allows it to build the e-book market with unique efficacy, by means of its artificially low uniform e-book price for new titles of $9.99. Traditional publishers complain that this price cuts into print hardcover sales and have responded by threatening to delay e-book versions of new titles by up to four months. But their leverage is diminishing, as publishers closely allied to Amazon, like RosettaBooks, dig into their backlists. We would not be surprised to see Amazon acquire an electronic publisher like RosettaBooks, or develop one of its own. By elbowing into the e-publishing business, Amazon would be producing the device and publishing the content for e-books, while also controlling the dominant online retail space for both.
Challenges to Amazon’s position will come from competing retailers, like Ebooks Corporation and Barnes & Noble, which are “platform agnostic,” meaning that they sell e-books for all devices non-preferentially. Barnes & Noble claims to have the largest selection of e-books on the Internet and will also try to compete with Amazon’s Kindle on the basis of purported superior reader experience with its device, the Nook. Distinguished by its silence in this space is Apple (AAPL), which, without even offering a reader or special e-book software, has captured a share of the e-book market with its iPod and iPhone.
In short, unless the traditional publishing houses can make an innovative push into the rapidly evolving marketplace for e-books, they are likely to lose ground quickly to an array of more nimble electronic publishers.