The State of Ebooks

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Article ImageAfter years of go-go growth, the ebook market has matured into a slower-growth industry. However, slower growth doesn't mean that substantive changes are occurring. "The days of triple-digit growth are probably behind us," says Tina Jordan, VP at the Association of American Publishers (AAP). "Ebooks have been launched and are here to stay. Growth trends are typically incremental, with sales generally driven by bestsellers in all formats."

And yet, some industry observers are taking a more sanguine view of the market and predicting growth from nontraditional players. One industry insider thinks the ebook industry is simply experiencing Gartner, Inc.'s "Trough of Disillusionment"-a period after the first blush of growth has subsided and doubt about the industry's future grows.

"The next part of the curve is the second growth curve of any technology," says Jason Illian, founder and CEO of BookShout. "So the companies that'll really be successful are the ones that survive this next part of the curve, where ebooks become a bigger piece of how you find your content and how you buy it-and also and often the way you experience it."

Here is a look at the year that was and the year that could be in the ebook industry.

The Year in Review

Ebook subscription services had a challenging 2015, as the fight to be the Netflix of the ebook industry turned into a battle of attrition. Google acquired the top executives of the ebook subscription service Oyster to work at Google Play Books; Oyster will shut down operations in early 2016. And while it's too soon to say if Google will enter the ebook space, it will have the brain power to do so. It hasn't been announced if Google also purchased Oyster's well-regarded mobile reading platform.

In July, Scribd delisted many romance titles as voracious romance readers consumed so much content that the company's payouts to romance book publishers became untenable. And that's not the company's only problem, says Mark Coker, founder and CEO of the indie book distributor Smashwords. Scribd is Kindle Unlimited's largest competitor, but it faces some very real problems-not the least of which is that Amazon is able to pay much less for books. "They can always price their books and price their service lower than any other service," he says.

Coker says that while it will be difficult for Scribd, it might be able to survive since it has books (from the Big Five publishers) that Kindle Unlimited doesn't. And similar to accessing video content, readers will subscribe to multiple ebook services, he says.

Depth of content continues to plague subscription services. The Big Five publishers opted not to participate in Kindle Unlimited, and many popular authors are not available via Scribd's subscription service. "How great is Netflix if half the movies you want aren't there?" asks Illian. "So the fact that Oyster and others have struggled is not really too surprising."

Coker says that traditional publishers still haven't come to terms with what Kindle Unlimited is doing to ebook pricing. "Basically, they've found a way to dump a lot of high-quality, low-cost books on the market at an effective price that cannot be beat by any other retailer," he says.

Publishers are trying to maintain higher ebook prices of $9.99 and up, and Amazon believes they should be priced lower. Coker agrees that those prices are too high, but he says publishers should have the right to set them and be judged by the market.

"The impact of Kindle Unlimited is starting to be felt, not just in the author community, but by the entire publishing industry," Coker says. "This is part of Amazon's plan to really marginalize its competitors, and it views large New York publishers as its competitors. It says so in its financial filings; Kindle Unlimited is going to hurt the large publishers more than anyone, actually."

A Look Ahead

Coker sees a trend toward "a continued glut of high-quality, low-cost books that every new book must compete against" since ebooks don't go out of print. "This is kind of a radical concept," he says. Physical bookstores can only hold so many books; digital ones are not subject to that limitation.

This means that it costs virtually nothing for an ebook seller to keep selling an ebook and that retailers' virtual shelves can stock millions of ebooks. This is good news for consumers but bad news for ebook authors as they are potentially competing against millions of other ebooks. Authors who once made a handsome living writing ebooks are now quitting the business, Coker says.

"For a lot of writers now, that gravy train is drying up, and you're starting to see writers in anguish, posting on Facebook and on message boards that they're worried that they're going to have to get a day job," Coker says.

Another ebook industry observer sees consolidation of a different type. "In 2016, I am expecting to see consolidation among the major ebook companies," says Nate Hoffelder, editor at The Digital Reader, an industry blog. "In 2015, several minor players like Sony exited the industry and handed their customers to another company, and that will continue into 2016. In particular, I am expecting to see NOOK either acquired, shut down, or sold for parts in 2016."

BookShout's Illian wonders what would happen if Facebook or Walmart decided to sell ebooks: "These are all very capable ... of moving millions, billions of dollars' worth of ebooks." All companies want more time with their customers, Illian says, and distributing ebooks is a novel way to get it.

Publishers should be excited by all the new channels to reach consumers, according to Illian. "There are new ways of doing business that don't tie them directly to the Seattle-based company," he says.

The nascent ebook industry faces competition not just from physical books but from other types of entertainment. "There's just more competition than ever from alternative media forms to entertain and inform the audience. People who read books have more choices than ever for their entertainment and information. That's kind of a larger, macro issue that, I think, will put a permanent damper on the growth of the book industry," says Coker.   

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