Lonely Planet: This is Not the End

not-the-endCommenting on the affairs of past employers is bad karma, but the media circus surrounding Lonely Planet’s recent restructuring, with Skift’s hash of disgruntled misinformation and the Guardian’s premature obituary, is sufficiently misguided to warrant an unsolicited opinion.

Lonely Planet is and has always been a print publishing operation. Despite their carefully cultivated hippy-dippy image, the Wheelers ran a tight ship and LP was known in the industry for being able to produce and distribute more guidebooks of higher quality at a lower cost than anyone else in the business. This was achieved by a relentless focus on tweaking the publishing machine, and during my time there were regular mini-celebrations for (say) switching to a new printer that allowed cheaper color pages or trimming editing time by 10% by automating tasks that were previously done by hand in layout.

Yet being a print house left the company unprepared for the digital era, and despite its early web presence, it never seized the chance to become Expedia or TripAdvisor. Two anecdotes illustrate why:

Industrial History Museum, Merrickville, CanadaEarly on, one of the publishing execs was taking me through The Spreadsheet, which forecast in minute detail and often with stunning accuracy how much a book would cost to create and how much it would sell, taking into account everything from the cost of public transport in the destination to the impact of upcoming titles from the competition. Offhand, she remarked, “I don’t think we should be investing in digital until its revenues exceed print.”

Taken at face value, this seemed absurd. How would digital ever grow without any investment? Only later did it dawn on me: “investment” for her meant doing what the spreadsheet measures, which is putting money into books. Digital revenue would come anyway from e-books, which would be faithful replicas of print books, and once the magical 50% tipping point was reached, they could start by adding video clips of the Eiffel Tower to page 294 in the e-book.

But what if people don’t want e-books?

Later on, I mentioned the travel potential of Google Glass to one of the people in the product development team, responsible for dreaming up Lonely Planet’s future products. “Yes!”, he enthused, “just imagine if somebody wearing Glass looked at our guidebook, and they could see the latest edits superimposed on top!”

But what if people stop buying printed guidebooks?

Mind you, these were both consummate publishing professionals who live and breathe print. So at the end of the day, even though they and others at LP knew in their bones that print was falling, and that e-books and apps weren’t making up the slack, they simply didn’t know what to do about it, other than to cut more costs and churn out more books.

The new CTO Gus, on the other hand, does. LP’s asset is its independent content beholden to no-one, which drives its website and its brand. Despite debacles like BBC’s catastrophic mismanagement of Thorn Tree, at 100m+ visitors/year LP’s digital footprint remains head and shoulders above its print competitors, and its vetted content has no match (yet) elsewhere in the digital world. What’s more, they’ve already spent years putting in the hard yards to bring their technical backend up to speed as well. A relentless focus on digital is LP’s best shot at survival, and last week’s layoffs, far from being a portent of doom, are the most concrete sign yet that NC2 Media gets this as well.

National Arboretum, Canberra, AustraliaParticularly important is the unheralded switch to a “destination editor” model, which finally breaks the stranglehold the book publishing schedule has had on the operations of the entire company.  For example, this will allow the website to be updated continuously, instead of having to wait for the next book edition to roll around.  Far from giving up on content, this puts it front and center, and the move parallels The Guardian‘s digital transformation that has seen the newspaper grab a sizable online audience far outside its native UK market.

None of this diminishes the human tragedy of letting go people who have poured years of their lives into what was indeed for many more of a family than a company. But as the only alternative is slow and inexorable decline guaranteed to lead to the elimination of every single job, this is the best hand the company can play.  As the last page of LP’s guidebooks used to proclaim: “THIS IS NOT THE END”.

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Down, down, down: Books, e-books and apps all trending to zero

“We expect DVD Subscribers to decline every quarter.. forever.”
— Reed Hastings, CEO, Netflix

Does your business model rely on selling paid content?  Welcome to Mr. Hastings’s world.

Books

Many publishers continue to operate under the assumption that printed book sales are declining gradually or perhaps even plateauing.  Unfortunately the data tells a different story: the decline appears to be accelerating.  Here’s Nielsen Bookscan for the travel market:

Printed guidebook sales, millions/year

That’s from the “Guidebook Category Report, Rolling, Period 13” for 2006 to 2012.  The trendline is a simple polynomial (n=2) best fit, and if it’s accurate, the market will halve by 2015.  And while that sounds drastic, it’s by no means unprecedented, as the sales of CDs did pretty much the same thing in 2006-2009.

Of course, the market’s not quite homogenous: Lonely Planet’s been beating the trend, mostly by continuing to invest in print and absorbing customers from the rapidly-disappearing Frommers. But that just makes LP an even-bigger fish in an ever-shrinking pond.

So can the white knights of digital paid content, e-books and mobile apps, save the publishing industry?

E-Books

Finding good data for e-books is a pain, so I ended up rolling my own: I grabbed Amazon’s Kindle Store Top 100 bestsellers lists since 2007, using snapshots from the Internet Archive that record the actual prices at the time, and computed average prices and the proportion of under-$5 titles, the vast majority of which are self-published.  (Source code in Ruby here.)

Average price of e-books in Kindle Store Top 100

Despite that December 2012 spike, the trend is clear, and while the decline looks gentle, my personal suspicion is that the trend line is too optimistic and that there’s a collapse looming.  For one thing, the data above is only for best sellers, meaning new books by well-known authors who command a distinct price premium; the average price of an average e-book is both lower and falling faster.  Yet even in the Top 100, the share of “cheap” books, the vast majority of which are self-published, is growing exponentially:

Books Under $5 in the Kindle Store Top 100

While I didn’t use their data directly, I owe tips of the hat to Piotr Kowalczyk, who wrote a very detailed report on the growth of self-published books on Kindle, and Digital Book World, which has been keeping tabs for the past half year (albeit looking only at the top 25).  DBW also has a credible explanation for the spike, which boils down to publishers yanking up prices in the period before they had to start allowing discounting, and further reinforces that shrinking prices are the new normal.

Apps

The collapse of prices in the mobile app world has been even more drastic, to the point that outside an  elite circle of bestsellers and the odd very specific niche, making money by selling the app itself is a pipe dream.  (All data courtesy of 148Apps.biz and the Internet Archive.)

Average price of paid applications in the Apple Store

By the end of the year, the average app will cost under 99 cents, and even that’s pulled up by every $999 BarMax and wannabe in the store.  The median price is already zero:

Share of free applications in Apple Store

In other words, over half of all apps are already free.  On current trends (and look how beautifully that line fits the data!), that will be over 80% within two years.  This is for the “premium” Apple Store widely opined to have less stingy customers; the equivalent figures for Android will be even more brutal.

What to do then?  The only answer is to figure out a way to make money that doesn’t involve readers paying for content.  Here are some ideas:

Why the Web will gut paid e-books and apps, and why free can pay for authors and publishers

Selling digital content at any price above zero is not sustainable: the Web is cheaper for readers, cheaper for writers and publishers, and far more discoverable and shareable than the squabbling hermit kingdoms of e-books and apps.  For both authors and publishers, the best strategy is to distribute for free and find another way to pay the bills. (Part 2 of 2.)

Back in 2008, I attended the Frankfurt Book Fair, our little Wikitravel Press stand in Hall 4.2 just around the corner from the main area for technical talks.  And whenever there was something about e-books on, suddenly the hall would fill with sweaty publishing execs in cheap, crumpled suits, craning their heads and hoping against hope to hear and believe the message of joy: “Printed books may die, but paid digital content will save you!  Just keep calm, carry on, and sell your books as e-books and apps instead!”

For a publisher, this vision of beauty is an immensely seductive proposition: keep your business model, keep your pipeline, keep your editorial process.  Sell a slightly-tarted up version of your print-ready book, turned into an ePub or .mobi or iOS app or whatever flavor of the day your snake-oil CMS merchants tell you need, and as a bonus get rid of all that tedious faffing about with print runs, distribution and unsold stock.  And now, 5 years later, it all seems to be coming together!  What could possibly go wrong?

Only one thing: for the vast majority of publishers, paid content is as real as green-haired fairy princesses, because the Web will gut the business model for paid apps and e-books.  There are three reasons for this.

First and foremost, you can’t beat the Web on price.  The price of a printed book has been established through decades of trial and error: it accurately reflects the cost of creating and distributing the physical book, the price the market will pay, the level of competition with other printed book publishers and the margin the publisher needs to survive.  The current price of e-books and apps, on the other hand, is entirely disconnected from the actual cost of creating and distributing each additional copy, which is essentially zero. If the same content, or at least substitutable content, is available on a website for free — and the Internet being what it is, the answer is usually “yes” — there will be relentless price pressure to drive those prices down to match.  Forget $9.99 e-books or even $0.99 e-books: the price point to beat is $0.00.

Second, the Web allows drastically lower overheads for connecting authors to readers.  Building e-books and getting them distributed, much less building mobile applications and getting them into the famously developer-hostile iTunes store, are arcane arts limited to expensive professionals wearing propeller beanies.  Any monkey with a keyboard, on the other hand, can hammer out and publish a blog or forum post, and while the vast majority of them deservedly sink without a trace, a truly original or insightful idea will go viral on its own merits.

Third, apps (eg. iTunes) and e-books (eg. Kindle Store) are walled gardens, and history tells us that walled gardens always lose.  Minitel, Compuserve, America Online etc all restricted the users to officially approved islands of inaccessibility cut off from the rest of the Net, and despite an initial run of success due to clean, well-integrated interfaces and lots of industry players taking advantage of easy ways to bill users, none could compete in the long run with the sheer breadth of content and what Technology Review‘s Jason Pontin recently dubbed the “linky-ness” of the Web.  Probably the simplest way to visualize just how crippling these walls are is to simply search for (say) *Paris* with your favorite search engine, and see how many links to apps and e-books you get back: you’ll find the answer is zero.

The forces outlined here are clear and inescapable, and they mean that it will gradually become harder and harder to profit simply by selling copies.  And once there are no copies to sell, and no bookstores to sell them to, the last justifications of a traditional publisher’s existence — sales, distribution and chasing up invoices — disappear, with editing, design and marketing becoming optional add-ons instead of mandatory parts of the package.

The solution?  Join the light side of the force, throw away your precious business model, and become a website yourself.

Now, it’s easy to fall into the trap of assuming that just because the vast majority of websites are free to access, they must also be free to produce, and hence it must be a losing proposition to pipe content that has been paid for into a free website.  This is, of course, a fallacy: the incremental cost of serving an additional reader via the Web may be virtually zero, but keeping any website of significance up and running is an expensive proposition. TripAdvisor, famed purveyors of travel information they notionally didn’t pay a cent for, had operating expenses of $338.5 million last year, a large chunk of which went into paying people to fish out the most egregious chunks of spam from their firehose of contributions.  In the dead trees publishing world, this is called “editing”, and while TripAdvisor’s focus is very much on quantity over quality, others may choose the opposite.

Authors in this new world will thus have a choice.  One option is to exchange risk for the certainty of a fixed but low paycheck and write work-for-hire for a website that monetises itself with any of the existing business models out there for the Web: advertising, transactions (brokerage), associated merchandising, etc.  In the world of reference publishing, including travel, work-for-hire is already the norm and these authors will see little difference — assuming, of course, that the companies they work for survive the transition, which is by no means a given.

The more exciting but financially dangerous choice is to strike out on their own.  If your main goal is to share your writing or ideas with the world, the digital world is your oyster: start blogging and promoting, and worry about money later.  If Karl Marx was publishing The Communist Manifesto today, would he make it a website or a $0.99 e-book?

If you already have a significant following and would like to turn it into a career, simply asking your fans for money may work, but the guaranteed advance revenue of Kickstarter-style crowd funding seems more appealing; Seth Godin recently just pulled in $130,000 in a few hours.  Cory Doctorow famously gives away copies of all his e-books and makes it back in increased print sales, a format which, much as we like it to diss it, will be around for a while, especially in the deluxe hardcover editions that fans love and authors earn well from.

Now here’s the catch: both these authors could easily charge for what they write, since some of their fans would pay to unlock the gate and pass through the digital wall to read their next book.  But they choose not to, since every book they lock away represents one less opportunity for a new fan to find them.

And if you are publishing your first novel, you would be a fool to barricade yourself in a digital fortress and hope that some greater fool is willing to take a punt on paying you even 99 cents, when there is an ever-increasing plethora of free alternatives.  Achieving fame as an aspiring novelist has always been a long shot, why sabotage your already meager odds for the 34 cents that are left over after Amazon takes its 65% cut?  As Cory says:

There has never been a time when more people were reading more words by more authors. The Internet is a literary world of written words. What a fine thing that is for writers.

Did you miss Part 1?  Check out Eat yourself or be eaten: a tale of two travel publishers.

Eat yourself or be eaten: a tale of two travel publishers

Success in print publishing does not translate to success in digital publishing, and many common measures for digital success mislead.  The primary medium of the future is the unchained Web, and restricting your free content offerings out of fear of cannibalization will only lead to somebody else eating your readers instead.  (Part 1 of 2.)

Today, we’re going to look at some charts, comparing Alice Publishing with Bob Publishing.  These are both thinly disguised real travel publishers, but as my intention is not to slag or praise any specific companies, I’m using the aliases so we can focus on them as examples.  Like the CIA, I will neither confirm nor deny any putative identifications in the comments, and sloppy speculation may lead to waterboardings from fellow commenters.  (Obligatory disclaimer: neither Alice nor Bob is my employer, Lonely Planet; and as always, this blog represents no one’s opinions but my own.)

Volume of printed books sold

Both Alice and Bob are big names in travel publishing.  According to Bookscan, Alice is a contender for the top spot in much of the world when it comes to volume of printed books sold, shifting around 1.7 million books last year.  Bob is a few spots down the pecking order, sellling around 800,000 copies, which is still more than respectable but means they’re only about half of Alice’s size.


Print vs digital revenue (parent companies)

Now shipping around pallets of dead trees is all well and good, but how are they faring at bits and bytes?  Neither Alice nor Bob are telling directly, but the publishing conglomerates that own them do, and Alice’s owner is only too happy to tell us they’re the industry leader for the hottest figure in today’s publishing industry, print vs digital revenue, pulling in 33% last year and promising to be the first to break the magical 50% barrier as early as this year.  On the other hand, Bob’s corporate masters only managed to reach 20%.  Strike two for Bob.

There’s a reason, or actually two, why publishers like the “print vs digital revenue” figure so much.  First, the worse your print sales collapse, the higher the share of digital revenue goes. Indeed, Alice’s print sales dropped 14% last year, while poor Bob was whacked by almost 20%, boosting their digital shares by a handy ~4%, a third of the putative growth.  And second, “digital” is a sufficiently fuzzy term that it’s pretty easy to redefine it to your advantage.  In Alice’s case, its owner’s “digital” revenue includes a giant educational services arm, and would thus better be described as “not print”.  Another publisher not considered today goes further and includes all the printed books they sell from their website in their “digital” sales.


E-books vs printed books (estimate)

A more reliable indicator of how well a publisher is actually transferring their readers over from print to paid digital is the split of e-books to printed books.   Alas, precisely because this number is nowhere near as flattering, publishers are very reluctant to disclose even volume shares, much less revenue shares or, heaven forbid, actual sales figures, and BookScan doesn’t have any data either.   Alice’s owners offer precisely one figure: of all books sold last year, 14% were e-books, and while I’d wager the split for travel guides was more in print’s favor, that’s the best I’ve got.  Bob and company are even more tight-lipped, offering up only the meaningless puff of “triple-digit growth in e-book sales”, so I’m going to assume that they managed to pull in the industry average of maybe 8% or so.

Strike three — but Bob’s not out, and in fact, I think Bob is much, much better placed than Alice to survive through the digital revolution.  Here’s why:


Millions of readers per year

Around 5 years ago, Alice launched a flashy website with lots of ads and minimal content.  It won a bunch of obscure design awards and has been gathering dust ever since: Alexa estimates they get around 1500 visitors a day, which works out to 360,000 a year.  With e-books and apps still on the level of a rounding error, Alice’s total number of readers for print and digital combined is thus around 2 million a year.

Bob, on the other hand, has been working on their website since 1996 with a simple two-point philosophy: post everything on your website for free, and don’t worry about cannibalizing your printed books.  This is why they now pull in around 3.6 million unique visitors a month, which translates to over 43 million a year, or a total readership of nearly 44 million a year.  That’s 22x more than Alice!  So when Alice’s brand loses its dominance on bookstore shelves, because there are no more mass-market bookstores and thus no more shelves, which of the two can still connect with readers?


Direct revenue (US$) per reader per format, Alice Publishing

“So what?”, I hear the hard-nosed publisher snort. “Website freeloaders add nothing to the bottom line!”   Indeed, when it comes to direct revenue per reader, everybody who buys a book from Alice chips in around $15, buyers of Alice’s e-books pay around $12, and people who download Alice’s apps pay around $6 a pop.  People who visit Alice’s website, on the other hand, pay approximately nothing.  Isn’t it thus completely contrary to your own interest, downright crazy, to offer free content that drives people away the paid products?

If we were dealing only with printed books, the answer would of course be “yes”.  If Bob started giving away their books for free, they would quickly conquer the market and demolish Alice’s sales.  But they cannot do this sustainably, because it costs real money to print and distribute books, and that’s why the price of a printed travel guide from any publisher has converged to around $15.

But in the digital world, once you have created a piece of content, there is virtually no cost to distributing an additional copy of it.  The equilibrium price is thus zero, and if you don’t distribute your content at that price, somebody else will, and they’ll eat you alive. That’s why Bob is already busily kneecapping Alice’s (already fairly pathetic) app sales by offering their own city apps for free; and that’s why the biggest threat to Alice is not Bob, but Charlie Digital, whose travel website gets more readers every day than Alice gets in a year.


Millions of readers per year, version 2

And the kicker?  Charlie, better known as TripAdvisor, made a profit of $177 million last year and is tracking to improve on that this year — and it pulled off this trick without charging for any of its content.

Keep reading for part 2, in which we’ll take a look at why getting readers to pay for their content directly will prove unworkable for the vast majority of publishers, and how the creation of quality content can be funded nonetheless.