How Electronic Publishing Works

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My name is Chris Poulette and I'm an editor at how stuff works dot com. Sitting across from me, as usual is senior writer Jonathan Strickland Butterfly in the Sky I can go twice as high. Nice. Thank you. You know, originally we were talking about the possibility of doing an e books podcast, and then we realized we've done any books podcast, but we really haven't talked about a lot of the developments in publishing since then. That's right, and uh,

and we had some listeners on Google Plus. So here's a little note from Google Plus. And John and Paul very biblical fellows. I suppose us are very beatle fellows. Perhaps so, but both John and Paul had asked that we talked about the books and e publishing. John was very insistent by the way, John, we do have an episode on the books, which I had completely forgotten about. Um,

I believe Christi as well. And just this morning as I was as I was looking at my notes, I realized, wait a minute, this sounds really familiar, and sure enough we have done one. But yeah, we wanted to talk about sort of the back end, not from the technological perspective so much as from sort of a business perspective about publishing, what publishers do, and how all that's starting to change in the e book era. Yeah, so I

guess first we should just start talking about what publishers do. Okay, Yeah, that that's actually a good question, especially because a lot of the discussions I've read recently. Uh. And when I say recently, I would guess probably. I think I'm thinking about probably the last year, because the books have become a lot more popular. Uh. You see uh news reports from Amazon that they are out selling paperbacks. Now, I think it was like for every one paperbacks Amazon sold,

they'd sell a hundred and fifteen e books. So it's already matched and outpaced the Dead Tree version of of books. Yep. But the thing is a lot of in a lot of cases, the electronic version of the book costs close to, if not as much as, are in some cases more than um the price of a paper book or p book as I like to call them. UM, And people go, what the heck is going on here? If this is just bits and bites, it doesn't take up any floor space, you don't have to design a special cover for it. Um.

You know, what are the publishers doing? What is the point of this? And then you you have to realize that they actually do quite a bit. So let's let's look at it from let's let's take electronic publishing out of the picture right now and just talk about publishers and what they do from a traditional standpoint. So traditionally, what a publisher would do is you have you have your authors. These are the people who are creating work right there. Then you've got editors who are editing the work,

making sure it it's uh worthy of publication. Now the publishers the the entity that takes that work and produces it in a mass production uh kind of way. And then so that they're into production, they're into distribution, and that they find buyers that buy up uh several units of books all at once. So bookstores really is what we're talking about here. Publishers look for bookstores outlets to sell these So the publishers customers are really bookstores. They're

not really readers like you and I aren't. Aren't a typical customer of a publisher, but rather a Barnes and Noble or until recently, a Borders would be a customer of a publisher. Right. So, Uh, the publisher's job is to create, to to produce the physical copies of this work, to send it to the various or actually sell it to the various bookstores out there vendors out there, um for a price that's usually about half of what the list prices for the book. Although your min onle age

may vary. It's going to depend on a lot of conditions. So let's say like the price that's actually on the cover of the book. We're oversimplifying here, but in general, the wholesale price that the publisher sells to the bookstore is about that and then uh, a certain percentage of that goes to overhead, some of it goes to uh covering the cost of paying the advance to the author.

And also you have to keep in mind that bookstores don't sell every single copy of every book, right, So occasionally bookstores have to send back copies of books they don't sell to the publisher um, in order to make up room for new books. So that means that not everything a publisher sends out is actually gonna get sold. Some of it's gonna come back. So there are a lot of costs here, and also it publishers other job is to market the authors, to get the word out

about authors, and to drive up interest about authors. So that's one of the things publishers theoretically will do for their for the people who write for them in a way.

In that way, I would say, um, when you said a few minutes ago that that the uh reader is not the end customer the publisher, I would say that's that's mostly the case, but in in some ways, I mean, it is their responsibility to do a lot of the marketing work, and so you know that, Yeah, they are in touch with the reader and they do that as a small portion of that, but they're really trying to help the bookstore sell books so that both the bookstore

and the publisher went out and you can buy the books. You can buy books directly from the publisher, but in general, that tends to be a very small number of sales compared to book sales through stores. And so you also have another responsibility of publishers which is kind of interesting, and this is an important one that is going to be have a pretty big impact with the electronic publishing UH era as well, and that is that publishers are

responsible for finding new talent. Right. That's kind of like the music industry when you think of like a music label going out and look, going to local venues and scouting out bands and saying, you know, this band actually has some promise, and they might not make it big for an album or two, but I really see something in them. Publishers do the same thing with authors. Now, when an author writes a book UH the author generally gets an advance on that book, and that advance is

a royalties advance. It's it's actually counted against whatever royalties that author would make through book sales. Well, a lot of authors, especially first time authors, will not make that money back through book sales. They just aren't well known enough, so they won't get enough books sold to pay off that advance. So a lot of publishers are essentially paying authors at a loss um lots of new authors at

a loss, but they're doing it by their betting. What they're betting is that some of those authors are going to make it to the big time, and those authors are going to sell lots and lots and lots of books, and that will help offset the cost of paying all these other low level authors who may not go anywhere that advance. So in a way, publishers are responsible for encouraging and and sustaining authors who are trying to really make it in the publishing world and trying to actually

become published authors. UH. Without them, then you would have you know, you wouldn't have that that incentive really for authors to try and create. So when you think about things like, oh, well, Stephen king Man, he gets so much money for a book, you know, you could have some envy there. Perhaps you might question whether or not it's the work he does is worth the amount of

money he makes. But at the same time, because Stephen king novels sell so well, that's part of what funds the publisher to uh, to encourage other authors to write. So it's it's kind of it's a really big ecosystem

and it's actually pretty complex. I mean, The actual complexity of how much money comes back to the publisher and where that money goes is probably too complex for the purposes of this podcast, but I thought that it was important that we talked about that, and then we talked about how E publishing is kind of shaking things up

a bit more than a bit in some cases. Well, you talked about the music industry and how how things have changed significantly, how the the music industry has been nervous because, uh, you know, for one, on on the one hand, they're concerned about things like piracy, but they're also concerned because um, people are able to create their own home studios and record their own music and post it for sale on their own website because they don't have to worry about, um, the costs of pressing c

d s or vinyl anymore, although a lot of them do. UM. And uh, you know, the distribution is less of an issue now because you know, once the marketing has gone out online, Uh, rather than having to put up posters and stores and do you know, uh different events and things like that. You know, those are important, but uh, a lot of bands can do a lot of that work themselves, and so you know, this has already been

going on in the music industry. But um, you know, this hasn't been so much of an issue for publishers until just recently. Um, you know, and I didn't I don't think we even touched on this when we talked about e readers before. I don't even think about the e books world going back that far. But it does go back to around one UM when Michael Hart started Project Guttenberg. And uh, you know, they the first person who got an I S b N. That's an international

standard book number. It's a unique number assigned to every book. Um was Kim blagg um around So these some people have been publishing electronically for a while. I mean Random House and HarperCollins, who are too big, Uh, regular publishers, P E and E. Um. You know, they were starting to sell digital in two thousand two. Um, and that was all before the Kindle hit in two thousand seven. Well yeah, and if you think about it, you know, there are a lot of computers you would buy that

would come with a n Incard c D. Yeah. Well that's that's a digital encyclopedia. Yes, you know, that's you know, just because it comes on a solid form of medium media rather that that that doesn't mean that it's not digital. It is digital. It's just that it's digital store and on a disk. Well, the the e publishing world is is starting to shake up now. I mean it's no secret that publishing has been having problems in the last

few years anyway, especially with the economic downturn. UM. I've read that the closing of Borders stores here in the United States. UM, that's going to create problems for traditional publishing too, because they can no longer count on the

sales to come from the store. It's UM, if you're unfamiliar with this, the situation here, UM Barnes and Noble and Borders, and you know some of the other major public UM sorry booksellers like Books a Million, UM basically were UM credited with, I hate to say credited with them the closing of a lot of local bookshops across the United States over the past what would you say,

probably twenty years or so. I think something like like the I had the number in front of me at one point, but it was, you know, the the number of of independent little bookstores had decreased dramatically, like by more than fifty percent, because partially at least due to these these big, big bookstores that could just take away their business. Yeah. I mean there's some that are big enough, people like Powells in Portland, Oregon, and the Strand up in the New York City area, UM that are that

are big enough to hold their own. But a lot of the smaller stores had had dropped out of the the uh picture there for a while. Yeah, I've got the number now. So according to a an article in the New Yorker, UM, actually, the American Booksellers Association said the number of independent booksellers declined from three thousand, two

hundred fifty to fourteen hundred since n Okay. Then, so that's more than And I read an article about the closing of borders that said that publishers are going to have to cut their print runs because they no longer have border stores to help them distribute their books to readers. Um. And that's causing more turmoil. And now with the popularity of e readers surging and the ability of people to do things to publish on their own, this is going

to to cause things to shake up even further. And um lion the new version of the Apple operating system, some of you've written in that you want to a podcast on it. We need to talk about the possibility of doing that and possibly Windows eight. The Lion offers people the ability to publish the pub documents um you know, from different Lion documents, so you know it's not it's

built into the operating system. I wouldn't be surprised to see that coming to other operating systems to in the future, which just makes it that much easier to publish your own e books, which can create another problem that we'll get into in a little bit. But before we do that, I wanted to talk a little more about some of the other problems that the publishing industry faces, which is that you've got some major, major companies that have not

traditionally been publishers getting into the publishing game. And one of the biggest is Amazon. So you know Amazon and e readers that those two terms go very well together because we are all familiar with the Amazon Kindle, which revolutionized the electronic publishing industry. Yeah, there were a couple

of e book readers before UM. I first became acquainted with the Rocket e book and saw book back around UM, but they were really expensive and there just weren't a lot of books at the time, right, Amazon's plan was to create this electronic book reader, and also the company was incredibly intelligent in that they created apps for various other platforms that could also read the electronic book format

that the Kindle uses. Um That's another thing to point out is that we don't have a single standard for electronic books. There are several different electronic book formats out in the wild, and one of the really popular ones is the Kindle format. Yes, um at, and I think a lot of people like that format simply because since they have apps on various other platforms and they can read it on a computer, they can read it on

the smartphone, they can read it on their Kindle. Um that sort of of utility is a very high selling point, although some other companies like Apple have done a lot to try and undermine that in some ways with their own policies. We'll get into that as well, because that also plays a role in publishing. So what makes publishers a little nervous or really a little nervous is being

kind really scared of Amazon. One of the things was that Amazon, for a while was really adamant about dictating what the price was going to be for an electronic book, and Amazon's decision was that it was going to be for a new release, which publishers were not thrilled about.

They did not like the idea of and a vendor being able to say that this is what the price of e books needs to be, because it meant that if that got into the minds of the consumers, that people would expect all electronic books from that point forward to cost that much. You know, so it's reasonable, right right.

It's like just like if you were to get something for free for several years and then find out that you have to pay for it, there's gonna be that reaction of wait, what just last week I got this for free? Why are you making me pay for it now? Same sort of things like, wait what, I just bought that book for ten bucks last week? Why are you asking for sixteen bucks now? I'm sorry? I was seeing pictures at the New York Times in my head. Yeah, So,

so what Amazon was doing was actually pretty interesting. It was it was kind of Amazon does some pretty risky moves, and what this move. What Amazon was doing was they were the company was buying books just like any other bookstore,

like even digital copies. That was buying digital copies of books just like in the other bookstore, paying the the the wholesale amount to the publisher, and then that wholesale amount might actually be more than nine dollars nine cents, but Amazon would just turn around and sell it for nine dollars nine nine cents, meaning that they're taking a loss on the sale, but they're doing it in order to build up that market share, to to attract consumers

to using the Kindle platform and purchasing books through the Amazon Electronic Bookstore. And if they could hook enough people doing that, and they do it by selling books cheaper than any other vendor is going to sell it, because most other vendors can't afford to cut the the price that much and take a loss in every single unit sold. Amazon can. But the idea was that maybe Amazon could eventually get what effectively would amount to a monopoly on

the electronic books market. And uh, you know, the publishers did not like this at all, And in fact, we really saw this come to a head when Steve Jobs announced the iPad and eyebooks, because then you saw five out of the six major publishers sign on immediately with Apple to provide books to the Eye Books Library, and the price was no longer limited to nine dollars nine cents. However, Steve Jobs was very firm and that it would not

go over I think it was. Yeah. They they it's a different pricing model and the publishers are getting a bigger cut. Um. And there's an agency fee that that Apple gets out of it. Yes, um yeah about actually um so uh the thing is with all of this that uh you may be saying, well, you know, so what is all this this price? It goes to all those people we were talking about before, the editors, the publicists. Um,

there's not the cost of printing or distribution. Um. I mean yeah, this completely falls under and it's you know, we use this a lot, the long tail that Chris Anderson talked about, because um books never have e books never have to go out of print, but they can be there, you know, taking up whatever space they're taking up a hard brilliant Yeah, as long as you have a a a good program that can take a master copy and create a user copy from that master copy,

that makes that user copy unique in some way. Because almost every single form of of of e book file format that the major publishers want to use will have some form of DRM on it. Yeah, to try and prevent piracy. Yes, As a matter of fact, when the the books sale goes through, UM, there's a little bit of metadata that's encoded in that file that keys it

to you. So you know it's That's how people know on some digital files that they have been corrupted, is because that information is still embedded in there some way, and that you know they've been cracked, and uh, it is possible, but you know they they That's how if you opened a book on your e reader. Um. Yeah, we were talking about the different readers. We didn't talk about the Nook. That was one of the features of the Nook was you were able to lend a book

to a friend with another Nook. So, um, the DRM says, well, hey, this is uh, this is Jonathan's file. Um, and Jonathan, you know, allows me to read it and I get the three weeks I believe it is on the Nook. Was it? I thought was too? Well, however long it is. Yeah, it's authorized for a specific set period and after that period, uh, the book is no longer available on the other device.

And also I think during that time the owner of the book cannot read the book right right, So it's almost like it's a physical book in the sense that if I lent Chris a physical copy of a book I have, I could not read that physical copy unless I came over to Chris's house and stood behind him and looked over his shoulder. And trust me, he hates that. So and ever again, knock all. I'm saying, you get stabbed in the thigh once with a fork, and you

do not need to tell me twice. Mr. So, yeah, that's all done through d r M. And and so you know they're their costs associated with doing this, and you know that's why they're they're trying to recoup those costs, are trying to make a profit because a lot of these are public companies, and also their business was built around a different model, and to completely shift everything over, you could argue that the electronic model is much more efficient,

and therefore your costs would decrease dramatically, and therefore you would be able to make UH as good or better a profit even if you cut your prices just because your costs are lower. But you have to remember, you're talking about revolutionizing an entire industry. Which is not something that's simple to do. Um. And also there is still a demand for printed books. There's not like that. It's not like the demand for printed books is completely vanished.

It's so you have to balance that out, like how much focus do you put towards your electronic publishing uh arm of your company versus your physical publishing. But but also just to get back to Amazon for a second. Another reason why publishers get really scared about Amazon is that Amazon has the potential to become a publisher and that there is very little stopping Amazon. In fact, Amazon has been talking about doing this from having courting writers

to write directly for Amazon. So a writer writes a book and then Amazon acts as both the publisher and the vendor. This could theoretically be a very beneficial uh relationship for the author because authors, if you if you take the advance out, like let's say that this would really change publishing. Uh. The advance is the big deal for authors right now, and if you are just starting out, that advances your lifeblood because you may not sell enough

books to have made that much money. Otherwise. Now with Amazon's model, you may not get an advance. Instead, Amazon's model might be you will get a seventy cut of every uh, every book we sell, so you'll make more money per book sold through Amazon, but you might not make more money total, because the advance you would have received from a traditional publisher might have been more money than you would have made through selling books in the first place. So this is like a weird gamble here.

And publishers are worried that perhaps authors could would think that they're going to have a much more beneficial relationship through Amazons. They're going to go there. Um, they're scared about that. They're scared that that Amazon will be able to undercut all the other sales of books, so that

will hurt sales even more. But the publishers will also counter with saying Amazon doesn't really know how to work with authors, like the relationship between authors and publishers is different than between authors and a direct like a vendor, and that Amazon isn't the kind of company that can take time to talk to a new author and and kind of discussed with the new author of things, and

and to uh to adjust deadlines. That was a big thing because writers sometimes don't make deadlines he he misterr editor and um, and so to talk to you about that. Yeah, I know I'm a little behind. But the Yeah, I know that too well. I like big butts and I cannotline the but yeah, the the Amazon may not be able to take that time and effort to speak with an author the way a publisher could. So there's there are a lot of trade offs that we're talking about here.

And where this is gonna go is anyone's guess. Although based upon the trends, I would say electronic publishing is just going to continue to become increasingly important, so we may see more authors moved to using a platform like Amazon as their publisher. This also pulls into question things like monopolies. Would Amazon's writers, would their works be sold on any other like through any other bookseller, or would they just be available through Amazon Do not Pass, Go,

do not collect. Yeah, this gets gets really complex. Uh and and honestly, we don't have all the answers yet.

And speaking of complex and monopolies, it probably is worthwhile to mention some of the controversies that have gone on around the publishing model, including the recent as at the time of recording this in mid August Um, Apple Telling, Barnes and Noble, and Amazon that if they wanted to continue to sell books through their apps for the iPad, UM, that they were going to have to fork over some money.

So they cut. So that's which is standard across all Apple Like, that's Apple's standard operating procedure is that any any app that sells something to the end user, Apple gives a cut of that. Yeah, an in app purchase. Um.

So both of them pulled their sales link out. And of course you could still buy a book directly from them and then upload it to your iPad if you want to do that, but um, for now, even that is a little complicated, I think because I think there was a discussion about Apple saying that you could only upload titles from a Kindle up that you could also

get through Apple Store. Yeah, it's interesting. And then they Amazon countered with their cloud Reader application, which as an HTML five reader that allows you to uh, it's not actually an app, um, it's actually a site that allows you to read your your Amazon books without um going directly through Apple and the the Kindle app. So and everybody's been crowing about that in the last few days as of the time we're recording this, so UM, and I have to say it's it was a pretty clever

mover on that. Another big UH controversy has been around libraries who who worked with a service called overdrive, which for a long time was an audio book service for libraries public libraries to uh, you know, for people to uh listen to stuff. And basically you download the book through a through a little app and then you could listen to it. And this at the end of the checkout period UM the d RM and it would shut it out so that you can't use it again. UM.

And they began offering e books. UM. Some libraries, like the library that I belong to, UH does not have has overdrives audio books, but does not yet have the e book UM capabilities. But I've seen it in action. It's pretty cool. The thing is UM. One of the major publishers, HarperCollins, said UM that they wanted to limit the number of checkouts that you could use with an e book to twenty six and this caused a lot of library people to be very upset because, um, again

there's nowhere and tear on an e book. But HarperCollins point is okay. But once a paper book has a certain number of checkouts, let's say about you know, twenty six or so. It's the book is frayed, the binding is bad. Um, it's been beaten up, it's been left in someone's car. Uh. You know your kids build chocolate milk on it. It needs to be replaced with an e book. We're not selling more than one copy to you. You know that one copy can be checked out indefinitely.

So UM. A lot of people have been very upset about this. Um. The thing is, I could see both both sides. Once you bought a copy, Hey, you know you bought a copy. You should be able to check this out, um, as many times as you want to, because it's digital and it doesn't wear out. At the same time, the publisher is not making anything past the original sale, and a library would probably need to replace that copy, especially if it's a popular book. So I

can see what you do. Yeah, I could see a consumer saying if this were the case with the consumer, I could say the consumers saying, hey, what if I take really good care of my books and I never need to replace them anyway, then you're telling me I'm being punished for using the electronic format. Uh. There's also the concept of windowing, where a publisher will publish the hard copy of a book months ahead of any electronic publishing, and usually this is done for two reasons, well three really.

One is electronic books don't count toward best seller lists. They well, it depends. Now. New York Times does have an e book best seller list, and they have a combined print and e book best seller list, but not all of them right there. There are a lot of the recent things. Yeah, there are a lot of best seller lists that would only would only factor in hard copy sales, which means that you know publishers who want

who who count on best seller lists. As being a marketing employ they would not want to hurt the chances of a book getting on that best seller list by also offering electronic copy and then let people buy the electronic copy but don't buy the hard copy, and then the book doesn't get on the list. Another was that they just were worried about cannibalizing the hardcover sales anyway, because the hardcovers tend to cost more than the electronic ones.

And then there's also the worry about piracy. Although we have seen with books that have either delayed electronic publication or not had any electronic publication at all show up as pirated electronic copies on various peer to peer networks from people who have scanned the books in the flip side of that being people like um uh Corey doctor Oh who have offered um their e book version of their book immediately for free. And I think Neil Gaiman

has also done that. I know that there are several authors who have arranged it so that their books will publish in all formats simultaneously. And uh, the thing is, when they've done a trial like that, a lot of publishers have found that the e book will actually spur sales of the print book. Yeah, and I have done that.

I have downloaded the free e book and I've started reading it and I said, well, you know what, this was before I had an iPad, so I was reading it on a computer and I thought, you know what, I'm I'm enjoying the first few pages of this book. I'm gonna go buy the print book. And I've done that two or three times. Well, there's some things that are still easier to do with print books than them

with electronic copies. I mean, it's just you know that tactile experience being able to put uh, you know markers in your book. I mean you can do that with a lot of the various electronic formats too, but it just it's still there's something psychologically that's just not the same with that at any rate. The the whole system of publication is kind of in this turmoil right now, and we really really don't know how it's all gonna

shake out. It'll really We've got a lot of stubborn players with lots of lots of clout out there, So it'll really depend on who shouts the loudest and shakes their fist the hardest, and who has the most leverage, and hopefully whatever happens will end up being good for

authors and consumers. Yeah, also for Chris's benefit. Editors, well, I have to say, I think the publishing industry has been a lot quicker to embrace E technology than the recording where the movie industry definitely either of those two yet um and and they've they've done so well. I think I think in general, everybody, the publishers and the technology providers and the readers have all made advances in

working together to to make this happen. There's just a lot of issues that have to be worked out so that everybody is able to coexist peacefully. Yeah, I have a relatively peaceful I would imagine that that one of the developments we will eventually see will have to be some sort of antitrust charges against Amazon, because even though there are other players in the electronic books market, I

think Amazon's domination is hard, too hard to argue. Um. I know that eye Books when it first launch, had a really positive launch, had a lot of interest in it.

But from what I understand, the eye books sales are not comparable to Kindle sales, and I think part of that is again what we mentioned earlier in the podcast, which is the Kindle app just provides for a lot of flexibility since you can read it on various devices and the the whereas the Eyebooks app is a little more limited, and it works great if you have a lot of iOS devices, but if you've got other ones that you would like to read stuff on, that's kind

of you're out of luck if you're using eyebooks. Anyway, The situation is UH is changing dramatically and quickly, especially for industry like publication, which remained unchanged for decades. It was definitely one of those those legacy type industries that you know, it's the longer you stay the way you are, the harder it's gonna be when you when changes come. So it's actually kind of surprising to see how fast

things are changing right now. We'll keep an eye on it and we'll probably do another podcast in the future once things kind of shake out a little bit more to see sort of the pathway that we took and why people chose the you know, the different ways to get to where we go. It'll be exciting. I can't wait to find out what I'm reading next. Any Way, we're gonna wrap up this episode of tech Stuff. We've got another one we have to cram in here in

the studio before we get kicked out. So I would like to do is to invite all of our listeners to submit their ideas for topics that we should tackle in the future. You can let us know an email our email addresses text stuff at how Stuff Works dot com, or you can contact us through Facebook or Twitter. Are handle there is Text Stuff H s W. Chris and I will talk to you again really soon. Be sure to check out our new video podcast, Stuff from the Future.

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