How New Media Makes Money

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March 2013
by Joseph J. Esposito

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Looking in on the fringes of the digital publishing world, you would get the impression that publishing is dead, dead, dead, except for those among us—the living dead—in denial.

You have heard these claims or charges before. Big publishers are too big and unresponsive; publishers don’t add value; all information should be open (as in open access), which will torpedo traditional publishers’ business models; all books, once digital, will rapidly adopt new tools to include video, animations, sound, and, heck, why not an entire social network; prices are about to collapse; we have moved from scarcity to abundance—and on and on and on.

What is often overlooked in these discussions or arguments or manifestos or whatever you want to call them is that changes such as these do not a revolution make. To change publishing, you have to find new markets. In the absence of such new opportunities, the investment in digital media, regardless of how incredibly cool the media are, is at best going to help a publisher hold on to its current revenues and is more likely simply to be another cost item, piled atop all the others, suppressing margins.

New media requires new markets.

Before I dig into what some of those new markets may be, let’s run through the range of options a publisher has in contemplating investments in digital technology.

An innovation of any kind, technological or otherwise, falls into one of three categories:

● subtractive

● substitutive

● additive

A subtractive change is one that lowers a publisher’s revenue. (Actually, it’s not revenue but gross margin that’s at issue, but revenue is good shorthand.)

Naturally, no publisher likes a subtractive innovation. It may be innovative, but it could be bad business sense, to sell books by the chapter. Sometimes such a capability can add to revenue, but it’s also possible that someone will buy the extract instead of buying the book. Unfortunately for publishers, it is not necessarily in their power to avoid subtractive innovations, as the competition is always eager to provide such things.

A substitutive change, besides being hard to pronounce, is one that takes an existing revenue stream and replicates it with an innovation. For trade publishers, for example, the launch of e-books through Amazon was an important innovation that served as a substitute for an existing product. Publishers saw sales of print migrate to electronic form.

But the story does not end there, of course. That migration may not have had an immediate impact on publishers, but it has had a devastating impact on bricks-and-mortar booksellers, and that in turn will change the way publishers operate, if it hasn’t already. Sometimes a substitutive innovation becomes something bigger over a period of time.

An additive market leads to growth. This is where investments pay off, as they are not simply being used to hold on to an existing market. But where can you find additive markets in publishing today?

Additive Examples

One of the most intriguing additive markets in the overall publishing industry is audiobook publishing. By some reports, audiobooks now constitute 8 to 10 percent of total sales for trade publishers. That’s a big number. And it links back to the fact that audio opened up a new market by tapping into situations where people could not read conveniently.

It’s true that some people listen to audiobooks when they could be reading a book, and that some listeners are visually impaired, but such consumers account for a very tiny part of the market. Most audiobooks are consumed by people whose eyes are otherwise occupied: when driving a car, walking the dog, or working out in the gym (“It is a truth universally acknowledged”—huff, puff, huff—“that a single man in possession of a good fortune”—huff, puff, huff—“must be in want of a wife”—huff, puff, huff).

The market for audiobooks largely involves the same people who read books. Thus the additive opportunity is not in finding new people but in developing new ways to get access to people. As our society becomes increasingly mobile and mobile devices proliferate, the growth of the audio publishing market seems secure. Audio represents a wide-open opportunity for the clever entrepreneur.

It’s important to note that new markets often require some changes in the nature of the editorial product or in the processes that help create that product.

I am myself particularly interested in the interstitial publishing opportunity (see “Five-Minute Fiction, and Other Ways to Mine New Markets,” from the August 2010 issue; available via Independent Articles at ibpa-online.org).

Think of all the brief moments that lie in between the primary activities of the day—the time spent waiting on line at the supermarket, waiting for a meeting to begin, or simply waiting for something. During the course of the day, those minutes add up. Many people (I certainly am among this group) reach for their smartphones when waiting around, looking at email or Twitter or Facebook. Publishers that create products designed for these brief snatches of time will be plumbing an entirely new market, one in which the amount of time someone can consume informational products rises substantially.

How big is the interstitial opportunity? My own experience suggests that it is very large. I read e-books on three devices: an iPad, a Kindle Touch (e-ink display), and my Android smartphone. My preferred device is the Kindle. I like the size and the fact that there is no backlit screen. But at night the backlit screen of the iPad may become desirable. During the course of the day, however, when I am waiting around for whatever, I open up the same book on my phone. I was surprised to find that at the end of a week, I had made the most progress on my phone.

In other words, my interstitial reading time exceeded my dedicated reading time. Which raises the question: How should publishers design products specifically with the circumstances of interstitial reading in mind?

Whiz-Bang and/or Economic Prudence

On the other hand, we have all these whiz-bang suggestions for how to improve books and other texts. In the print world, you were mostly stuck with text with some illustrations thrown in, but with e-texts you can add video, animations, audio, social networks, and just about anything else.

The questions here are: Does this bring in new customers? Does this persuade existing customers to pay more or read more? Or are these new techniques simply serving the same market as the old, providing no new income streams—even as they raise production costs and complexity? And are they diverting resources that could be used to advantage elsewhere?

The print world has many virtues—affordances—that the digital world does not, at least not yet. But some aspects of the craft are being ignored. I am disappointed to find typefaces that are hard to read, too much type crammed on the page, in print books. I know why paper stock is degrading and covers lack the tactile satisfaction of books from even five years ago, but it seems to me that bad business decisions are being made.

As the industry races pell-mell to digital formats (playing catchup), print books, especially paperbacks, are underproduced and underpriced (note, please: I did not say “books”; I said “print books”). Just about everyone who continues to read print has a reason to do so, but many publishers are neglecting an established market that could be sustained for years—delivering revenue—if it were properly pampered.

When pursuing the new, no reason not to manage the old with care and an eye on ongoing cash flow. This is the voice of economic prudence, not nostalgia. Instead of cheapening the container, we should make the container an object of celebration.

Rx: Spot Inherent Opportunities

Whatever the next shiny new things may be, it is vital to remember that the real innovation for digital media is not in technology or in enhancing products. The real innovation is in marketing. The successful publisher is one who can study new technologies and see the inherent marketing opportunities before others do. Management is foresight, first and always.


Joseph J. Esposito is an independent management consultant who provides strategic advice, operating analysis, and interim management in the area of digital media to publishing and software companies in the for-profit and not-for-profit sectors. He writes extensively on digital media and has been awarded research grants from the Hewlett, MacArthur, and Mellon Foundations.

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