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Publishing Industry Contends With the Uncertainties of E-Books



The New York Times, May 10, 1999


Publishing Industry Contends With the Uncertainties of E-Books

By DOREEN CARVAJAL

When Peter Mayer felt the slim weight of an electronic book in the palm of
his hand, he suffered instant pangs of dread.

There was no reassuring crackle of paper or the faint scent of ink that had
been a constant in his career in publishing, for two decades as chief
executive of Viking Penguin and now of his own independent company,
Overlook Press.

"I respect it," Mayer said of the electronic book that could change the
dynamics of his business, "but I have an emotional and professional
investment in what I know. And when I was young, I knew that I could
conquer any change, and now I don't know what's ahead."

Such wariness is prompting Mayer, and some authors and agents, to shy away
from books made of bytes until a clear view develops of the rapidly
emerging market for electronic readers. The culture of technology has
collided with the slower-moving book industry, which is engaged in a tense,
early clash over how to divide up the spoils of an infant business that is
still difficult to picture in scope and potential.

"This is a scramble over who controls what," said Laurence Kirshbaum, chief
executive of Time Warner Trade publishing, a Time Warner unit that includes
Warner Books and Little Brown & Co. He noted that "we're not being
motivated by what's to come, but a fear of being left out as the train is
pulling away from the station, with some exotic station in mind."

For the first time in five years, the New York-based Authors Guild mailed
out contract warnings last month to some 7,500 members. The letter
criticized current e-book contracts as bad deals. The guild said it
considered distribution fees for electronic book manufacturers a payment
scheme that would deny publishers and authors the rewards of the
Information Age.

Some prominent literary agencies are also advising authors to refuse
electronic book agreements unless the contracts promise to revise the deals
if electronic editions rapidly gain popularity. But in turn, some
publishers are refusing to make that concession, which means that many
popular books are staying firmly on the bookshelves instead of a digital page.

In the last three years, start-up technology companies have pushed forward
with plans to make electronic books as ubiquitous as mass market
paperbacks. This month, Nuvomedia will expand its sales of $500 versions to
stores, while Librius is preparing to begin selling its slender 12-ounce
pocketbook-sized model for $200 in July. Softbook Press has been lining up
deals with corporations and school districts that are eager to eliminate
lockers and reduce backpack strain on students laden with textbooks.
Softbook's version, with note-taking and scribble functions, sells for $299.

The first e-books became available late last fall. Barnesandnoble.com, for
example, has about 500 titles available for sale and downloading and has
sold about 15,000 copies in this format. In general, the privately held
manufacturers will not say how many of the electronic readers have been
sold, but a Barnesandnoble.com spokesman, Ben Boyd, said the company had
been "pleasantly surprised with the pace that customers have purchased
these devices and titles."

The numbers may seem small now, says Chuck Verrill, a literary agent with
Darhansoff & Verrill, but "the issues are profound in their long-term impact."

"And we want to see the market grow, but we want to make sure the terms are
fair," he said. The agency's authors, including Arthur Golden and E. Annie
Proulx, are avoiding the electronic format until they reach better deals
with publishers.

The devices that are inspiring all this anxiety weigh from 12 ounces to
more than two pounds and carry brand names like Rocket eBook, Millennium
E-Reader and the Softbook. They seem rather expensive now for leisure
reading, but eventually the manufacturers expect the cost to fall below
$100 or plunge to nothing as e-books are given away like cellular phones to
entice customers to buy and download books, newspapers and magazines.

With almost missionary zeal, the entrepreneurs developing the e-books from
the West Coast and a culture of technology are predicting changes in a
publishing industry centered in New York and steeped in tradition.

"I think they're going to be everywhere," said Devin McKinney, director of
content services for Softbook Press. "I think that 50 percent of the books
are going to be published in electronic form and not in paper."

Publishers say they do not feel threatened by the development of the
electronic book because they do not think the form will replace
conventional books for adult readers who will always want to savor the
familiar touch of paper.

But a new generation of young readers may have different notions about what
constitutes a good book. Some school districts are already negotiating to
buy the Softbook for students to essentially create "textbook-free" schools
where students can download books and packets of course information over
phone lines.

For instance, the Davis Joint Unified School District in Davis, Calif., is
expecting to learn this month whether it has received a $6 million federal
grant to subsidize the purchase of some 3,000 electronic books that will be
shared among 7,700 students.

But if educators see immediate benefits, publishers are showing more
caution as the first deals are struck for electronic rights that could set
a pattern to last the life of a copyright. When authors try to make the
case that paperless books will result in cost savings, Random House, the
top-ranking publisher, expresses private misgivings.

In an internal memo, the company said that "a generally held misconception
is that publishers will make greater profits on e-books since the costs of
paper, printing, warehousing and delivery are saved."

"This ignores the different kinds of costs that are incurred in handling
e-books," the memo said. It then listed the added expenses of formatting
manuscripts for electronic books, protecting digital material from piracy
and granting higher discounts to e-book distributors.

But the Authors Guild does indeed expect savings from lowered paper and
printing costs and so, as the guild's director, Paul Aiken, put it, "the
result seems clear: Authors should receive a significantly higher royalty
for e-books than they do for physical books."

The Authors Guild says that now, a writer might get a share as great as 15
percent of the list price of a book as a royalty. The structure for an
electronic book is about the same, but can run as low as 4 percent. In a
conventional contract for a hard-cover book, the publisher gets about 35
percent of the list price while the distributor gets 15 percent and the
bookseller keeps 35 percent. With the new electronic rights agreements that
e-book manufacturers are getting from publishers, this structure shifts,
with publishers getting 25 to 40 percent, booksellers 35 to 40 percent and
distributors 20 percent.

In particular, the guild has assailed the new cut for Nuvomedia, which it
describes as a combined "whopping 60 percent distribution fee" to Nuvomedia
and Barnesandnoble.com, which sells the electronic titles.

Not surprisingly, such sentiments anger e-book manufacturers like Martin
Eberhard, the chief executive of Nuvomedia of Mountain View, Calif., even
though the parent company of Random House, Bertelsmann AG, has invested in
his company and in Barnes & Noble.

At the annual Book Expo America in Los Angeles, which draws thousands of
booksellers and publishers, Eberhard sat in his exhibit booth, fuming about
Random House's arguments and the Authors Guild letter, which also contended
that "profit margins for publishers and royalty rates for authors should
soar with these sales."

"If the publishing industry doesn't let up on these squabbles, it will hurt
them," he said, adding that the combined 60 percent share for the
distributor and bookseller had since dropped to 55 percent of the list
price of a book.

Eberhard contends that the costs of publishing an electronic version are
lower than conventional formats and so authors can improve their shares.
But he complained that Random House was taking credit for bearing the costs
of encrypting digital material "because they're trying to get the best
royalty rate that they can."

However, Random House's general counsel, Harriette Dorsen, said:
"Publishers do the formatting and each device needs to be individually
done. Upgrades are required for new upgrades of the devices." In addition,
she said, the costs of encryption are passed back to the publishers through
higher discounts granted to e-book manufacturers.

Some literary agents contend that Random House has taken tough negotiating
positions by refusing to allow contract revisions as the market grows. But
Ms. Dorsen said: "This is emphatically not correct that we have refused to
revisit the issue of royalties. In fact, we understand that in a changing
environment, with a business in its infancy, there will be changes in the
way this business is done."

The current tension is such that Nuvomedia is prevented from selling an
electronic version of Arthur Golden's "Memoirs of a Geisha," one of the
titles published by Random House's Knopf unit that was used to test Rocket
eBooks with customers. "We had it all ready to go, and it was pulled at the
last minute because the author wasn't happy with the deal," Eberhard said.
Barnesandnoble.com, which was offering it on its site, deleted it when a
dispute emerged.

Golden's literary agent, Verrill, said that they chose not to permit an
electronic version more out of concern about the uncertainties of the
future. In general, he said, he thinks that publishers should allow
contracts to be revised after a limited number of years to gauge the impact
of electronic books on publishing economics.

"We're not ready to commit a book that was likely to sell for the next 20
years over terms that seemed so unthought-out," Verrill said..

At the same time, he is aware of the impact if authors continue to shy away
from electronic versions.

"You bet it has an impact," Verrill said. "It affects the content that
Nuvomedia can offer, and if they have nothing but books nobody wants, then
they're likely to fail."


                                >>> I loved working in the library. <<<
>>There was something to be said for working in a place bound in leather.<<

Peter D. Verheyen
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