Imagine you could go back in 1970 to give newspapers and book publishers the following piece of information:
“ In the future, every person in the world is going to have a device that allows him or her instant access to all your content at all times of the day.”
In other words, you just expanded the total addressable market to all of humanity and made marginal costs practically zero. Surely this is going to be good for newspapers and books right?
Reality has turned out differently.
News in a world of abundance
At the start of this series, I had introduced the two unique features of information, infinite replicability and zero marginal costs of distribution, depending upon the medium. Till now, this nature was constrained by the lack of a medium that I would argue is truly native to information- the internet. For businesses built on different mediums, everything was about to change.
a) News had built their business on the backbone of the temporal scarcity of news. This temporal scarcity existed because of the non-zero lead time to information that existed in the world of print. For a brief period of time, they re-inforced this position by building a network of newsagents, until the invention of wire services made news a commodity. However, the news was still a scarce commodity and one that consumers were willing to pay for.
b) Newspapers built a delivery infrastructure that allowed them to reach customers at their doorstep with the newspapers bundle.
d) The newspaper bundle, which contained something for everyone, provided a method for newspapers to hold people’s attention. This, in turn, was monetized using advertising.
c) The high friction of subscriptions in the real world created a real lock-in for customers.
e) Each local newspaper had defensibility in its market- control of distribution, relationship with advertisers and brand.
Everything about this world was changed by the internet.
a) Once the lead-time to information was zero, newspapers suddenly started existing in a world of infinite supply. Everything that the New York Times published could be immediately replicated by substitutes. As we said at the very start of the show, anything that becomes infinitely abundant becomes free.
b) The internet immediately obsoleted the delivery infrastructure of news by making it possible to reach everyone with a zero marginal cost of distribution. This was arguably the biggest moat for newspapers, and it vanished overnight.
c) Newspapers were unbundled into articles. In a world of infinite supply, each article became a fight for user attention. This led to extremely high customer acquisition costs and Joseph Pulitzer’s movement coming to its logical conclusion- an era of clickbait journalism. In a manner evocative to how the church and the monarchy undermined themselves, newspapers spent a lot of resources on customer acquisition, helping make the Digital Advertising Giants of Google and Facebook stronger than ever before.
e) As all newspapers became competing with each other, mid-level brands began competing with international level brands. On a broader note, all information began competing with each other. As Netflix noted, Fortnite is a bigger competitor than HBO.
The Final Nail in the Coffin
To my mind, this does not offer a complete picture of the decimation of the news industry. Newspapers still had access to writing talent and a presence in the mind of consumers. Moreover, they had always been in the business of user attention and had an intuitive understanding of how to understand or retain it. They were better suited to the game of gaining traffic on the internet than most others, and many of them did figure it out.
Yes, many newspapers were not going to survive, but more newspapers would have adapted- offsetting the higher customer acquisition cost and the loss of paying subscribers by allowing advertisers access to large audiences. I believe the reason that they didn’t is partly explained by Ben Thompson’s aggregation theory
One final note- I believe using aggregation theory as an answer understates the role played by the outstanding execution of advertising products by Google, and especially Facebook. Really, you cannot overstate how much superior their advertising products are to anything out there. The fact that there were other companies who had access to the same opportunity (looking at you, Twitter), tells us that while Aggregation Theory is powerful, it cannot compensate for a lack of execution
The state of the book publishing industry
One might look at the dynamics of newspapers and consider that the same should happen to books. Yet one look at the graph shows that not too much seems to have changed for the book industry
This raises the question- how did books overcome the infinite replication problem? To my mind, the answer depends upon two factors:
a) The book market is still dominated by print. This seemed unlikely during the explosive initial growth of e-books- but then as screentime took over more and more of our lives, physical books began seeing a rebound as an opportunity for some screen-free entertainment.
b) Much like iTunes saved the music industry through a mixture of convenience and low-cost, I believe Amazon may have prevented a lot of ebook piracy through both the online book store as well the kindle device.
Still, one look at the publishing value chain and it appears that their dependency on Amazon portends a difficult future for the book publisher.
Why, though should it be any other way? Publishers first established because of control of printing presses. As access to the printing press became cheaper and cheaper, their value arose out of the distribution as well as the ability to provide books with exposure to mainstream media outlets. Both of these was predicated in a world of scarce information and before e-commerce. Now that Amazon accounts for 50% of print sales and an even larger percentage of book sales. Mainstream media outlets have lost their information monopoly as there are infinite places for book reviews and book recommendations.
Instead of adapting their business model for the new age, publishers are complaining about their declining future prospects because of Amazon, because people don’t like to read, and other excuses. They are also indulging in what can only be described as rent-seeking behaviour. Below is a chart showcasing the unit economics of both physical and digital books in 2014.
I am struggling to understand why Hachette should charge 70% of the price of an ebook. If there is no manufacturing or freight- the value added by a traditional publisher decreases, and so should their margin. Yet we see the opposite happening.
The slight saving grace is the rise of independence bookstores- once decimated by big-box retailers who were themselves decimated by Amazon, independent book stores now provide customers with curation and a physical experience that cannot be matched online.
Conclusion
To be honest, the decline of newspapers has been covered endlessly, mostly by newspapers themselves. Meanwhile, not much has changed for books.
The next few articles in the series will be for answering the following questions. Some early thoughts there
A) The relationship between information flow and the structure of society in the current age.
This is also fairly well-understood. The monopoly of information shifted from the church and the monarchy to the economic elite-government-media. This was better for the world than the 15th century, but was it the best model?
B) Why the current structure is seemingly breaking down, and what can we expect in the future?
This is the one I am most excited about, as it extends into the very nature of perception itself. I believe a part of the reason this is happening is that our brain has evolved to live in a world of information scarcity and is not particularly well-suited to judging veracity or nuance.
Amidst information scarcity, we all developed a roughly similar model of reality. This has well and truly broken down in the internet age. Free-flow of information is incredibly exciting, but this is a side-effect that is truly dangerous.
C) What is the future of text? Can substack, Patreon succeed in its goal of helping creators monetize? What would that do for society?
D) What about other mediums of information? How does the medium affect the message? Is there anything fundamentally different about audio, video and software, and if yes, what? How do they behave in a world of abundance? This is another rabbit hole I am excited to go down.
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