I love debates about supply versus demand, especially since it affects so many different topics and areas of the economy. It comes up when we talk about tax breaks for the rich and “trickle-down-economics”, it comes up when we talk about retail (electronics, books, lobsters), and it comes up when talk about publishing. I think something interesting is happening, or about to happen, in the digital publishing industry with respect to supply and demand.
The most traditional views about supply and demand and how it affects the economy are illustrated by the oil and gas industry. The Arabs in Saudi (or the Canadians in Alberta) pump more oil, prices drop for “light sweet crude”, and we expect our prices to go down. Sometimes we have to wait for the refineries to catch up, but the theory is pretty simple. The crazy thing, is that while I was in school studying politics and economics in the 1990s, the talk about oil demand outstripping supply (Peak Oil and all that) and how it was going to change the world economy, was all the rage. And last summer, the opposite happened, and the news the United States would be energy independent within a decade, caused prices per barrel to drop like mad. So the supply and demand game isn’t so straight-forward.
Just look at the electronics industry over the last six months. Let’s look at Samsung vs Apple. In September, Apple launched the iPhone 5, which broke sales records in the pre-order and opening weeks of its release. They couldn’t build the things fast enough, and people were buying them in droves. And yet Apple’s stock dropped nearly 10% by mid-October. What the…? That makes no sense to me, but hey, I don’t own any Apple stock either. Samsung shares had risen over the same time period and they still looked unstoppable by late November. Why? Because they don’t have the same supply problem that Apple apparently has. Now, you can continue to colour me unconvinced that Samsung is the new Apple, but I never did get that degree in economics – English literature is more my game.
Okay, let’s look at some books, then. You’d think that with the rise of the Kindle, Kobo, Nook, et al, that there was NO supply problem, right? E-books are delivered via servers, not shelves, so how could we have a supply issue? Easy. A whole bunch of books still aren’t available electronically. The Harry Potter series wasn’t available in digital versions until 2012, and you have to go to pottermore.com to get them. As an avid fantasy reader, I’m not happy at all that the final book of the epic Wheel of Time series won’t be available electronically until April 9, 2013 – months after the original release date. So eBooks have a supply problem with best-sellers, albeit one manufactured by the publishers themselves. I don’t see that going away anytime soon, and anyways, how are we consumers supposed to feel when we see these ongoing price-fixing headlines? No wonder the book publishing industry is in a shambles (unless your company is Amazon and your name is Jeff Bezos).
Even lobster prices are subject to wacky supply and demand issues. I mean who would have expected lobster catches to rise 25 to 30 per cent in the same waters where a moratorium has been declared for cod fishing? Add in the fact that, because of regulations that aim to sustain lobster supply in the United States, exports of lobster only pay $2.50 or $3 a pound; lobstermen are getting hit hard in Canada. Supply and demand folks. Who knew?
So what does this have to do with the digital publishing industry? And I’m not talking about eBooks, that’s not really digital publishing. I like to think of digital publishing as part of a world where the process of distribution isn’t dominated by middle-men (like OPEC, book publishers, the U.S. government, etcetera) who decide what content goes where and to whom.
Digital publishing is thus misunderstood because it doesn’t have clear economic examples of supply and demand to draw from, as it’s not regulated and nobody has really been keeping track of the right things. I mean, we know who’s making a lot of money (Google), but we can’t really emulate them, can we? That’s not an example we want to use. A lot of the arguments come down to ads verses pay-walls, both fit nicely into the supply/demand dichotomy. With ads, we see people making money with link-bait, SEO tricks, and other tactics which treat content as a high-volume commodity that is nigh on worthless without many tens of thousands of hits. With pay-walls, we see newspapers like the New York Times succeeding, with more than 530,000 digital subscribers, and the number is on target to overtake their print subscriptions. Similar story for the Wall Street Journal, Los Angeles Times, and others. Not so with Variety magazine, whose paywall has been declared an epic fail, possibly leading to its sale to Jay Penske, who then took the paywall down. Is it a case that there wasn’t enough demand for the content in Variety to support a paywall? Or was it a question of execution – where not enough of the content was made available for free from social media links or cross posts? Too much? Maybe the advertisers were upset?
Maybe that’s the key point: advertisers are the big players here (especially if they are Google) and the content owners, even with relatively large subscriber bases, are the small fry. And who even takes the reader into consideration? Are we thinking too much about how much an advertiser will pay per impression or per click and not enough about how much value that content will bring to a reader? How much your content is worth to a reader is a much different question than asking how much that reader will pay for the content, but asking the former might lead to the answer to the latter.
Someone has to pay, that’s the truth, and the variables of supply and demand will continue to shift and swirl, whether we can predict them or not. In the digital publishing world, we need to keep our eye on the ball (or with any luck, the puck), so that we don’t stray too far from our customer’s needs. And make no mistake about it, our customer is always the reader, not the advertiser. Even if advertisers are paying our bills, our customers are paying our advertisers’ bills, and it would be best for all of us to remember that.