If you're not up to date on the Macmillan/Amazon kerfuffle, go read John Scalzi's hilarious rant on the subject. It summarizes what happened pretty well.

I spent my software career working in electronic publishing, which gives me some perspective on this situation. I've been out of the industry for a while, so much of my knowledge is out of date. However, I have a good overall sense of the business. This kerfuffle has led me to think some more about the future of the publishing industry, and what role companies like Macmillan (traditional publishers) are likely to play in it.

Question #1, What is a publisher's value-add?

Before I look at that, I have to answer question #2, Why do we care about a publisher's value-add?

We, and by we I mean readers, care because we pay for that value-add. When I buy a traditionally published book, I am paying 3 different entities, not counting middlemen. A percentage of my money goes to the retailer (e.g., Amazon.com, Barnes & Noble), another percentage goes to the publisher (e.g. Macmillan, Random House), and another percentage goes to the author. While I don't know exact numbers, my impression is that the retailer gets the largest share, followed by the publisher, followed by the author.

Here I have to bring in self-publishing, because it's my belief that self-publishing and the growing ebook market are very closely related, in that as ebooks replace paper, self-publishing will become more viable, and it represents a threat to traditional publishing. When people self-publish, they cut out the publisher's percentage of the take, because there is no publisher. The take is split between the retailer and the author. The author has a choice of pricing his book the same as a traditionally published book and taking a larger cut for himself, or using the savings to undercut the market and price his book lower.

Given the financial advantages of self-publishing, why do most authors opt not to do it? Because having a traditional publisher is well worth it. The publisher provides value-add.

What's the publisher's value-add?

1. Distribution. Right now, it's near impossible to get your book on the shelves of brick-and-mortar bookstores unless you're published by a traditional publisher. And since print sales are something like 90% of the market, that makes self-publishing nonviable for most authors.

2. Marketing. The publisher does some promotion of the book, although this seems to vary wildly among titles and may amount to nothing for most midlist books.

3. Actual production of the book. There are do-it-yourself routes for creating printed books that are pretty good, but they don't result, I think, in a product as high-quality as that of a traditional publisher. As for creation of an ebook, if software doesn't exist yet to mostly automate this process, I'm sure it soon will.

4. Branding. Most publishers fail at branding. Only Harlequin seems to be successful in getting readers to buy a book by an unknown author just because it's a Harlequin. I couldn't tell you what makes a Random House title different from a Macmillan title, and I read 100 books a year. HOWEVER, all the major publishers have a reputation for releasing quality books. All readers know that a traditionally published title is far, far more likely to be a quality book than a self-published title. So there's some value to the branding, in that having any large publisher's stamp of approval is an indication of quality that readers acknowledge.

5. Editing, copyediting, proofreading. These are services that help ensure the book is of good quality from story level to sentence level to little things like being free of typos.

So how is this changing?

As the market transitions from mostly paper books to mostly ebooks, publisher value-adds #1 and #3 become less and less relevant. Right now, 90% of sales are print books, so getting the distribution benefits of traditional publishing is mandatory. But the day will come when 90% of sales are ebooks. Will those distribution channels continue to matter? Maybe not. A self-published author may have distribution just as good as a traditionally-published author.

Similar, the physical production of a paper book will be less important when paper books are a small minority of sales. And if ebooks are not easy to put together now, they eventually will be. That is the kind of task that can be easily automated by software, and if that software doesn't exist now, it sure will later on. Heck, I could write it.

Publishers in an ebook-dominated world will be forced to rely on only 3 of the above value-adds: Marketing, Branding, and Editing. And let's face it, publishers are lousy at marketing and branding. (Because those are HARD PROBLEMS when it comes to books--books are so subjective and individual and variable that it is hard to match the right book to the right reader.)

Publishers are good at the Editing part, and I think we're going to see publishers put some effort into explaining to readers why that editing is so important, why it justifies a higher price point for books. It will be interesting to see if they succeed with this message. I think editing is very important. I think there's not an author in the world who doesn't benefit from a skilled third party helping them to make their story better. And nobody wants to buy a book to find it riddled with grammatical errors and typos.

All the same, readers in other markets (encyclopedias, newspapers) have shown a remarkable tolerance for, and often a preference for, unedited content. Wikipedia, because it is free and darn near comprehensive, is preferred over professionally edited encyclopedias that charge for content. Many readers now get most of their news from amateur blogs rather than newspapers. As a result, both encyclopedias and journalism are in decline, and their future is in question. Consumers are displaying a preference for free, amateur-produced content over paid, professionally-produced content. The message "You need content vetted by a professional--and you need to pay us for doing the vetting" is being rejected by consumers in droves.

Will we see the same trend in fiction? I think we must. The people I think are certain to survive the upcoming ebook shakeout are the authors. Books are not commodities and never will be--you cannot replace a John Scalzi book with a Suzanne Brockmann. They are not interchangeable. Readers will continue to remain loyal to their favorite authors, and will probably always be willing to pay those authors for new books.

The question is not whether authors will survive, it's whether publishers will survive. The traditional publishing model works right now because traditional publishers have exclusive access to shelf space in bookstores. Ask an aspiring author why she's continuing to seek a traditional publisher for her novel rather than self-publish it, and she'll probably tell you, "Because I want my book to be on the shelves at bookstores." I doubt she's going to say, "Because I want my book to be professionally edited," or "Because I want the Macmillan brand name on my book." The author is looking for distribution. Take away the traditional publisher's advantages in distribution, and that traditional publisher is not providing nearly as much value-add as before.

Where do I think we're heading?

Here are my predictions.

1. When ebooks explode in popularity, so will self-publishing.

2. Readers will find it seriously problematic to find desirable content (since most self-published novels are dreck). New software and websites will be developed that will attempt to solve this problem, perhaps through a user rating system that helps the best titles trickle up. Some self-published novels will become huge hits without ever being traditionally published.

3. Some publishers will fail to adapt and go out of business.

4. Some new publishers will arise to replace them.

5. The publishers that survive will do so by succeeding at branding and marketing. Readers frustrated with too many choices and no assurance of quality will respond to a publishing brand that gives them a predictable reading experience. However, current publisher branding (except for Harlequin) is too weak for this to work.