An Amazon Problem: The Book Is Dead, Long Live the Book

March 16, 2013— -- Publishing houses are Germany's intellectual backbone. For many years, they created a culture of literary abundance and generated healthy profits. But in the age of Amazon, e-books and self-publishing, they could be facing demise.

It's quite a drama, practically tailor-made for a TV miniseries with at least seven episodes. The main character is the beautiful publisher who takes over the business when her husband dies, and apparently believes that she inherited the aura of omnipotence from him. Her adversary is a cold-hearted businessman who seems to be interested in only one thing: money, money and more money.

She makes him feel like a cretin. Whenever she can avoid meeting him in person, she sends her lawyers instead, or she hides behind sunglasses when they do. He exacts his revenge for this humiliating treatment and fights her on the terrain he knows best: the world of numbers.

In reality, the plot revolves around Germany's Berlin-based Suhrkamp publishing house, and the struggle between Ulla Unseld-Berkéwicz and minority shareholder Hans Barlach. It's a duel that critics portray as a soap opera. But the real question at the heart of the dispute affects the entire industry: What does the future of book publishing look like?

It's a little reminiscent of the story in the British television series "Downton Abbey," in which an aristocratic family struggles against its growing loss of importance. The series concerns the English aristocracy at the beginning of the 20th century, while the real-life story today relates to the intellectual aristocracy at the beginning of the 21st century. Both are tales of the demise of an old world.

For decades, this publishing aristocracy could take special pride in two things: it made money and it represented more than just vile profit. A colorful intellectual elite was created as a result, as well as a culture of literary abundance -- the intellectual backbone of the nation.

Some important names represent this tradition: Suhrkamp, of course, but also publishing houses like Hanser, Ullstein, Fischer and Rowohlt. They are names that every German reader associates with great authors, wonderful works of literature and late nights spent reading a book.

A Precipitous Decline in Book Sales

Book revenues have been crumbling for the last two years, a development that will only accelerate, and brick-and-mortar bookstores have been steadily losing ground for the last five years. Long derided by publishing houses, e-books, though still a minority phenomenon in Germany, are experiencing tremendous growth. Today, about 11 percent of Germans are reading digital books on devices like the Kindle and the iPad, up from only 4 percent two years ago. In the United States, e-books already make up more than 15 percent of volume in the bookselling industry, mainly because they are more affordable. All of this indicates that margins will continue to shrink, as the book business becomes increasingly hectic, nervous and profit-driven.

"The golden era of publishing, that is, of reading, contemplation and literary education, has somehow come to an end," says Michael Krüger, the outgoing head of the Munich-based Hanser publishing house, who has the reputation of being one of Germany's last great publishing figures. Many people no longer view book publishers "as a stronghold of culture, but merely as a transshipment point for cultural products," says his successor Jo Lendle, the current head of the Cologne-based DuMont publishing house.

Even publishing executives not known for their pessimism, like Kiepenhauer & Witsch Publisher Helge Malchow, expect continued decline in the industry in the coming years. Others say that sales could even drop by more than 20 percent in the coming years. "For decades, the publishing business was pretty much the same," says Malchow. "It is now entering a crisis for the first time, and everything will look different after that."

For years, careful calculations allowed a marriage of intellect and money to persevere. Publishing houses sought to assure they could generate enough bestsellers that could be used to ensure profits and to subsidize the more sophisticated books favored by editors and publishers that also ensured a publishing house's cachet and literary reputation. It's a system that has guaranteed diversity in the books published for decades.

The publishing industry produces more than 90,000 new books a year in Germany. The Suhrkamp publishing group alone publishes about 460 new titles, each written, edited and expensively produced with an enormous amount of thought going into them. It's the very culture that Suhrkamp is famous for in Germany. But it also sells only 500 copies of some titles.The Dead Writers' Society

With this approach, the company has about €30 million ($39 million) in annual sales and a work force of about 110 employees. Its overhead is high compared with other publishing houses, especially in light of a wretched return on sales estimated at about 0.5 percent. A significant portion of profits is not derived from new releases, but from the sale of books on the so-called backlist, bestsellers by the likes of Hermann Hesse, Bertolt Brecht and Max Frisch.

This dead writers's society is like a life insurance policy for Suhrkamp. But once an author has been dead 70 years, the works enter into the public domain. Hesse died 51 years ago and Brecht has been dead for 57 years. In other words, these revenue sources are finite.

Nevertheless, Suhrkamp's reputation remains unbroken. Three Suhrkamp titles were on the shortlist for the German Book Prize last fall, and one of the best books, Rainald Goetz's "Johann Holtrop," wasn't even on the list. But as illustrious as all of this seems, it still doesn't do much for the bottom line.

The past, from which Suhrkamp and other publishing houses are just awakening, was a luxury situation that depended largely on one circumstance: that success was not possible without publishers. Without publishers, readers would have nothing to read, and without publishers, authors couldn't be authors.

That's changing. Nowadays, publishers are suddenly expected to explain and even prove their achievements and how they make money. It is no longer anything special to bestow the seal of the "writer" on someone when anyone can acquire the label on his or her own.

These changes are currently affecting all levels of the book business, as things become expendable. Even bookstores and the recommendations of their booksellers have become expendable with the rise of online booksellers like Amazon, whose platforms allow customers to recommend books to each other. With the emergence of self-publishing, traditional publishing houses themselves are becoming expendable. Meanwhile, e-books, which are significantly cheaper to produce, are making the printed book expendable.

Is Book Culture Dying?The book has become cheaper, it will get even cheaper, and it seems questionable whether the two things on which the industry has prided itself, making money while at the same time representing more than just commerce, can still be funded in the future. It's also a question of whether a culture is in the process of dying, and whether its death signifies more than just saying goodbye to printed paper.

You don't have to be a culturally pessimistic high-school teacher to walk into a large bookstore today and notice the signs of decline all around you. At some point, it started with stuffed animals at the register. Then came the wrapping paper and Christmas decorations, chocolate, toys, candles and esoterica. It's enough to leave some customers baffled when they enter into a store trying to find the new releases section. The branch of chain bookstore Thalia in downtown Hamburg is one of these bookstores, one of the largest retail stores in Germany, with 2,000 square meters (21,500 square feet) of floor space. The store will close its doors in January 2014.

The Thalia chain is now owned by Douglas Holding AG, which is best known for its chain of perfume and cosmetics shops and in which US private equity firm Advent International holds a majority stake. It all began in 1919, with a small bookstore in the building occupied by Hamburg's Thalia Theater, from which the former family business derived its name. The company now has about 230 retail stores in Germany, some of which are gradually being closed.

Sales Shift Online

Online bookstores now have a market share of almost 20 percent, but the large bookstore chains have failed to come up with a convincing strategy to counter this development. An exceptional bestseller like the "Shades of Grey" trilogy, with more than 70 million copies sold worldwide, can certainly improve a company's bottom line, but such phenomena do not change the fundamental outlook: People are buying fewer printed books, and when they do buy them, they increasingly order them online.

The industry is so nervous that the German Publishers & Booksellers Association has launched a €3 million campaign to coincide with the Leipzig Book Fair taking place this week. The campaign was created by Zum goldenen Hirschen, a German advertising agency that has worked on the campaigns of similarly ailing industries before, including the "Print Works" campaign for magazine publishers and "Piracy is a Crime" for the film industry.

The goal of the campaign is to bring the book back to the center of society, back into the public consciousness and back into conversation, says Publishers & Booksellers Association CEO Alexander Skipis. It aims to portray the book as fresh, modern and contemporary, partly to counter the results of surveys indicating that books are no longer as popular as gifts to bring along to parties as they once were.

The real issue is that books don't have an image problem at all. What really needs a campaign, but it's a message that would probably be too cumbersome for a few posters, is the fixed book price, which, largely unnoticed by the public, is dying a slow death. It could spell the end of bookstores in a few years.

Unlike other industries, where supply and demand regulate prices, publishing houses in Germany can set the prices of their books. No matter where they are sold, books cost the same. It will be enormously difficult if not impossible to maintain this system with e-books. The problem for publishing houses is that fixed book prices for printed books could also decline in the long term. After all, what bookseller would still perceive the fixed price as a privilege if his customers are going to Amazon en masse to find e-book bargains -- and he isn't even allowed to participate in the price war?

Is Amazon Single-Handedly Destroying Book Culture?In the soap opera that pits making money against the love of books, and tradition against calculation, Amazon is the perfect adversary of the literary aristocracy. However, Amazon engages globally in the game with which someone like Hans Barlach merely torments the Suhrkamp establishment. The Seattle-based company is a troublemaker of global proportions.

Ralf Kleber, the online retailer's head of German operations, meets with visitors at something that looks like a store counter in his Munich office. Amazon isn't an enemy of the book, but the company wants to have the business to itself, if at all possible, and preferably on its own terms.

Amazon customers discovered this when they closed their accounts and realized that they had suddenly lost the e-books they had purchased from Amazon. Publishing houses discover this when they sell through Amazon. They are forced to give the company large discounts. At the same time, they have to accept the fact that, as publisher Christopher Schroer says, "new, freshly delivered titles turn up as defective copies" on Amazon Marketplace, the company's fixed-price online marketplace.

But the conclusions about Amazon are paradoxical. Many like to argue that the company is in the process of destroying book culture, but the success of its own Kindle reading device is itself an argument that the book is unique and will never disappear.

Millions of Kindles have already been sold, especially in the United States. The e-reader has been available in Germany since 2009.

"With the Kindle, we have tried to achieve the same effect as with a book," says Kleber. "There is nothing to distract you from the text -- no music and no emails. The book disappears during reading. You no longer perceive its existence. It's exactly the same thing with the Kindle."

This is the one good message Amazon has for the industry: The book is indeed unique. It's the only medium that apparently needs a separate device to replace it in the digital world. And it is sufficiently valuable to millions of people that they actually buy the device so that they can continue to read in the future in their electronic books -- quietly and without distractions.

Driving Publishers from their Ivory Towers

The paradoxical conclusion -- the book is dead, but long live the book -- is confirmed by the numbers in the marketplace. It isn't just that people read a lot. They are also untiringly writing books, and they are publishing more than ever before.

There are many literary forums with subsections for all kinds of specialized subjects and genres, visited by countless people searching for communities of readers. And it's never been this easy to publish a text as a book, at least in electronic form. All it takes is a few clicks, and it's as easy as buying a book.

This is finally driving literature and publishing houses out of their ivory tower. Literature, almost even more so than journalism, has become a mass pastime.

Amazon already has a strong position with the printed book in its online business, and it is becoming a dominant force in the e-book market, a sector in which the company already holds a market share of more than 41 percent. And Amazon's power in the marketplace continues to grow, a situation that is unlikely to change with the advent of the new Tolino Shine e-reader, a joint venture of German booksellers and Deutsche Telekom that became available last week.

"It's essentially becoming a monopoly," says publisher Helge Malchow. "In the future, all the world's book publishers could very well be dealing with the same company."

A Digital Age Challenge for Publishers

Every economic sector that is affected by the digital revolution, from news journalism to mail-order companies, travel agencies, the music industry and television, is in a similar position. The experts whose job, until now, has been to find the best books, furniture, beach hotels, TV shows, hits or news articles for their customers, are all realizing that much of their work is actually replaceable.

Customers are now ranking and evaluating these things entirely on their own, as part of a larger crowd, and they're doing it for free, at least for whomever they're giving information about their purchases and opinions. In this case, it's Amazon.

Publishers are only gradually realizing that they cannot leave the processing of this data entirely up to the Internet giant. And they are slowly realizing that it's a game in which they have to participate to succeed.

That may explain why those in the industry have suddenly become conversant in trendy Internet slang terminology, fluently rattling off terms like "big data," "targeting," "re-targeting" and "discoverability."

Companies like Cologne-based publisher Kiepenheuer & Witsch have all of the sudden started using Twitter to allow readers to vote on book cover designs. The Piper publishing house in Munich is proud of its blogging authors and is using social media in an attempt to establish contact between authors and readers at all levels. And the global book conglomerate Random House is now hiring mostly statisticians and mathematicians in the United States, because CEO Markus Dohle has dubbed Random House a "data driven company."Your E-Book Reader Is Reading You, Too

There's a reason for it, too. People who read e-books aren't actually reading alone. Software uses millions of pieces of anonymous data to monitor how readers actually behave. Almost everything can be documented: how fast people read, which text they highlight and which pages they stop reading. The reader has become transparent.

It is difficult to predict the consequences for the future of the publishing business. Could software be influencing the work of the editor soon? Is it conceivable that books will be rewritten based on readers' reactions, so as to achieve a higher read-through rate?

Or, as Constanze Kurz of the famous German hacker group Chaos Computer Club recently wrote in the Frankfurter Allgemeine Zeitung newspaper: "Will there soon be versions of books that are optimized to maximize sales, advertised with a sentence like this: 'Now in the second, revised edition: easier to understand, based on data from readers' experiences'?"

Publishers are hoping to learn from the mistakes of the music industry, in particular. It was the first victim of cultural digitization. Its customers ignored copyrights to music en masse, swapping albums and songs for free.

"We're lucky," says Frank Sambeth, the head of Random House's German operations, in Munich. "We had a little time to prepare for the new world and avoid old mistakes."

When the first e-book readers suitable for mass use came on the market, a reasonable number of legal e-books already existed. In other words, customers were not essentially forced into illegality, as was the case in the music industry around the turn of the millennium, when it was possible to buy the first MP3 players but there was no decent legal platform to download music.

"Our clientele is also financially strong and willing to pay," says Sambeth. "It accepts that an intellectual product is worth something, and it's willing to pay for it."Amazon Enters Into Publishing

But while publishing houses are currently trying to take Amazon's success casually and make the best of the triumph of the e-book, the company is clamping down on the industry by not only seeking to establish a monopoly in the sale of books, but also with its goal of producing bestsellers itself.

Larry Kirshbaum, the head of Amazon Publishing since 2011, used to be senior publishing executive at Time Warner. In addition to concluding joint venture agreements with established publishers for Amazon, he also went ahead and bought a few publishing houses and signed exclusive contracts with several popular American authors.

The competition is outraged, and they accuse Amazon of distorting prices. The company pays its authors such high fees and offers such favorable terms that the old-school publishers are also forced to pay their authors more, just to keep up.

The role of authors has also changed, although it's difficult to say in what direction. Of course, there are many more paths to success today, but it's questionable whether authors ultimately benefit when every book and every author has to become its own profit center. How will that affect Werner Fritsch, for example?

Scraping By

Fritsch is a Suhrkamp author, and because the world is an unfair place, he is still a starving author today. He has won many awards and fellowships. Suhrkamp has been publishing his books reliably for more than two decades, to reliable praise by the critics. Fritsch is highly respected and well reviewed, but he has a relatively small readership.

"Almost all artists I know, people who make an important contribution in terms of intellectual enrichment and bring color into the gray of everyday life, barely make enough money to survive," says Fritsch. He's also referring to himself. "I haven't written any prose yet that didn't take three years to develop, and yet it isn't even enough to live on for a month."

With E-Books or Print, Publishing Remains Game of ChanceSibylle Berg, who is also a SPIEGEL ONLINE columnist, is another case in point. The author of "Vielen Dank für das Leben" ("The Gift of Life") estimates that she makes about €5 an hour when she writes a novel. Readings "are usually worth exactly zero euros." Berg knows exactly what she's doing, though. Writing novels was "never a business-driven decision," she says.

There are always exceptions, of course, like Rolf Dobelli, the bestselling author of the most successful work of nonfiction published in German in 2012. Some 500,000 copies of his book, "Die Kunst des klaren Denkens" ("The Art of Thinking Clearly"), have already been sold.

For Dobelli, the dream of writing a bestseller, one that anyone can have, has come true. It's a promise that putting together words in just the right away can lead to wealth, fame and recognition.

But the truth is that people like Dobelli are rare. Only a small top echelon of writers can support themselves with writing, and that elite group is shrinking. Meanwhile, the number of books sold in the middle of the pack declines from year to year.

Below that is a thicket of works printed in very small numbers, which are profitable for neither publishing houses nor authors. A well-known publisher estimates that only 100 writers in Germany can live well on their books, while 5,000 others cannot. Even long-established authors no longer sell as many books as they did 10 years ago.

'Why Should an Author Do All the Work?'

Dobelli doesn't believe publishing houses will ever become extinct. "Why," he asks, "should an author do all the work related to a book himself?" The marketing, the public relations, the social media campaigns?

Perhaps it's because the new freedom brought on by the Internet creates a new type of author, someone who no longer sees publishing as an e-book as a second choice, someone like Hugh Howey.

Howey, born in 1975, worked as a boat builder, a bookseller, a skipper and a roofer before writing a short story and publishing it on the Internet. It takes place at a time when people have been living beneath the earth for generations, until one man decides to climb to the surface. Howey's Internet fan community encouraged him to continue telling the story. He turned it into an e-book, which is now selling extremely well. Hollywood director Ridley Scott has since bought the movie rights. Howey's book, "Silo," will be sold in German bookstores starting this week.

The interesting thing about Howey is how consistently he sidelines publishing houses in marketing his book, apparently out of pure calculation. "I prefer the speed and the freedom I have when I do this work myself."

When Howey finally did sign a contract with US publisher Simon & Schuster at the end of last year, after hesitating for a long time, it only applied to the print version of his book. He kept what was truly important to him, namely his digital rights.

So do books have a grim future? Are the last of us closing our books?

Not necessarily. Just take a look at a new breed of publishers emerging, like Jo Lendle, who will soon succeed Michael Krüger at Hanser. He's pinning his hopes entirely on the aura of the book, which remains unbroken, and sees it as the most important capital of publishing houses.

Boutique Publishing

"Even in a culture in which e-books are read, publishers still have an aura," he says. "They embody different tastes." Publishing houses, he says almost defiantly, "will always be more than the sum of their books."

What Lendle is describing is the luxury boutique option. In a market that is becoming increasingly global, packaged and uniform, the unconventional stands a chance of succeeding once again. Despite the mathematics and the predictability of the consumer behavior, the success of literary books cannot be planned or predicted. In this sense, it resembles a game of chance.

Not even the fact that a title is from another country and was a great commercial success there offers a guarantee for the same amount of attention in the German-language market -- not to mention manuscripts that are offered to German publishers.

When Rowohlt chose not to publish Uwe Tellkamp's almost 1,000-page novel "Der Turm" ("The Tower") without significant cuts, he took it to Suhrkamp instead, which published it in its entirety. It was no small risk for the publishing house. But the book received the German Book Prize in 2008, sales have since climbed to almost a million books, and the book was turned into a TV movie, making it a financial success for the publisher.

Suhrkamp's experience with "The Tower" suggests that its sense of quality could pay off in the end. Perhaps not as broadly as in the past, but certainly in such a way as to provide an answer to the question of why publishing houses are still needed.

Thomas Bernhard, another Suhrkamp author, initially sold less than 1,000 copies of his prose books. At the time, hardly anyone would have been willing to bet that the Austrian would go on to sell millions of copies of his works and help to ensure that Suhrkamp continues to achieve at least a small return on sales.

Translated from the German by Christopher Sultan