Please ensure Javascript is enabled for purposes of website accessibility

This Endangered Business Model Will Survive

By Anders Bylund - Updated Apr 5, 2017 at 7:52PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Unlike the dinosaurs of music, book publishers actually stand a chance.

If the music industry is going down in a flaming digital holocaust like the dinosaurs, I think that its book-publishing cousin represents the crocodiles and feathered lizards that carried the torch through the dark times, and are still with us today. 

What's so great about books?
On the surface, it's easy to dismiss traditional publishing even faster than you toss aside the music labels. Digital information hoarders like Wikipedia, Google (NASDAQ:GOOG), and Yahoo! (NASDAQ:YHOO) News will kill magazines and printed newspapers, while BitTorrent and Amazon's (NASDAQ:AMZN) Kindle do the same to boring old books. Run far, far away from all of the publishing stocks!

  • The recording publishing system is a few decades old, but book publishing can be measured in centuries. The difference between recorded sound and the written word is orders of magnitude. If the music system is outdated, then publishing must be positively antediluvian.
  • It may be fairly easy to copy, rip, and burn music files from any old format -- but you could copy an entire digital book with a few keystrokes and email the full text to all your friends. This is piracy squared, dude!
  • Most digital music files can at least get slathered in layers of DRM protection, making it a little bit harder to distribute and copy the stuff illegally. Have you ever seen DRM on a text file? Password-protected Word and PDF documents are about the best we've got, and passwords are darn easy to send out, too.

In short, publishers are facing the same problems a music maker would, only more so and with fewer defensive tools at their disposal. They're obviously doomed! Right?

Not so fast, cowboy!
Actually, no. It's true that e-book sales are growing like the figurative toddler they still are, while print media is dropping like a lead weight. But reports of the old medium's death have been greatly exaggerated. Books and the businesses that publish them will survive for a couple of reasons.

  • The reading experience is unique and hard to copy even with the best digital tools of today. "Simply put, magazines and books are easy to get and easy to read," said publishing maven Bob Sacks in a recent duel over the digital future of books. "With ink printed on paper you're usually provided with a crisp, high-contrast, highly reflective substrate. And because it reflects light evenly in all directions, you can read it at almost any angle. Not bad for 600-year-old technology."
  • The kicker: Bob was arguing in favor of e-books like the Kindle and Sony (NYSE:SNE) Reader. With enemies like that, who needs friends? Even foldable screens like the ones Universal Display (NASDAQ:PANL) is developing for the U.S. Army may find it hard to replace the visceral thrills of ink on paper.
  • Big-time publishers like Encyclopedia Britannica and CBS' (NYSE:CBS) Simon & Schuster already understand how big of an impact the digital age will make on traditional publishing methods. They are fighting back with the appropriate tactics. Britannica's namesake encyclopedia used to charge big bucks for even casual use of its online material, but basic articles and searches are now free. A premium pass buys you access to a few more volumes, and drops the nag screens and advertising blurbs. Simon is big on e-books, audio books, and CD-ROM releases.

Old but progressive, kind of like Phish or Grateful Dead
Best of all, the most forward-thinking publishers make even open-minded record labels like Nettwerk look stale. Baen Books started giving away free e-book copies of its authors' works way back in 2000. Nowadays, the practice has grown to include the authors' entire back catalog on CD-ROMs stuffed into print editions. 

"That's insane!" you might scream, but then you're thinking like a music executive. The Baen dudes understood early on that electronic reading is a poor substitute for holding a real book, so the e-books and chapter excerpts serve as awesome marketing materials.

Download an entire book, read enough to get hooked, and then you'll eventually get tired of staring at a stupid screen for hours. So in the end, readers who really want to read these books tend to plunk down a few bucks for the real deal. This theory may not work quite so well for rockers and crooners, but authors seem to have a real revenue source secured for years to come. The Kindle and such gadgets will ultimately just make us buy more books.

Give me a call when someone starts selling an e-book reader that smells like ink on paper, folds like a paperback, and gives me an occasional paper cut. Until then, good old publishing stocks may have been unfairly punished for the digital shortcomings of other media. CBS and McGraw-Hill (NYSE:MHP) have been losing to a losing market for five years or more, and their publishing divisions deserve more respect than they're getting.

Swim along, sweet crocodiles. You're gonna make it.

Further Foolishness:

Stock news, financial commentary, and your daily dose of Foolishness: Get plugged into The Motley Fool on Twitter!

McGraw-Hill is a Motley Fool Inside Value recommendation. Universal Display and Google are Rule Breakers recommendations. Amazon is a Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Universal Display and Google, but he holds no other position in any of the companies discussed here. He loves digital media, but his bookshelves are a telltale sign of a true book lover. You can check out Anders' holdings or a bio if you like. The Motley Fool is investors writing for investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$119.55 (-1.77%) $-2.15
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$142.10 (-1.85%) $-2.68
Paramount Global Stock Quote
Paramount Global
PARA
$26.30 (-3.31%) $0.90
Sony Corporation Stock Quote
Sony Corporation
SONY
$87.16 (1.22%) $1.05
S&P Global Inc. Stock Quote
S&P Global Inc.
SPGI
$387.73 (-0.27%) $-1.04
Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$123.71 (-0.58%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.