I’m not holding up Hulu, for example, as the salvation of the video industry and suggesting book publishers should do the same. I’m holding up Hulu to refute your claim that people will do everything they can to avoid advertising. That’s not true. They will do everything they can to consume content, including enduring advertising. Is that sufficient to then bet the whole farm on advertising? No.

The only solution is to pursue all solutions simultaneously. And book advertising is a really smart idea for all the reasons I’ve identified above. Not to replace revenue, but to seek it elsewhere, while changing the model for discovering books and allowing them to be shared.

Huh. So, given that (as previously mentioned) Netflix makes $2.2B a year while Hulu makes $240M a year (per each of their most recent quarterly reports), you’re implying Netflix makes about 27 times as much per viewer than Hulu does.

And you’re advising publishers that this is a good model to follow? “Follow me, boys, I can cut your revenues per reader by 96%!”

“I do disagree on your one hopeful note that “advertisers are wising up” because, unfortunately, they don’t seem to be. At least not most of them.”

That seems a very high threshold. You appear to be implying you won’t concede advertising is in trouble until both revenue and percentage of GDP falls by 50%. By this standard, the Great Depression just wasn’t that bad, since unemployment hit 33%, but hey, “most” people still had a job.

“(C)able cutters don’t currently number more than a few tens of thousands.”

Well, I must personally know a fair proportion of them, then. I suppose that’s possible. I don’t usually think of myself as being in that kind of a bubble, but… {shrug}

Then again, I was among the first 1000 or so users who did computer-based chat ever… on Bitnet’s RELAY in 1986 (numbers per Jeff Kell, the writer of the program). It felt like a big, globally-distributed crowd back then, so subjectivity may go a long way.

The same is also true for book loaning. The books people loan are not always bestsellers or even recent sellers. People loan classic texts from their personal libraries all the time (If I had a quarter for every time I’ve gotten someone interested in Orson Scott Card by loaning out Ender’s Game…). But the real issue with book loans is that you’re assuming 50% refers to the percentage of books read. It doesn’t. This is the most common way people get books that they read. For people who read a lot, it will be a small portion of their reading (me and you), for people who read a little, it can be most or even all of their reading. That’s how it reaches the level of most common way people get books they read, because more people do it than anything else. However, for you and me, when we buy 10x as many books as we borrow, though we are a minority of readers in number, we are disproportionately valuable to the industry.

As for some of your suppositions about consumers and what they prefer, I do, in fact, have research to show what consumers value and how they behave. The easiest one to point out is that 3x as many people watch content on Hulu than do on Netflix in a typical month, so it can’t be the case that people are going to great lengths to avoid advertising. Instead, people go to great lengths to get top content, including enduring advertising when necessary.

Oh, and by the way, though this is a different discussion, cable cutters don’t currently number more than a few tens of thousands. So that may not be the best comparison to make yet, at least until cutting picks up.

You’re welcome.

“I will remind my college son that even though he thinks I’m ancient, there are smart people out there I have fooled, at least on this point.”

Hey, everything’s relative. Given the data I was presented with (someone willing to say, “The only reason book advertising has not happened…”, when book advertising has already happened, and then failed in the market), I thought the more likely, give ‘em the benefit of the doubt scenario was that you weren’t old enough to be reading/buying books during the relevant years. If that’s not accurate, well… Everything is provisional, pending better data. {shrug}

“I couldn’t conclusively prove that he was wrong because what was lacking was the measurement necessary to identify the waste. Now that we have more measured media, we are seeing advertising fall because advertisers are more willing and able to cut out the fat.”

On this, I’m afraid I have to disagree.

Here’s the problem, as I see it — there are basically four scenarios. You could draw them as a straight Cartesian grid, but that can’t really be done in text. So, to summarize:

1) +a/+s — increased spending on advertising leads to increased sales
2) +a/-s — spending on advertising increases, but sales fall anyway
3) -a/+s — spending on advertising is cut (or is low), but sales rise
4) -a/-s — spending on advertising is cut (or is low), and sales fall

The Conventional Wisdom — and the implicit transaction sellers of advertising offer — is that 1) and 4) are how the world works. The problem is, 2) and 3) happen often enough to call that into doubt. Political candidates who spend lots but lose (Meg Whitman and the lost $170 million comes immediately to mind). The Blair Witch Project coming out of nowhere and grossing $140 million. Starbucks becoming a global brand from Schultz buying the company in 1987 to 2007 before running their first TV ads. The 12.8 million hits on Google (no exaggeration) for the search term “disappointing sales despite ad campaign.”

I would say advertising is a classic example of partial reinforcement, right up there with lottery tickets. Because the results are so wildly variable, individual examples to fit one’s premise can always be found. But that’s precisely it. If scenario 1) above held true, and if the relationship between sales and ads wasn’t completely random, such examples couldn’t be found.

And the advertisers are wising up.

That’s why the “more measured media” you promote are driving ad buys down. The more data, the more precise the measurement, the more it’s obvious ads don’t deliver what they promise.

As to digital media being less expensive to produce — yes, of course. But digital media also have made it much easier to avoid the ad culture. I don’t think piracy is solely driven by the appeal of “free.” I think it’s also driven by “no commercials.”

To put it another way, I think ad-free Netflix makes $2.2B a year while ad-supported Hulu makes $240M a year for a reason.

People will change their behavior to avoid ads almost as strongly as they will to avoid taxes. One might almost think the person on the street sees them as equivalent.

Again, this is nothing new to anyone who’s been reading that well known anti-advertising rag AdAge during the last five years or so.

When you take the stance, “Declining ad sales are a good thing for the marketing business because it just means we’re getting more efficient!” it rings as falsely as cable companies saying, “‘Cable cutters’? I don’t think they exist.”

You wrote:

We surveyed them in May/June of this year. The top two ways they acquired the book(s) they read in that time were: 50% a loan from a friend, 38% from a public library (I know, cool, right?), and thanks to rounding, #3 is also 38%, buying a book from a chain bookstore (e.g. Borders, Barnes & Noble).

Here’s my problem (as someone who loves books, buys books and loans them like crazy, also as someone who often has trouble with tricky math questions):

If we assume that a loaned book is loaned out once, that would mean that you would need bookbuyers to be loaning as many books as they are buying. For example, looking at one book-reading cycle, if there are 6 people in a town, for the three borrowers to read, they’d have to borrow from the three buyers, right?

Have you ever met anyone, ever, who loans more books than he buys? I can’t conceive of how that could be true. The only explanation other than a flawed question is that there are hyper-loaned books, books that are loaned out hundreds of times.

As for the library stat, again I’m a bit confused. Let’s assert that many of the books that are read are bestsellers. If a town has one copy of a bestseller for every 1000 residents (that would be 3 copies in a town of 3,000, which feels right, cause it’s not a Blockbuster rental store), that means that in a given month, only .1% of the population can read that book from the library, but in fact the public is buying a million copies of that blockbuster (and probably reading it) which would be .3%, or three times as many.

Sure, there’s a long tail at work, particularly at the library, but it is going to be skewed by the short head.

Clearly, both thought experiments are rife with errors, but as someone who has spent his professional life buying and selling books, neither stat passes the smell test.

These kind of commercial models could fundamentally change book publishing, but digital formats are doing that anyway, so maybe its a good time to start with a clean sheet of paper and consider all revenue options?

To that point, note that although book advertising has happened (in genre fiction that has rapid turnover so the problem of timeliness is less severe), the fact is that it doesn’t happen today, even in that type of genre precisely because we have more immediate and targetable opportunities for advertisers to use. What I’m suggesting is that digitally-served (and cloud-accessed) books create an ad medium that can be used just like any other digital ad medium.

Just to be clear, I never suggested (or implied) that advertising would be the dominant model for books, just an important one, especially to authors. Not to Stephen King or to anyone else targeting a million unit bestseller (Seth, this goes to your point). Instead, it’s a way for relatively unknown authors (which are most of them) to get some revenue off their books — any number over zero is incremental revenue for many of them. Their hope, of course, is that using an ad model they’ll attract enough readers (because there’s no barrier to reading the book since readers don’t have to buy a book from an author unknown to them, they can just read as many pages as they want), and that those readers will serve as sufficient evidence to a publisher to pick up the book, publish it, and promote it.

So the real value of an ad model is not in replacing the revenue from selling books, but it’s in freeing up the written word: more authors can publish (most of them will be terrible, I’m not pretending that democratizing media leads only to brilliance, just as political democracy occasionally encourages people of questionable intelligence to run for office), more of their works can be sampled easily — and shared, too, which is something the industry is unwilling to provide under existing business models — and more revenue is preserved.

Seth, yes, I have great proof of how people acquire books. It’s all located in my Forrester report on the eBook market (http://www.forrester.com/go?docid=57664). For those who can’t access it, I’ll summarize Figure 1, which shows the results of a survey of 2,785 people who read at least one book in the prior 6 months. We surveyed them in May/June of this year. The top two ways they acquired the book(s) they read in that time were: 50% a loan from a friend, 38% from a public library (I know, cool, right?), and thanks to rounding, #3 is also 38%, buying a book from a chain bookstore (e.g. Borders, Barnes & Noble). We separated other types of bookstores, all of which fell bellow chain bookstores. In sharing this datapoint with several of the top 5 publishers over the last six months, they have all acknowledged this fact and one even teased about how they need to sue libraries like the RIAA sued Napster.

Hal, I’m going to raise two points relative to your arguments. The first is agreement: when I taught advertising management at Syracuse in the 90s, I was the rebel in the department because the senior-most faculty member, a legend in the field, had just published a book “proving” that advertising was effective. I questioned all of his data, his methods, and rather annoyingly explained to all my students that he was wrong. But I couldn’t conclusively prove that he was wrong because what was lacking was the measurement necessary to identify the waste. Now that we have more measured media, we are seeing advertising fall because advertisers are more willing and able to cut out the fat. But this is actually progress for advertising, not the end of advertising, as you appear to imply.

This leads to my second point, a disagreement: the media aren’t struggling because of shrinking advertising dollars, they’re struggling because of shrinking direct sales. CDs generate less than half the revenue they did at their peak, magazine and newspaper subscriptions are in freefall across the board, and DVD sales fell last year to produce less than box office receipts generated. Books have yet to fall, but are about to. None of this is because of advertising, it is all because digital media simply don’t cost as much to produce and distribute as analog media. As long as one producer in a market chooses to price content on the basis of digital costs, all producers will have to, putting downward pressure on price and reducing revenues. That’s problem number one with media. The lesson we learn from it is simple: digital experiences generate less revenue than analog ones, even though they are consumed more frequently and at greater scale. I say it this way for a reason: the same is true for advertising. Digital advertising, though consumed more frequently and at greater scale, will generate less revenue than analog advertising. This is a fact of digital life and so when you cite a decrease in ad spending, it doesn’t shock me or undermine my already shaky faith in advertising, it actually fits the model. Plus, it strengthens my recommendation that media providers should diversify their revenues and free their content by including (not depending on) advertising as an additional source of revenue.

Whew.

And Seth, I love the massage joke, assuming you know it’s a joke because massage is (for now) a completely non-digital experience. There would be no mechanism for automating, delivering, and measuring advertising in that context. Books have long been similarly individual and isolated experiences. But that is changing thanks to Google — that is my point here. Trust me, when massage becomes digital (when they invent Xbox Kinect II which includes force fields that can massage you virtually), I guarantee you there will be advertising involved.

Seth, that reminds me of a point the writer/illustrator William Rotsler used to make: Censorship is generally directly proportional to the number of people who can observe a given work simultaneously. Thus leaflets, books, small-run newspapers generally fly under the radar, even in relatively restrictive societies.

Two interesting corollaries there:

* It’s amusing to see censorship and advertising behave in parallel circumstances.

* The fragmentation of simultaneous audiences — whether through cable channel choice, time-shifting DVRs, the internet, or what have you — is having interesting effects. (That fragmentation may also be why political ads [and thus campaign costs] keep rising — you just can’t get enough of the electorate all in one place any more, so you have to seek out/buy multiple channels of contact where one or two used to do.)