Through my good friend Abel Keogh, author of “The Third” which I am currently enjoying very much, I found David Farland‘s Daily Kick in the Pants, and even though I had a hard time relating to a guy who’s mega-successful as an author and teaches other mega-awesometastic authors like Stephanie Seymour, I am positively loving him now.

Like few others, he’s happy to talk about traditional publishing and e-publishing in the same breath, comparing the two in an unbiased way (or at least calling out his bias openly) and speaking candidly about his thoughts on it all.

This is the latest “Daily Kick” that I got, and I tell you what, this guy is fkn Spot On.

Last week I had my agent look over a movie contract, and in one clause that dealt with retained rights, my agent said, “We can’t sign this contract. It doesn’t allow us to sell enhanced books, and that is the entire future of publishing.”

I’d been talking to a prospective business partner about starting a company that will make enhanced books (books that may combine elements like film clips, music, video games, author interviews, and audio files, which are then sold electronically to be read on your iPad, phone, computer, and so on), so I thought that my agent’s comment was timely. But are “enhanced books” the future of publishing?

There is good reason to think so. But I don’t think that it’s the “entire future.”

Let me explain, and even prophesy, if I may. Now, I’ve been making my living as a writer for more than twenty years, and I watch the markets pretty closely. As most of you know, we’re going through some dramatic changes in the publishing world, with the new e-book revolution.

Here is what is happening. Right now, the e-book market is growing at over 10% per year. Meanwhile, the sale of paperbacks and hardcovers is dropping disproportionately. In fact, sales last month on hardcover books were down more than 40% from just the month before!

Now, there are reasons for this. Part of the problem has to do with the collapse of the Borders bookstore chain here in America. That might account for a drop of 25%. Another drop of 10% might be claimed because of the rise in sales of e-readers that people got for Christmas. But that means that there is still a substantial drop that doesn’t make sense—another 8%, more or less. What’s going on? I think that there may be people who are delaying hardback purchases in anticipation of buying e-readers. After all, why pay $25 for a hardcover when I plan to buy a Kindle and then get the electronic copy for $15 on Mother’s Day?

Whatever the problem, you have to realize that the entire publishing world is in trouble. As people switch to e-readers, then they quit buying at bookstores. As bookstore sales drop, their profit margins plunge into the red, and thus they can’t pay the distributors who sold them the books. As the distributors lose revenue (as happened with Anderson Distribution and others last year), they go out of business. When they don’t pay the publishers, what happens?

Well, publishers can do some things to save money. They can quit printing as many books. They can stop advertising. They can hold off on buying new manuscripts. They can use cheaper paper and binding. But there is a limit to how much they can cut their costs. Can they make up for the 50% losses that they’ve taken this year? No. There is only one thing that they can do, really. They have to get money from the authors.

Now, since authors don’t actually pay the publishers, there is only way to acquire money—from the author’s accounts. Money that is owed for past books sales just disappears. Or the publisher seeks to renegotiate the old contracts with worse terms, ones that let the publisher keep more money.

That kind of thing is happening a lot right now, if what I’m hearing is true. Publishers are publishing out-of-print books, or claiming that they hold the rights to OP books so that they can turn them into electronic books, and they’re basically stealing the author’s money. Or they are vastly under-reporting electronic sales, and perhaps even paper sales.

I’m sure that the publishers in most cases are hoping that they’ll figure a way out of this mess and pay the authors later. For example, most publishers are now demanding more and more from the authors in the way of electronic rights, movie rights, and income from foreign sales.

The publishers won’t make it. This change to electronic media is likely to take place over several years, and the publishers are in a downward spiral.

What I suspect will happen is this: most publishers will take money from the authors and be forced into court by writer’s groups. The judges will look at what is going on, there will be RICO investigations and allegations of mail fraud, and the publishers that are acting inappropriately will be reprimanded. They won’t go to prison. We never send white-collar criminals to prison. Instead, the authors will win their lawsuits, and will be awarded treble damages. This process will take several years to complete. When it is done, the publishers will declare bankruptcy, and the authors will never get anything in their settlement. In short, we’ll lose our shirts, if we keep on publishing with the big corporations.

Ten years from now, there will still be a business for paper books, but it won’t be an industry that makes $17 billion in US sales. It will be a much smaller business, maybe $4 billion in sales.

So if you’re a publisher, you need to look at scaling back now. You’ll need to move out of your fancy New York address, cut back on your print runs to something logical, and try to figure out how to ride out the storm. Latching onto author’s money is one way to do it. It has worked for decades.

As an author, I can’t afford to play this game. But there is an option: the e-book. With the rise in sales of e-books, an author can now go out and sell his own books. The market is expanding. Some authors are genuinely making millions in this new market.

By putting out a novel in e-book, I reach a much smaller market, but I might also cut out my publisher and my agent, with their high overhead, so that I make a much higher profit on a per-book basis. Sounds like a great idea, right?

But with the new market, there is going to come a lot of “white noise.” New authors, terrible writers, will be publishing, too, and readers are going to have to figure out how to decide what to read. Getting a reader’s attention will be terribly hard to do.

Well, how do you do that? One way may be to have critics giving reviews of books—not the author’s friends, but genuine impartial reviewers working for independent agencies. Another may be to have awards for each category of electronic book, so that we have something like the “Farland Award for best SF and fantasy novel next year.” Hell, consider this an announcement. I’ll set it up.

A third way to rise above the white noise may be to rely upon trusted “electronic publishers” to select books.

That’s where I’ve decided to step in. By creating an “enhanced book,” we’ll be investing a lot of money in a book’s future. We’ll take it from being an electronic Word file then and add background art, music, video, sound, and so on. We’ll have an author interview with the book, and it will become part book, part movie.

By investing that kind of money, we’ll not only enhance the reading experience for the audience, but we’ll also be putting our stamp of approval on a book. We’ll be saying, “We expect great things from this author. This one is really worth looking at.”

In short, I expect “enhanced books” to become the dominant art form for novels in the next few years, replacing and outselling simple e-books on the bestseller lists, and even outselling hardbacks and paperbacks within a couple of years.

As a person with a long history in publishing, videogames and film, this is sort of a natural step for me. My partner, Miles Romney, and I have agreed to start our company, in part because I believe in this new medium. So, look for us in the future as East India Press!

I’ll be announcing our first project in the next couple of weeks.

Now, I have no background in traditional publishing. I have no background in self-publishing either. I have yet to publish my first e-book and I can’t even effing finish the books that I’ve started.

BUT… this is the way this is heading peeps, and if I were more inclined, it’s the kind of thing I’d blog about just so that in a year from now I could go back and point out how awesome and smart I am.

Ahhhh… but I’m going to do that anyway now aren’t I?

Regardless. E-books aren’t paper, they’re stand-alone documents right? Well the mode that helps them stand alone is going to be more and more standarised the more popular they become (which is growing almost exponentially). Once a more standard format is in place, e-books are definitely going to be “enhanced books”…

…and the world will, once again, change completely.

Which is why I’m still completely shat off that the most popular e-book authors of today have f*ckall for a web presence. The American Capitalist Pig part of me wants to start a business based solely around exploiting this, but the No Worries Aussie Laid-back Surfer Dude in me wants me to just sit back and write and be awesome.

And finish Page Buoy, of course, which I will do in the next few weeks. Stay tuned.