The Shatzkin Files

Harvard Business Review published an article recently by Benjamin Edelman called “Mastering the Intermediaries” which gives advice to businesses trying to avoid some of the consequences of audience aggregation and control by an intermediary. The article was aimed at restaurants who don’t want their fate controlled by Open Table or travel companies who don’t want to be beholden to Expedia. The advice offered is, of course, scholarly and thoughtful. It seemed worth examining whether it might have any value to publishers suffering the growing consequences of so much of their customer base coming to them through a single online retailer.

The author presents four strategies to help businesses reduce their dependence on powerful platforms.

The first suggestion: exploit the platform’s need to be comprehensive.

The author cites the fact that American Airlines’ strong coverage of key routes made its presence on the travel website Kayak indispensable to Kayak’s value proposition. As a result, AA negotiated a better deal than Kayak offered others or than others could get.

Despite some suggestions in the late 1990s that publishers set up their own Amazon (which they subsequently half-heartedly tried to do with no success) and a couple of moves to cut Amazon off by minor publishers that were minimally dependent on trade sales, this tactic has never really been possible for publishers on the print side. Amazon began life by acquiring all its product from wholesalers — primarily Ingram and Baker & Taylor — before they switched some and ultimately most of its sourcing to publishers to get better margin. But the publishers can’t cut off the wholesalers without seriously damaging their business and their relationships with other accounts, and the wholesalers won’t cut off Amazon. So for printed books, still extremely important and until just a couple of years ago the dominant format, this strategy is not worth much to publishers.

However, the strategy was and is employable for ebooks, which are sold via contractual sufferance from agency publishers, even if the sourcing is (sometimes, not typically by Amazon) through an aggregator. That was the implied threat when Macmillan CEO John Sargent went to Seattle in the now-famous episode in 2010 to tell them that ebooks would only be available on agency terms. Amazon briefly expressed its displeasure by pulling the buy buttons off of Macmillan’s print books. (Publishers can’t cut them off from print availability, but they can cut publishers off from print sales!) In the meantime, Amazon’s share of the big publishers’ ebook sales has settled somewhat north of 60 percent, and those Kindle customers are very hard to access except through Amazon. This is considerably more share than Kayak had when American Airlines threatened their boycott.

In fact, it is likely that Amazon could live without any of the Big Five’s books for a period of time, except for Penguin Random House, which is about the size of the other four big publishers combined. The chances are that PRH’s size will prevent Amazon from treating them the way they are now treating Hachette. And the massive share that Amazon has of both print and ebook sales makes it extremely difficult for Hachette, or any other big house except PRH and possibly HarperCollins, to sustain an ebook boycott (with consequent print book sales reductions) for any significant length of time. In other words, for publishers dealing with Amazon, this horse has left the barn.

Where it has not yet left the barn is with the ebook subscription services, and for them many publishers actually appear to be following the strategy being suggested here. Only two of the big houses have put titles into Scribd and Oyster, and it appears that they got extremely favorable sales and payment terms in order to do so. Indeed, these fledgling subscription offerings must have the big houses’ branded books to have a compelling consumer proposition.

The second suggestion is to identify and discredit discrimination.

The HBS piece cites the complaints that eBay was giving search prominence to suppliers who advertised on the site forcing a reversal of the policy.

Although the search algorithms on powerful platforms are ostensibly geared only to give the customer what they’re most likely to want, it is probably generally understood that these results are jiggered to favor the platform’s interest. It is not surprising that Google has underwritten White Papers from UCLA professor Eugene Volokh and from Supreme Court nominee Robert Bork defending that conduct. Volokh argues that the first amendment prevents the government from interfering with search results and Bork says nobody is harmed if Google favors its own interests.

Could we apply that same logic to Amazon? How about this scenario?

Amazon is well on its way if not already past the point where they sell more than half of the books Americans buy (combining print and digital). Book consumers are highly influenced by the suggestions made and choices surfaced by their bookseller, whether physical or virtual. That is: the process of buying books is inextricably linked to the process of discovering books. So Amazon is getting a stranglehold on recommendations which for many consumers also means a stranglehold on marketing and promotion.

The “damage” to society that results from results being gamed in fiction is probably minimal, and restricted to Amazon promoting either its own published titles, its favorite self-published authors, and books from other publishers that have paid to play. But, with non-fiction, the consequences could be much more severe and of real public interest.

Imagine a persuasive book arguing that the government should sharply increase the minimum wage and let’s also imagine that Amazon corporately doesn’t like that idea. Is it really okay if they suppress the awareness of that book from half or more of the book-buying public?

This is the kind of an argument that can arouse the government which, so far, has shown scarcely more interest in Amazon’s dominance of book commerce than they would if they dominated the commerce in soft drinks or lawn fertilizer. Can they be awakened by publishers to this concern before dramatic cases affecting public awareness and policy are documented? We don’t know, but we do know that Hachette sent lawyers to Washington early in the Obama Administration to call attention to Amazon’s growing marketplace power and their willingness to use it. That apparently had no affect (unless, in some perverse way, it contributed to the government’s interest in pursuing the “collusion” case).

There could certainly be some consumer blowback to the gaming of search results by a platform, perhaps including Amazon. The Harvard article says Google changed algorithms that seemed to be burying Yelp because consumer sentiment, partly measurable in search queries, showed dissatisfaction among the public. But in the absence of an aroused government, it would seem unlikely that this suggestion will do publishers large or small much good.

It is definitely worth noting here that Hachette authors are involved in just such an effort right now over the current Hachette-Amazon dispute. (And Amazon authors, also often called “indie authors”, are pushing back in the other direction.) There is a difference of opinion about how much this is “hurting” Amazon or whether it will push them to a quicker resolution of the dispute; I’m not sure anybody will ever know the answer to that.

The third suggestion is to create an alternative platform.

As the piece explains, when MovieTickets was on the verge of dominating phone and online ticketing, Regal Entertainment and two other large theater chains formed Fandango.

Unfortunately, this is a strategy that simply won’t work as an antidote to Amazon. In fact, trying it, which publishers have, demonstrates a failure to understand the source of Amazon’s power in the marketplace.

Amazon’s strategy is in plain sight and is the title of the best and most recent book about them: Brad Stone’s “The Everything Store”. Books had a central role in getting Amazon started, but have now declined to very likely less than 10 percent of their revenue and far less of their operating margin. Books are strategic for Amazon, but not commercially fundamental. This is one of the reasons, perhaps even the principal one, why they operate their book retailing on margins so thin that the incumbent book retailers can’t match them. After all, B&N can’t make up the margin shortfalls created by offering books cheaply by selling that same customer a lawnmower. Nor do they benefit from additional scale provided by selling lawnmowers or cat food or server space.

The fact that Amazon did book retailing in a thorough and sophisticated way as they established their business to become an online Walmart made them different from omni-retailers in the past (going back to departments stores a hundred years ago) who sold some books.

The story has been told on this blog before about Amazon cutting prices more than fifteen years ago to discourage competition coming into the market. Although publishing is a profitable business for them, it is also a strategic component of larger objectives: getting an increasing share of its customers’ purchases across a range of physical products as well as to compete as a streaming content provider across the entire range of digital media.

No enterprise focused primarily on books can compete with that. Amazon takes too many customers off the table before whoever else is competing gets to begin and keeps them for a wide range of reasons. They’ve got the most admirable competitive position conceivable: a first-class operation supported by scale provided by myriad other enterprises, totally wide-ranging and broad knowledge of the details of book retailing, and the financial heft to accept diminished (or even negative) margins from time to time to support strategic objectives.

So, Bookish, the attempt to compete (although that objective was not explicitly stated) forged by three major publishers more than a decade after Ingram’s I2S2 attempt to create a broader base of online retailers, was never a serious threat. (It is now owned by another Regal, Joe Regal, whose Zola Books — an ambitious upstart ebook retailer — bought Bookish, apparently for its recommendation engine, from the publishers.)

This is probably the 20th year in a row, dating from their start in 1995, that Amazon has gained market share for sales of books to consumers. And that’s because consumers are making what for them is the obvious choice for convenience, total selection, and competitive pricing, as well as getting tied into Amazon through their PRIME program. Unless one of the other two tech giants in the bookselling world — Apple or Google — decides to make a dedicated effort to take some of that market share away from Amazon in both print and digital (and neither of them is much interested in print), it is hard to see where a serious competitor can come from.

As of this moment, there is no way for any ebook retailer except Amazon to put DRMed content on a Kindle, which eliminates a big part of the audience from play for any competitive platform.

The fourth suggestion: deal more directly. The article points out that people ordering takeout through online platforms like Foodler and GrubHub have often already chosen their restaurant so that restaurants that deal directly can afford to exit the platform.

As I was working on this post, HarperCollins announced that they have redesigned their website to be consumer-facing which enables them to sell books directly to consumers. They’ve collaborated with their printer-warehouse partner, Donnelley, to handle print book fulfillment and have a white-label version of indie ebook platform Bluefire to deliver ebooks. They promise that authors will be able to use the capability very easily to connect their own web presences and they’re thinking about additional compensation to authors that generate those sales.

This bold move has a hole in it, though, and it is one that publishers so far have no easy way to fill. All the non-Amazon platforms use Adobe DRM, which HarperCollins/Bluefire supports, so they can put your ebook on a Nook or Kobo device with copy-protection. Of course, they have their own “reader”, which can be loaded with ease on most web-capable devices and can apparently also be squeezed onto a Kindle Fire. But, because HarperCollins wants to continue to use DRM protection for the content, they won’t be able to sell directly to users of Kindle devices that are dedicated e-readers.

Although publishers have certainly encouraged that competition to Amazon which exists, their direct efforts have for the most part been limited to cultivating direct interaction with the end user audience to influence awareness and selection. Many smaller publishers are willing to sell direct without DRM and other large publishers sell direct in a more restrained way, but this seems to be the first concerted effort by a major player to drive direct sales.

It will be interesting to watch the pricing interaction between Harper and Amazon and whether Harper can come up with “specials” (bonus content, some connection to the author, bundling) that Amazon or another retailer can’t match. Competing on price is the retailer’s first instinct, but for publishers competing with Amazon on price is a fool’s errand, fraught with the potential for retaliation in many ways (including that “discounts” from publishers, the retailers’ margin, is presumably based on the publisher’s price. What does “publisher’s price” mean if they sell for less?)

But HarperCollins doesn’t need to get a big volume of direct sales for this to be a worthwhile initiative for them. I’d expect it to be copied. Any sales they can get directly increase their power in the marketplace.

There is one other initiative we’re aware of that can perhaps help publishers disintermediate Amazon for direct sales. That’s Aerbook, which widgetizes a book or promotional material for a book so that it can be “displayed” in any environment. Aerbook’s widgets can contain the capabilities for transacting or for referring the transaction to a retailer, Amazon or anybody else. Putting the awareness of the book directly into the social and commercial streams can be a big tool for authors and publishers. But even Aerbook can’t put a DRMed file on a Kindle. They offer a version of “social DRM” — essentially “marking” the ebook in a way that identifies its owner — which can be loaded onto the Kindle. But big publishers and big authors have apparently not yet come to a comfort level with that solution; perhaps the need to get to the Kindle customer directly and the experience Aerbook develops with their method will encourage a more open mind on that question over time.

So, it would seem, the best thinking presented by Harvard Business Review for how producers and service providers can dodge platforms trying to lock in their audiences has precious little that can be usefully applied by publishers to escape the grip of Amazon. Having taken about half the retail book market over the two decades of their existence, they have given themselves a reputation, tools, and momentum that will make it very hard to stop them from eating into the other half substantially in the years to come.

The fact that competing with Amazon is difficult doesn’t stop smart people from trying to figure out how it might be done. A group of publishing thinkers are holding a 2-day brainstorming session at the end of this month to come up with ideas. Two of them, Chris Kubica and Ashley Gordon, will be presenting at a session at Digital Book World in January called “Blue Sky in the ebook future”, which will include thoughts on how to improve the narrative ebook itself from Peter Meyers and somebody not yet chosen to speak about complex ebooks.

I was at 8,000 feet on a mountain hike in Colorado when a reporter called my cell phone, told me about Amazon’s latest “offer” to “resolve” the dispute with Hachette, and asked for my reaction. My first thought was, “wow, what a brilliant move by Amazon and it seems, at first, like a win all around.” I might have heard this wrong, but I think the reporter was under the impression at that point that Hachette would accept the offer. That was wrong, and so was my first reaction.

What Amazon proposed was that instead of paying Hachette its normal (and presumed 70%) cut of ebook sales, Amazon simply pay the authors 100% of the proceeds. That ostensibly has both sides just giving up its margin and having the authors get more. Seems a reasonable temporary compromise, until you do the math. I didn’t do it on the mountain, but I’ve done it since.

It’s a terrible deal for Hachette; one they can’t possibly accept. And most of their authors, if they were honest, would admit they couldn’t benefit so much from it either.

What the deal elides — as does almost all the “analysis” about how authors fare with big publishers versus how they fare with Amazon — is “unearned advances”. For the biggest authors with the biggest sales of print and ebooks, Hachette has already paid the ebook royalties at more than the contractual “25% of publisher revenue” rate.

So we have a $10 ebook. Normally, Amazon would pay $7 to Hachette and keep $3. Hachette would notionally divide the $7 as $5.25 to Hachette and $1.75 to the author. What Amazon proposed was that the author would get the whole ten dollars, Amazon would give up its $3 and Hachette would give up its $5.25. Not quite fair, and, to be honest, I hadn’t even done that math when I spoke to the reporter.

But the math is worse than that because Hachette has already paid the author’s $1.75 in the advance for the lion’s share of the sales that would be made under this deal if it were agreed to. So Amazon is giving up $3 and Hachette is giving up $7 on most of the books. And many of the authors, frankly, aren’t entitled to even their own share on those sales (they already got it), let alone Hachette’s (or Amazon’s).

It would already seem that Amazon holds the high cards here. They are apparently around 60 percent of Hachette’s ebook business. But Hachette’s ebook business is a smidgen of Amazon’s, almost certainly less than 10 percent. And the percentage of its total operating margin Amazon loses in the Hachette dispute is a fraction of the percentage of operating margin that Hachette loses, even before this latest gambit. From the outside, it would appear that Amazon’s “staying power” during this dispute was already much greater than Hachette’s.

This “offer” would further tilt that ground to Amazon’s advantage. It is a deal that Hachette couldn’t accept, but it makes Amazon look good to some authors, particularly to many of the indie authors who have never fully taken on board the “unearned advance” part of the author revenue piece. Since I came to the wrong quick conclusion, I find it easy to understand how anybody else could do the same thing.

Pardon the brief and unlinked piece. I’ve got a plane to catch.

 

 

For most of my lifetime, the principal challenge a publisher faced to get a book noticed by a consumer and sold was to get it on the shelves in bookstores. Data was always scarce (I combed for it for years) but everything I ever saw reported confirmed that customers generally chose from what was made available through their retailers. Special orders — when a store ordered a particular book for a particular customer on demand, which meant the customer had to endure a gap between the visit when they ordered the book and one to pick it up — were a feature of the best stores and the subject of mechanisms (one called STOP in the 1970s and 1980s) that made it easier. But they constituted a very small percentage of any store’s sales, even when the wholesalers Ingram and Baker & Taylor made a vast number of books available to most stores within a day or two.

It was an article of faith, and one I accepted, that if you could expose most books to a broad public, they would “find their audience”. The challenge was overcoming the gatekeepers or, put another way, the aggregate effect of the gatekeepers (the store buyers) was to curate, or act as a filter, to find the worthwhile books that the public would really see from which they would choose what to buy.

There was also ample evidence over time that a large selection of books in a store acted as a magnet to draw customers. That fact was noted by my father, Leonard Shatzkin, in the early 1960s, when they doubled the inventory at the Short Hills, NJ, Brentano’s store (the chain reported to my father, who was a Vice-President of Crowell-Collier, the company that owned Brentano’s, Collier’s Encyclopedia, and Macmillan Publishers, among other things) and it went from the worst-performing store in the chain to the best. In the 1970s, BP Reports published a survey that said that nearly half of bookstore customers chose the store they were in on the basis of the selection they’d find and more than half reported their particular purchase decision was made in the store.

By the late 1980s, both of the big national bookstore chains — Barnes & Noble and Borders — were undergoing a massive expansion of “superstores”. Whereas chain bookstores (B&N’s B. Dalton and Borders’s Walden) carried 20,000 or 30,000 titles, and large independents carried as many as twice that, now the new superstores would carry 100,000 titles or more! Customers flocked to the massive bookstores and the ever-expanding chains ordered lots of the publishers’ backlists and everybody celebrated a new era, except the independent bookstores who were increasingly squeezed by their new large competitors. The era was less than 10 years old when it got disrupted.

In the 1970s, it was my responsibility for a couple of years to write the orders for stores that accepted vendor-managed inventory from Two Continents, my family’s distribution company. I was being careful to make sure that each store earned $2 gross margin per dollar of inventory investment, which was what you’d get from 40% discount with inventory turned 3 times a year. This gave me a hands-on look at how stock turn in the aggregate was affected by the inventory decisions on specific titles.

When you do this, you figure out pretty fast that you can produce very high stock turn on books that are moving consistently. If a store were selling five copies a month of a title on a sustained basis and I put in 10 and replenished monthly, they would be getting an annual turn of 10 or perhaps much more on those moving books. (Turn calculation: sales divided by average inventory for a period multiplied by the number of such periods in a year.) That would support a lot of single copies of books that moved very slowly or, as it turned out, not at all. Since very few stores managed a turn of 3 or 4 on their own (chain store turns were usually under 2), giving the stores on our Plan a good result with the advantage of shipping monthly was shooting fish in a barrel.

But if you think about the turn you’re achieving with the titles that really move, know that the titles that move are a large percentage of the store sales, and take on board what stores’ overall turns tended to be, it leaves you with the uncomfortable feeling, or calculation, that a very high percentage of the titles each store ordered didn’t sell a single copy in that store. In fact, one big advantage of vendor-managed inventory is that it gives you the ability to use the high turn on your titles to stock the titles of yours that turn slowly or don’t sell at all, rather than having the store “waste” those margin dollars your books produce stocking somebody else’s slow-moving books.

Remember, in physical retail, selection was the magnet. The books that didn’t sell were helping to pull in the customers for the books that did sell. Stores knew that too. Later work I did demonstrated that there were whole store sections that turned at half or less of the rate of the store as a whole. But if you want, say, a philosophy section that “turns”, it would only have about ten titles in it. If you want a philosophy section people will browse and shop from, you have to carry a lot of slow-moving titles.

But just when the bookstores put the inventory in place to stimulate book buying all over the country, along came the Internet, Amazon.com, print-on-demand, and ebooks, in that order. All four were fully integrated into the book publishing ecosystem over a decade-and-a-half starting in 1995. As quickly as the magic of selection via the 100,000-title store was implemented, it was superseded by the “total” selection provided by Amazon’s, and then BN.com’s, “unlimited shelf space”. Now every book would have its full chance to sell, or so it seemed.

Unlike the period of superstore expansion, when substantial orders for deep backlist suddenly became commonplace in a continuing windfall for publishers, the new era with Amazon was characterized by things getting harder for many publishers. That wasn’t necessarily clear at first, but the impact of Amazon, and then Lightning (print on demand offered by Ingram) was to dramatically increase the number of titles competing for sales. It gave the Long Tail a real opportunity to get to customers which, through bookstores — even very big bookstores — only the top 100,000 titles were able to do. Publishers were a bit like the metaphorical frog in heating water; the challenges imperceptibly became greater over time. In 1990, a new book competed with about 100,000 available titles. In 1997 it competed with many hundreds of thousands and that number just kept growing. Today it competes with millions.

The challenges for conventional publishers got steeper again when ebooks became mainstream, pioneered by Amazon’s Kindle in late 2007. There had been a modest ebook business building for about a decade, but until Amazon committed its resources to creating a dedicated device, a repository of content, and audience awareness, it had a trivial impact. But a full-fledged ebook business unleashed a new wave of competition from self-publishing authors. Amazon fostered growth by creating an easy on-ramp for self-publishing, a move quickly copied by B&N, Apple, and Kobo. In the several years that ebooks have been commercially important, many — certainly hundreds and perhaps thousands — of authors have achieved meaningful sales. Many of those have been of backlist books originally published conventionally but there have also been thousands of successful original ebooks. Whether revived formerly-dead backlist or new titles, these are books that are competing with the output of the conventional publishers and wouldn’t have been a decade or two ago.

So the Long Tail for books has been a topic of conversation for most of the past 20 years. Amazon’s limitless shelves and Ingram’s Lightning contributed heavily to this before the turn of the century; self-publishing has accelerated it dramatically. The early expectations, including mine, were that the Long Tail would take sales from all the books being “currently” published. But it became evident pretty early that the big books were just getting bigger: the head of the sales curve wasn’t diminishing. In fact, both the head and the Long Tail took sales from the middle of the curve. This was particularly challenging for publishers because publishing mid-list, those books they do that aren’t bestsellers, became much more challenging.

The Long Tail continues to grow. There are a limitless number of aspiring authors and their aspirations to self-publish successfully are fueled both by success stories and by a growing band of indie authors who tout their success and question the business models and practices of the majors. Because being conventionally published has its own set of hurdles and time requirements, it has seemed to many (and I haven’t been immune from this thought) that self-publishing would just continue inexorably to take share from the publishing business.

But now we have some data that calls that assumption into question. I encountered two examples of that in the past week.

In Toronto last Wednesday, Noah Genner of Booknet Canada presented information about the Canadian market showing that the number of ISBNs was expanding rapidly, but that the number of individual ISBNs selling at least one single copy was about flat.

Then this week, Marcello Vena of RCS Libri in Italy published a White Paper based on his company’s data (link through to the White Paper from the DBW piece introducing it) which showed something similar. Sales of his company’s books were becoming increasingly concentrated in a small number of titles. Vena added an analysis using the Herfindahl-Hirschman Index (HHI). HHI measures the concentration in a market and is, according to Vena, used by the US Department of Justice to measure concentration in an industry. The HHI is calculated by adding the squares of the market shares of the players. So if one company owned 100% of a market, the HHI would be 100 squared, or 10,000. But if 100 players each owned 1% of the market, the HHI would be 100 times 1/10,000 (1/100 squared) or 0.01. Using the market concentration and title concentration numbers in tandem, Vena finds that they’re linked. As market concentration increases, the sales move to the head of the sales curve and flatten further in the Long Tail.

Of course, Italy and Canada are not the United States. Our market is bigger and richer. But Italy and Canada are not trivial samples, either.

One further point about Long Tail sales. In the aggregate, they can be very significant. But for each individual title, they are trivial. So the real commercial benefits flow to the aggregators — Amazon and Lightning — and much less to the publishers or authors of the individual titles. There certainly are situations where particular publishers have a lot of Long Tail books: the Oxford and Cambridge University Presses would be prime examples of this. For them, with thousands of titles in the Long Tail, the aggregate sales are probably commercially significant. But for a publisher with 100 titles, or even 1000 titles, selling a copy or two a year (or none), and that’s what we’re talking about here, it hardly makes any difference. I personally own several Long Tail titles. I get checks from somebody every month, but it adds up to three figures a year, not four.

The implications of this in the discussion of how the publishing industry might be affected by self-publishing disruption are interesting. It would suggest to me that the boosts publishers can give a book — even their catalogs provide more marketing lift than most self-published books start with — will become increasingly important as the market becomes increasingly flooded. If the data Vena has presented turns out to be the future trend, the increase in self-published titles will drive more and more sales to a smaller number of winners, and my hunch would be that the winners will most likely be from publishers. That would indeed be a paradox and a totally unintended consequence.

Of course, the publishing business isn’t one business; it is segmented. So far, the commercially successful self-published authors overwhelmingly, if not entirely, fall into two categories. There are authors who have reclaimed a backlist of previously published titles and self-published them. And there are authors of original genre fiction who write prolifically, putting many titles into the marketplace quickly. Successful self-publishing authors are often in both categories but very few are in neither. Those two categories are nearly 100% of the self-publishing success stories but a minority of the books from publishers. So, even before Vena published his White Paper, the idea that self-publishing would upset the commercial establishment was way overblown. If Vena’s data turns out to be prophetic, the road is going to get harder and harder for all books, but especially the self-published.

Two big items in the news today. On B&N’s decision to spin out Nook and college into a separate public company, I have little to say except to wish them all well. On Hachette’s and Ingram’s division of the two Perseus businesses, I’d say this. 1) The notion that this is about Hachette “bulking up” for the Amazon battle is almost certainly wildly wrong and anybody saying that has disqualified themself as an expert. 2) The titles Hachette get here really change the character of their list, adding a non-fiction and academic dimension they never had. 3) Ingram has made a major leap in scale for their Ingram Publisher Services business which now, in the aggregate, is Big Five sized.

Once again, the Feedburner service failed to distribute my most recent post, which was a graf-by-graf disagreement with a post by Hugh Howey. The comment string of that post contains ample evidence that the fact contained in the last paragraph here is not widely acknowledged.

I need to say couple of things at the outset here. The first is that I really like and admire Hugh Howey and the fact that I disagree with almost every paragraph of this post of his shouldn’t suggest that I don’t. That’s not snark or irony; it is sincere. I think it is both noble and natural for people to defend the entities and circumstances that make possible their commercial success and it is just human nature that those who have benefited from a paradigm reflexively want to defend it. I only wish that Hugh would exhibit the same respect for that tendency when it is exhibited by authors who have done well with publishers.

The other is that I don’t see the “Amazon versus the publishing establishment” battle as a moral choice, just a tug of war between competing business interests. (There are societal questions at stake, which some might see as moral choices, but the companies involved are doing what is best for them and then arguing afterwards that it is also better for society.) When I wrote what I intended to be a balanced piece about the Amazon-Hachette battle, it brought out the troops from the indie author militia in the comment string to call me to task and accuse me of many things, including being a defender of the people who pay me (although my overall revenues from Big Five publishers is actually pretty paltry with not one active consulting client among them for well over two years). I expect this post will do the same, which I find an unpleasant prospect. On the other hand, I’m sorta stubborn about saying the things I believe nobody else is saying…

I am not trying to “make a case” here for anybody: not for the publishers and obviously not for Amazon. All I am trying to accomplish is to call out what I see as the almost certainly unintended bias in the arguments as Hugh frames them. I continue to believe that self-publishing is a useful tool that most authors should employ at one time or another but that, still almost all of the time, an author who is offered a publishing deal from a major house willing to pay an aggressive advance is better off to take it than go it alone. (If you’re not offered a substantial advance, the calculus shifts, but there is a lot of work involved in self-publishing that is not described in much detail in this post, even though Hugh Howey knows much better than I do how much work it is!) And I think that generalized advice to authors to eschew publishers in a world where print still matters and stores still matter remains, as of today, unwise. That may well change in the future, but it hasn’t changed yet.

In this post, everything preceded by [HH] was written and posted by Hugh Howey. Everything preceded by [MS] is my response. I have left nothing out from Hugh’s original post.

[HH] A few weeks ago, I speculated that Hachette might be fighting Amazon for the power to price e-books where they saw fit, or what is known as Agency pricing. That speculation was confirmed this week in a slide from Hachette’s presentation to investors:

So, no more need to speculate over what this kerfuffle is about. Hachette is strong-arming Amazon and harming its authors because they want to dictate price to a retailer, something not done practically anywhere else in the goods market. It’s something US publishers don’t even do to brick and mortar booksellers. It’s just something they want to be able to do to Amazon.

[MS] Uh, yes. It is something they want to do in the market for ebooks that they don’t need to do for print. And it is something they want to do to the entity that controls 60% of their ebook sales, which no print bookseller does. And you’d be forgiven if you got the impression from this that Hachette only wanted to control the price Amazon sells at, not the price everybody sells at, keeping it the same across retailers. It does matter how you frame things…

[HH] The biggest problem with Hachette’s strategy is that Hachette knows absolutely nothing about retail pricing. That’s not their job. It’s not their area of expertise. They don’t sell enough product direct to consumers to understand what price will maximize their earnings. Amazon, B&N, Kobo, and Apple have that data, not Hachette.

[MS] But what Amazon, B&N, Kobo, and Apple know is not how to maximize Hachette’s or Hachette’s authors’ “earnings”, however they get divided between author and publisher. What they know is how to maximize their earnings and, mainly, their market share. And only Amazon and B&N have any picture of how the interaction between ebook prices and print sales works, which deeply affects an author’s and publisher’s earnings. None of the other ebook retailers have a clue about that, and Amazon doesn’t know how bookstore sales are affected (and it would be their objective to have them affected negatively, wouldn’t it?)

[HH] Beyond their ignorance of pricing strategy, Hachette also has a strong bias toward print books. Their existing relationships with major brick and mortar retailers gets in the way of their e-book pricing. This has been confirmed by my own publishers, who have admitted privately that they would like to experiment with digital pricing but don’t want to upset print book retailers. This puts their pricing strategy at odds with their investors’ needs, their authors’ needs, even their own profitability. In sum, they are making irrational decisions with their pricing philosophy. Hachette is making the same mistake that many publishers make, which is to think that harming Amazon somehow helps themselves.

[MS] Publishers are trying to keep a print book physical distribution infrastructure alive. That’s not irrational. It is rational. And it is the crux of the difference in objectives between a publisher’s strategy and Amazon’s strategy. The more bookstores fade, the better it is for Amazon and the worse it is for publishers. This is a problem you could have read about on this blog a long time ago.

[HH] The same presentation by Hachette to investors stressed the importance of DRM and the need to fight piracy. The presentation had very little to say about authors, which would be like an oil company giving a report to prospective investors and not discussing how its current wells are performing, the proven reserves it has on-hand, and what they are doing to discover new sources of oil. You know . . . the product they make their money from. Little is also said in the presentation about readers, possibly because Hachette doesn’t know who their readers are. Again, this is a presentation to investors by a company that doesn’t know its customers. Because they have too long relied on and been beholden to middleman distributors.

[MS] I’d substitute “leveraged” for “relied on and been beholden to” in the sentence that concludes that paragraph. Up until very recently, there was no efficient means or mechanism for publishers to sell directly to readers. Their “customers” were bookstores, and they understood them very well. And all the big publishers I know are investing in learning more about who are their readers. This graf begins with the complaint that authors aren’t acknowledged by publishers and ends with the complaint that publishers don’t know their readers. And the cherry on top is a biased characterization of the value and role of brick and mortar retailers. I guess the oil company reference is just to associate bad people with each other, but it otherwise seems gratuitous. The important and relevant point is that we’re still waiting for the first major author to say “no” to a publisher. It will happen, but it hasn’t happened yet.

[HH] DRM, piracy, and high e-book prices are not what a publisher should be fighting for and bragging to its investors about. Many consumers aren’t even aware that Amazon isn’t the source of their e-book DRM. Publishers (and self-published authors) opt in or opt out of DRM as they see fit. Those of us who think about the paying customer first and foremost opt out, and we are rewarded with their repeat business and their advocacy. Those of us who don’t fret over piracy invest our time where it can actually achieve something. Publishers need to adopt these same policies with all haste. More importantly, they need to stop ripping off their authors and their customers when it comes to digital pricing.

[MS] Recent data suggests pretty strongly that taking down pirate copies increases sales. But the efficacy of DRM is a good debatable point and it shouldn’t be in a paragraph that concludes with a gratuitous slam at big publisher pricing and royalties, which have nothing to do with DRM.

[HH] We know publishers are ripping off artists and readers when it comes to e-books. Harpercollins released this slide one year ago this month:

As author Michael Sullivan broke down in this damning blog post, it shows publishers making $7.87 on a $14.99 e-book while the author only gets $2.62. For a hardback that costs twice as much at $27.99, the publisher makes $5.67 to the author’s $4.20. What used to be a fair split is now aggressive and indefensible as publishers make more money on a cheaper product while the author makes far less. Publishers are ripping off readers and writers as they shift to digital, and they are getting away with it. They are even winning the PR campaign against Amazon, a company that has fought for lower prices for its customers and higher pay for its authors.

[MS] I agree that ebook royalties should be higher. But, in fact, only authors who sell their books to publishers without competitive bids (which indicates either “no agent” or “limited appeal generated by the proposal”) are living on that 25% royalty. The others negotiated an advance that effectively paid them far more than that. And guaranteed it before the book hit the marketplace. Publishers are making a massive PR error not raising the “standard” royalty since they effectively pay much more than that now, but the authors signing contracts with them know the truth.

[HH] Let me repeat: Publishers are waging a war here for higher prices and lower royalties. $14.99 is their ideal price for an e-book that costs nothing to print, warehouse, or ship. That’s twice what mass market paperbacks used to cost, which is what they are replacing. Reminds you of how cheaper-to-produce CDs suddenly cost twice as much as cassettes simply because they were new, doesn’t it?

[MS] Now, who’s not paying attention to authors? Right, it cost nothing to print, warehouse, or ship an ebook. But it cost something to create. And for many, if not most, publisher-published books, the publisher gave the author a substantial payment before publication. Focusing on the price without considering the value is the grossest form of “ignoring the author”. And the $14.99 price is more like the equivalent of the hardback; most publishers I know charge much less for the ebook when it is being published against a printed version that’s a paperback. And, in fact, they often charge less than $14.99 when the print edition available is a hardcover!

[HH] Publishers are also colluding with one another to offer lockstep digital e-book royalties of 25%, which is indefensible. Their every actions, when it comes to DRM, to pricing, to selling direct, to offering abusive services like Author Solutions, screams to anyone with ears that they don’t care about the writers and they don’t care about the readers. It doesn’t matter what they say, it matters what they do. And what they do is charge as much as they can get away with and take as much of the split as they possibly can. And they work with their competitors and against their retail partners to pull it off.

[MS] Publishers live in a competitive marketplace in general but nowhere more than when it comes to signing authors. The 25% hasn’t moved, but every book that is signed based on a competitive situation (one agent told me that’s at least 2/3 of them; one big publisher believes they compete for 95% of what they sign) is getting an advance that is calculated on a much higher percentage than the “standard”. So they “care” about the writers. If “caring about readers” is only demonstrated by low prices, then I’d say “Hugh has a point.” The problem is that the point is in direct conflict with “caring about the writers”, whose revenue is directly related to what readers pay (with only one exception: unearned advances paid by publishers).

[HH] Their own authors defend them, partly because they don’t spend any time investigating or understanding the business in which they are engaged. One Hachette author — a good friend of mine — said something to me the other day that made me realize they don’t understand how their books are ordered by retailers or delivered by the publisher. I suppose it’s okay to write books and not worry about the rest of the business, but this same author and friend had much to say about the Amazon/Hachette dispute, but without the basic understanding of how the relationship between those two companies works. Part of the blame for not knowing falls to publishers, who keep authors at bay and away from the business aspects of publishing. It was one of my primary complaints in that old blog post. Publishers need to embrace authors as business partners, and any author who hopes to make a career at this needs to be at least a little curious about how the industry works.

[MS] This slam at Howey’s fellow authors is both uncharacteristic of him and beneath him. The Hachette authors are doing precisely the same thing Howey is doing: defending their biggest source of revenue. What’s so surprising about that? And let’s not get too worked up about what people do and don’t understand. This piece demonstrates very little understanding of the economics of brick-and-mortar and the overall effort to sustain it as long as possible.

[HH] So we can see in their own slides that publishers do not have the best interests of their artists and consumers at heart. What about Amazon? Here we have a company that forsakes profits in order to pass along the savings to: A) Readers in the form of lower prices and to: B) Authors in the form of higher pay. That’s what we know today based on their actions. Of course, some interpret Amazon’s behavior as: “Once they are big enough, Amazon will gouge customers and take advantage of authors.” If you press on numbers, you might hear that Amazon will raise e-book prices to $12.99 one day and pay authors a miserly 25% of gross. Both of which are better than what publishers offer right now.

[MS] The pricing and split speculation is a pure straw horse. We know that what Amazon does today that pleases Howey also serves their larger strategic interests: growing market share and building the installed base of Kindle users. It’s nice when interests align. But what happens when they align tells you nothing about what will happen when they don’t. The recent changes that reduced author splits from Amazon-owned Audible shouldn’t be ignored in a paragraph like this one. (Emphasis here: I don’t think Amazon was wrong or immoral to have done this, but I think those making the argument that worrying about terms changing in the future is silly should at least acknowledge what has already happened!)

[HH] This bears repeating: The very worst that Amazon might do, in some hypothetical future, according to their fiercest critics, is still better than what publishers brag to their investors about doing today.

[MS] And this bears repeating. It’s a straw horse. The argument is attributed to these unidentified “fiercest critics” because it a straw horse. Pure speculation. Who knows what is the “the very worst that Amazon might do”?

[HH] Instead of operating under the hope that publishers will improve their business practices in the future and that Amazon will reverse course and start harming writers and readers once they gain more market share, why aren’t we condemning publishers for being the problem right now while celebrating Amazon for all they are doing to expand reading habits and to provide for artists? Why?

[MS] Simple answer. Because many authors are still being very well paid and well served by publishers. That’s why.

[HH] I think two reasons: The first is that we equate publishers to bookstores and Amazon to the loss of bookstores, and we all love bookstores. This is fallacious reasoning, though. Online shopping has impacted all of retail. These changes were inevitable, and they are the result of consumer choice. How those changes played out could have been publishers colluding with a distributor to price digital works higher than their paper counterparts. That would have been bad. Amazon leading those changes with their pricing philosophy has been good.

[MS] Much of this is true. Online shopping is inevitable; the pressure on brick-and-mortar is inevitable. And we all love bookstores, even though they don’t “map” into the future very well. But it is really disingenuous to just forget that Amazon benefits by brick stores going down faster and has discounted print books as aggressively as possible as well, which has contributed to the brick-and-mortar stores decline. I’m not demonizing Amazon over this; everybody has to run their own business and they run theirs very well. But let’s not pretend that altruism is all that is working here, or that changing circumstances couldn’t change Amazon’s pricing philosophy.

[HH] The second reason for the anti-Amazon bias is that some see Amazon as the giant and little old publishers as the underdog. That’s also wrong. The publishing and bookselling arm of Amazon is likely smaller than the combined earnings of the Big 5 publishers. Amazon makes a pittance on every e-book sold, while the Big 5 make out like bandits. Also, to say that these wings of Amazon’s operations are owned by a larger entity is to ignore that the same is true for the major publishing houses. If anything, Amazon is the clear upstart and underdog here. They are new to the market, rapidly innovating, blacklisted by brick and mortar retailers, setting up shop away from the established players, and ganged up on in an illegal manner.

[MS] No question Amazon gets “ganged up on”. We have two book businesses now: Amazon and everybody else. Everybody else includes publishers and retailers and wholesalers and agents and established authors. Amazon’s decision to “make a pittance” on certain products, including some ebooks, is tactical, not altruistic. I have to admit that characterizing Amazon as an “underdog” does activate the “gag reflex”. If this doesn’t qualify as hyperbole, I’m not sure what would. Let’s be clear and real: Amazon and Hachette are both leveraging their respective negotiating positions as best they can. It’s called business. (And,, from where I sit, it looks Amazon is in the stronger position, not Hachette. I’m not sure by what measurement Amazon could be considered the underdog here; I haven’t read any other analysis that makes that claim.)

[HH] I’ll go one step further and state something both outrageous and obvious: If the Big 5 had gotten together twenty years ago and DREAMED UP an ideal business partnership, one that would increase their distribution, provide excellent customer service to their readers, improve the livelihood of their authors, keep their backlists viable and books from going out of print, reduce their 50% return rate from bookstores to 4%, provide next-day and even same-day delivery, all while only costing them 30% instead of the 45% they lose to bookstores, they couldn’t have done better than what Amazon did for them.

[MS] Lots of truth in this paragraph, up to a point. Publishers (and authors) have benefited for years from Amazon’s willingness to sell books for almost no margin and by the shift from the less-efficient sales in stores to the more-efficient sales online. I spelled out clearly in my Amazon-Hachette post that Amazon has been the most profitable print account for most trade publishers for a long time. And I am happy to give them the full credit they deserve for making the commitment necessary to make the ebook business happen. That doesn’t change the reality that as their market share grows, we can see a concentration that changes what has been a good thing into a threat. For everybody else in the book business: those who are aware of it and those who are not.

[HH] Soak that in. Publishers should have engineered Amazon from the ground-up. A company that invests in distribution networks for their products rather than pocketing profits. And instead of celebrating all the hundreds of benefits, like pre-orders and customer reviews and the savings on print runs and returns that Amazon’s algorithms provide, they are trying to figure out how to put their best resource out of business. It boggles the mind. Like those authors who fear Amazon might take royalties away tomorrow, so are happy to give up those royalties today, publishers are siding with companies that are hurting them today out of fear of their greatest ally getting even more market share tomorrow. And readers and writers are the victims of this illogical behavior.

[MS] The unreality in the suggestion that publishers are trying to put Amazon out of business is mindboggling. I have cognitive dissonance. On the one hand, I believe Hugh Howey believes what he says. On the other hand, I can’t believe he believes that! Any publisher that thought this was possible would be deluded. The idea that it is some sort of deliberate strategy to put Amazon out of business is as far from the world we actually live in as the world of Hugh’s novels is.

[HH] What is the solution? As a writer, the solution is to retain ownership of your rights. This has never been more important than it is today. E-book royalty rates are going to move to 50% of net. I know from some insiders that this is already happening for top-name authors and hot new acquisitions. Selling your manuscript now for half of what it will be worth in the very near future is a bad move. It takes years for books to come to market with a traditional publisher. If that is your publishing goal, exercise a bit more patience. Hold on to that manuscript (or self-publish it) while you write the next. Let the market come to you.

[MS] This advice ignores the fact that a large number of authors got an advance that already pre-paid them for the royalties they could conceivably have earned by doing their own self-publishing when the publishers’ sales died. (Those “insiders” referred to are almost certainly talking about how the ebook component is calculated for advances paid to big authors, not a change in the contractual percentage.) Howey is conflating agreeing to a “half of what it should be” digital royalty with “selling your manuscript for half of what it will be worth” in the future. They’re not the same thing. I guess it’s just part of the campaign to find that first big author who turns down a publishing deal to do it themselves instead. To read this post, you’d never know we haven’t had one yet! (I thought we had one three years ago, but the one author who really threatened to do it changed his mind and signed a publishing deal with Amazon instead.)

[HH] The other option is to embrace a smaller press that has more flexibility. Online print book sales and e-book adoption have helped level the playing field for small publishers. They are becoming more viable every single day. These are the true Davids. They now have the tools and ability to see their works sell to a wide audience and win awards. I put them as the second best option behind self-publishing, and I include Amazon’s imprints in this category. They offer higher royalty rates and terms similar to small presses, though some have grumbled lately that Amazon’s imprints are becoming more and more like the Big 5, so watch what you sign.

[MS] I’m always happy to see smaller presses succeed, but they have a hard time competing against the Big Five, mainly because of Amazon. They are forced (by Amazon) to sell their ebooks on “wholesale” terms, which means giving much more of the retail price they set to the supply chain. This leaves them two choices. They can set a reasonable retail price (like an Agency price) and get nearly 30% less revenue than an Agency publisher. Or they can set an artificially high price and hope the retailer will discount from it. So even if they give the author a higher percentage of ebook sales, the net might not be higher. It is hard to succeed in today’s environment as a small press, not easy.

[HH] For readers, keep doing what you’re doing. Self-publishing and small presses are booming because you care about great stories, not where they come from. You are the disruptive force in this industry, and I say that with every ounce of love I can muster. Keep disrupting by doing what you do best: Read. Write reviews. Share your enthusiasm. Infect others. Spread the joy of this greatest of pastimes. And we will trust that those who cater to your needs and to the needs of the artists you admire will be the ones who come out on top. All others will need to change their ways or perish. If they do the former, let’s cheer for them. If they persist in the latter, let’s not be sad to see them go.

[MS] I am not happy to see anybody go. The desire to make villains out of the industry establishment is the most unattractive trait of what should be a hero class: intrepid authors who forge ahead without institutional support to make success happen. There is no doubt that Amazon has made that opportunity possible for most of them and it is easy to understand why anybody who has profited from the infrastructure Amazon created would celebrate it and want to see it grow. But author success has been achieved in a wide variety of ways and the way Hugh Howey has done it is still very much the exception, not the rule. We shouldn’t leap to conclusions from unusual cases. And I think it is an iron rule of nature that it is dangerous to generalize from one’s own personal experience.

I see from a subsequent post of Hugh’s that he will be in Toronto this week at Book Summit, as will I. I hope we’ll have a chance to have a Diet Coke and talk about this while we’re up there. My Logical Marketing Agency partner Pete McCarthy and I are kicking off the show on Tuesday morning. I always love visiting Toronto.

Digital change has forced many book publishers to rethink the mix of their lists. The most obvious aspect of that is the need for increased vertical-, topic- or audience-consciousness. In the days when bookstores did most of the selling, all publishers could reach audiences in stores by being displayed in the right section (or sections). In fact, stores figured that out pretty well whether publishers guided them or not. What constituted a sophisticated capability for the very general part of a general trade list (almost exclusively for non-fiction) was recognizing any multi-section shelving opportunities and having the persuasive power with a store to get it. Of course, computers and the exigencies of managing stock in far-flung outlets made that very challenging — if not impossible — to do with bookstore chains.

But all publishers now to varying degrees are trying to execute digital marketing. Even for SEO alone, an understanding of the audience is essential. (Most publishers don’t accept this yet, but my Logical Marketing partner Pete McCarthy says you have to do a couple of hours of audience research to properly position just about every title!) But to really reduce per-title marketing costs, publishers have to “gather” audiences (through web sites or apps or by collecting email addresses) that can be addressed to sell book after book. That requires that the books be selected to allow for repeated marketing to the same groups of people.

Yet another prism through which to view a publisher’s list is breaking down which titles work as ebooks and which ones don’t. Many publishers are looking at illustrated books differently because they haven’t worked well as ebooks. That’s increasingly critical because the print marketplace is shrinking as ebooks replace print for a lot of immersive reading.

Publishers are justifiably nervous about this transition. As the market becomes more and more ebook-centric, protecting revenue is a growing concern. Top line prices and publishers’ net revenue per copy sold have come down already and will continue to. A powerful player we all know has a growing market share and seems increasingly inclined to demand a bigger cut. Publishers and agents have been worried that subscription services could siphon off parts of the market and further erode margins.

Their resistance has been so strong that the two biggest entrants in that channel, Scribd and Oyster, are apparently paying heftier-than-retail percentages to secure the rights to include major publisher books in their offering, which makes some people (including me) question the sustainability of their model.

While I think general publishers’ tentativeness about subscription services is sensible, I don’t think it is equally sensible across their lists. Publishers need another prism to sort this one out. They need to think about their “chunkable” books — the ones that are least likely to be read from start-to-finish and most likely to be useful in bits and pieces — separately from their immersive narratives.

It is the immersive narratives whose economics are threatened by subscription. And it is the chunkable books, which include most of the illustrated books they publish but also include many others in self-help, business, and reference, which don’t work as ebooks in the individual sale model. Because the Scribd and Oyster subscription compensation is only triggered by a minimum (but publicly unspecified) amount of the book to be read, they aren’t likely to be remunerative in that context either.

But there is actually a way for all publishers to deliver digital revenues for the chunkable content they own which has very little stand-alone ebook market. (I really never thought it would; it made me think about “the unit of appreciation and the unit of sale”.) And the fact that so few of them — none of the big ones — have employed it so far makes me think that they are neither making this distinction around their own content nor looking at subscription in the nuanced way they should.

The opportunity to which we refer here is the granddaddy of digital book subscription services, Safari. They are quite different than Oyster and Scribd. First of all, they are primarily B2B, not B2C. They are too expensive a service to be for pleasure or consumer use; they are intended to be a professional tool. Therefore, most of their subscribers access their content under an annual per-seat software license bought by a big company or government entity.

The second thing that makes Safari different is that they don’t expect full book consumption to occur very often, if at all. Most of the technical and professional books in the repository are extracted and read topically. The attraction of the service is not so much that you can read any book you want, but that you can get a variety of presentations about how to understand something or solve a particular problem.

And Safari’s business model is different from Scribd and Oyster too. The way they do it — paying from a monthly revenue pool on a pro-rata basis divided among the content consumed in that month — appears at first glance to be less attractive to trade publishers than the high purchase price Scribd and Oyster pay when the (unknown) theshold of use has been passed. But for chunkable books, which are very unlikely to be consumed in their entirety and would often, if not usually, serve a purpose to a consumer without triggering the purchase threshold, it should actually be seen as a better model for the publisher.

The subject arises because Andrew Savikas, the CEO of Safari, recognizes that the million of users he has at companies like Bank of America, Boeing, and Oracle (for example) are people as well as professionals. So while they need the technical content that motivated those companies to subscribe them to the service, they also have health, career, diet, and investment interests that it would be a great convenience for them to be able to satisfy within the service. This raises some obvious questions for Safari (“how would Boeing feel about this?” was the first one that occurred to me) but we need not be concerned about them. Savikas runs Safari, and he is convinced that he wants this kind of non-technical content to make his service more attractive and lucrative. He said his data shows much of the consumption of this kind of content happens “off-hours” and is seen as an employee benefit.

This presents publishers with a pretty sizable opportunity that is perhaps being lost in the generalizations about subscriptions and preserving revenue and what works in digital form. Since most big publishers have cookbooks, business and personal finance titles, reference books, and illustrated how-tos on their backlists that are starved for digital revenue, whether they’re likely to sign more of them as the industry changes is irrelevant. These backlist books could be producing cash for the authors and publishers right now through Safari and any “risk” involved is not apparent to me. Frequently the revenue would be significant. At the same time, Safari would be providing “discovery” opportunities for those books with very large audiences: millions of well-employed people, many of whom don’t shop in bookstores — online or physical — very often.

And the books that are discovered on Safari can be readily purchased. Safari invites publishers to give them a URL of their choice for a purchase link. (They offer as evidence that they move books in the long tail that the most-purchased book on their site right now was published ten years ago.)

I don’t quarrel with skepticism about the subscription business model for the immersive reading that constitutes most of a general trade publisher’s list. But holding back the chunkable books from Safari is depriving those books of revenue and exposure to audiences with intent in a way that will almost certainly not cannibalize other sales. Big trade houses will be doing fewer of those books in the future, but that’s no reason not to generate the most exposure and revenue they can for the ones they have.

The last three posts, the most recent one on what I thought was missing from the Amazon-Hachette coverage, one on subscriptions and the first one I did about Amazon-Hachette, were not sent out by the Feedburner service that delivers email versions of the posts to subscribers. I suspect this one won’t be either. Until we move to a new distribution capability, I’ll continue to link to the undistributed posts with each new one, as I’ve done here.

A great deal has been written in many venues about the current tussle between dominant Internet retailer Amazon and one of the three smallest of book publishing’s Big Five general trade houses, Hachette Book Group. Although neither side has been particularly explicit about the precise points of contention, both what I read and what I hear tell me that the argument is about adjusting the ebook sales terms that were first hammered out in the doomed initial Agency implementation and then modified by a settlement reached under the Court’s direction. That settlement restored Amazon’s ability to discount from the publisher-set agency price (which pretty much defeated the purpose of agency from the point of view of the publishers who implemented it) but did not change the 30%-of-agency-price margin that had been established. Expanding that margin seems to be Amazon’s current objective.

My “position” on all this is that it reveals an imbalance that only the government can fix. I don’t know enough about the law to have an opinion about whether Amazon is abusing its marketplace power in an illegal way (although some seem to think they are), but I am quite sure (and so is an op-ed from the Wall Street Journal) that there is not a lot Hachette (or most publishers) can do to resist Amazon’s demands except suffer and hope the suffering is mutual. Hachette has gotten some recent strong support in the marketplace from some of Amazon’s competitors. Little fledgling retailer Zola started it, but Books-a-Million, Walmart, and now Barnes & Noble have joined to push and discount the books that Amazon is trying to bury. It would surprise me if their efforts covered Hachette for half of what they’ll lose.

Even when I’m credited by somebody else with coming up with a suggestion — raising the author split of ebook revenues so that the publishers don’t wave fat ebook margins in front of observant and powerful retailers — that would have made Hachette’s position stronger had they accepted it, I am dubious that the publishers can do much about this. Nothing publishers can do — or could have done in the past — would change the fact that Amazon controls anywhere from 35 to 75 percent of the sales for most trade books. Anybody with that much market inside its corral can charge a considerable toll for getting inside its gates.

For all that has been written, there are some critical points that I think have not been made as often or as emphatically as their importance warrants.

1. Amazon used the book business to build an enterprise no longer dependent on books. Although the executives at Amazon I know maintain that they have always had a “profitable” book business (and I don’t doubt them), the company has famously been willing to live with less margin than its retailing competitors. That takes the oxygen out of the room for any retailer competing with them within the four walls of the book business. Amazon has skillfully used books as a customer acquisition tool and focused on the lifetime customer value across product types, not the margin that could be earned from the book business alone. There’s nothing morally, ethically, or legally wrong with that, but it has been steadily demonstrated for the past two decades (and acknowledged on this blog years ago) that it makes it very hard, perhaps impossible, for somebody retailing books alone to compete with them.

2. Partly as a result of that, Amazon has changed the book business ecosystem. It was almost certainly inevitable that more and more book business would move online. But the consolidation of all the online business in one place — helped along by Amazon’s skillful integration of the used book business (the dimensions of which nobody knows much about) and their market-making Kindle initiative (more about which below) has created a distribution and revenue-source imbalance that publishing has never had before.

3. Amazon, at great expense and with great vision, made the ebook business happen. Before the Kindle, the ebook marketplace was small and unambitious. The biggest player in terms of sales was Palm, which wasn’t really interested. The most interested party was Sony, which repeatedly tried over more than a decade to establish some sort of ebook device and ecosystem. But Amazon made a significant corporate commitment — creating the Kindle device, pressuring the publishers to make much more of their catalog available as ebooks, and investing heavily in discounted sales and screen real estate to build the consumer market. When B&N with Nook in late 2009 and Apple with iPad and iBookstore in early 2010 entered the market, they were attempting to capitalize on a product class that Amazon had pretty much single-handledly created.

4. Amazon is just about every trade publisher’s largest and most profitable account. (Academic and professional publishers, which operated on “short” or “professional” discounts in their interactions with retailers, have been pushed way up on discounts so this generalization usually doesn’t apply to them.) Amazon is a unique account for publishers. They sell both print and ebooks and they sell them globally. Because they don’t have to stock tens or hundreds of far-flung stores, their efficiency of sales, as measured by their very low returns, is almost certainly the highest among retailers and probably the highest of all accounts (including the wholesalers Ingram and Baker & Taylor, which can also be pretty efficient). Amazon has no interest in being anybody’s most profitable account; what the publisher profitability suggests to them is that their efficiencies are responsible for a lot of margin generation and they are inclined to want more of it. From Amazon’s perspective, being equivalently profitable to other large accounts is “generous” enough. From many publishers’ perspective, the enormous marketplace control Amazon has was built on the back of the publishers’ and authors’ intellectual property. With Amazon now having effectively replaced large components of the marketplace: Borders being gone and Hastings in the process of going, the independent channel a shadow of what it was a decade ago (despite recent signs of “growth” that might just be partial replacement of Borders demand), and B&N — at the very least — slowly shrinking its store footprint, publishers rely on the margin Amazon provides.

The contradiction here, of course, is that the high relative profitability is all created by efficiencies in the (shrinking) print marketplace. Amazon wants to take the margin back on the (growing) ebook side.

5. Amazon wants lower prices for consumers — at least right now. (They’d say it is a core value and they’ll want it forever; there is room for an honest difference of opinion about how they’ll feel about it when their market share rises further.) Everybody else in the book business (authors, agents, publishers, other retailers) want prices at the very least maintained and probably would prefer they rise. This is the crux of the publishers’ problem with the government and with some quarters of public perception. Lower prices for consumers is catnip for politicians. They simply can’t resist it.

6. Amazon pays amateur authors, often unedited, who upload files not yet ebook-ready to them and don’t know anything about marketing or metadata, as much as 70 percent of retail if they meet certain exclusivity and price stipulations. (Obviously, there are great gems among those, but they are still mostly unproven, unknown, and unsuccessful.) They are apparently fighting hard to avoid giving Hachette — which invests substantially to be consistently superior to a fledgling author on all these counts — the same cut.

7. In the course of building the powerful position they now occupy, Amazon both made substantial infrastructure investments and subsidized sales for publishers through heavy discounting, sometimes below the price publishers charged them for the goods (particularly for ebooks in the days before agency pricing). Very few publishers complained about Amazon’s deep discounting of print books in the late 1990s when it began. Amazon’s pricing strategy discouraged many brick-and-mortar retailers from even entering online selling at that time (which, of course, must have been part of the calculus that motivated them to do the discounting the in the first place) but publishers just benefited through greater sales.

8. Hachette is, essentially, tied with Macmillan and Simon & Schuster for third place among the Big Five publishers. HarperCollins is twice as big. Penguin Random House is more like five times as big. This fight is already being costly to Amazon’s reputation among authors (many of whom, including Malcolm Gladwell, John Green, James Patterson, Charlie Stross and Michael J. Sullivan, have been heard from directly) and can’t be well-received among consumers. They’re not likely to try the same tactics with PRH. That means PRH is the most significant beneficiary of what is now going on. If nature takes its course, they should have much better terms than the other big publishers after this round of negotiations over new terms is concluded. That, along with their deepest pockets and excellent execution, puts them in a position to take down their competitors author-by-author, or editor-by-editor.

In some ways, the die for a reshaped publishing business was cast when Jeff Bezos had the vision to get Wall Street to finance an “everything store” (hat tip to author Brad Stone) built on a foundation of book-buying customers. Amazon has plenty of internal justification for believing that their investment and risk-taking has been a huge benefit to publishers for most of the 20 years of their existence. But that doesn’t change the fact that an imbalance exists that will feed on itself. Amazon will grow at the expense of all other book and ebook retailers and Penguin Random House will grow at the expense of all other trade publishers. Smaller publishers have already felt the pain and self-published authors will in the future. That’s what will happen naturally and organically from now on, unless a stronger force intervenes, and on the right side instead of the wrong side the next time.

The last two posts, the most recent one on subscriptions and the prior one about Amazon-Hachette, were not sent out by the Feedburner service that delivers email versions of the posts to subscribers. I suspect this one won’t be either. Until we move to a new distribution capability, I’ll continue to link to the undistributed posts with each new one, as I’ve done here.

My long-held conviction that broad-based subscriptions for ebooks were not likely to work is partly based on facts that are now changing. It is still by no means a slam dunk that ebooks must go where Spotify has taken digital music and Netflix has taken the digital distribution of TV and movies, but it looks more likely today than it did six months ago. Still, looks could be deceiving.

The core of subscription economics is to pay less to the content supplier than they earn other ways to give you some headroom to create a value proposition for consumers. That’s how Spotify and Netflix work. That’s how Book-of-the-Month Club works.

And what happens over time with subscription services is that the power of “brand” passes from the individual titles (and authors) to the subscription service itself. In order to attract customers, a subscription offer depends on recognizable branded product to bring people in. But, over time, the value shifts. Eventually, a subscriber-reader can become used to choosing from what the service offers and will either not know about, skip, or accept purchasing the occasional book s/he wants outside the service if it isn’t offered inside. (A varient of this reality is playing out now in the Amazon-Hachette dispute, where Amazon’s brand power, including people who have a subscription to PRIME free freight, makes any particular publishers’ books subordinate to the seller’s brand with the consumer.)

None of this is particularly startling or insightful. Every agent for a big author knows it. Until very recently, that has meant that big publishers did not put the big books from big authors into these services. When the first shoe — the HarperCollins shoe — dropped and the second biggest trade publisher (and by far the largest of the four majors who trail Penguin Random House) went into Oyster and Scribd several months ago, I should have taken on board that the perception of agents must be changing. Now, with S&S having joined them, and with major authors included in the offerings from both companies, it is clear that agents are withdrawing their objections.

There are three reasons for this.

One is that the incumbents in the book business are circling the wagons against the dominance of book retailing’s most powerful brand: Amazon. As the market share of and customer loyalty to the industry’s biggest player grows, other dangers — such as those posed by subscription services if they mature — look relatively less onerous.

The second is that publishers and agents love the opportunity to establish that if subscription services want to “play” in publishing, they’ll have to pay for each ebook on a purchase deal. That is: the subscription services are establishing their “model”. And the publishers and authors are also establishing theirs!

The last is that the two big current subscription efforts are disdaining the fundamental economics to get their services started. The current model, as outlined by S&S CEO Carolyn Reidy in a letter to agents announcing her house’s participation, is that the service buys a copy of the book at “full price” when a “a certain threshold of reading has been surpassed for a given title”. But her letter also suggests that authors make even more money on these sales than they do on normal sales, which implies that Scribd and Oyster are paying more than 70 percent of the retail price for the privilege of using these books. (I have heard a range of numbers for where the threshhold of use to trigger payment is, from 10% to 40%, but I have no idea what it is and how it might differ among publishers.) Whether they’re paying 70% of retail or more, that means that it would take no more than two full-priced S&S or HarperCollins (assuming they have the same deal) titles a month to cost the service more than the revenue from a full-freight subscriber. And if the subscriber came through iOS, Apple’s 30% cut off the top would mean that even one major publisher ebook being read in a month will likely put the service in a deficit position.

Even when the purchase model is favorable, which this one appears not to be, it has been generally understood that the viability of a subscription model depends on what is called “breakage” or “health club economics” to succeed. They count on the expectation that relatively few subscribers will read and trigger payments on two, three, four books a month compared to many who will read one or less than one, or who will choose from among books (like public domain titles) that cost the services less or nothing.

The first of the subscription services for books — Safari — used a model that is much safer for the services because it assures cost stability, assigning a percentage of the revenue as a pool to compensate publishers rather than guaranteeing a purchase for every read as Scribd and Oyster are doing. I expect the purchase model to be very difficult, if not impossible, to sustain. But persuading the big players to come in depended on getting away from the safe “pool” model and purchasing the ebook anew for each new user.

A huge danger for the subscription services is the likelihood that subscriptions will be shared within families (let alone within dormitories!) That could drive up the average use per subscriber very quickly if it isn’t controlled.

Only now, with two of the Big Five in the game, giving the services about a third of the most commercial backlist titles in publishing, can they really find out whether the price-and-cost model they’ve set up will work to give them a profit. (It is important to note that HarperCollins and Simon & Schuster only put backlist titles into the services, so the most attractive commercial titles, which are new, are not part of the offer. This also means that all shoppers and purchasers of new titles will continue to use the stand-alone purchase model.)

I’m sure Scribd and Oyster have data and analytical skills that I don’t have. But, intuitively, this seems like a tough proposition. Subcription services are attractive to consumers because they’re bargains. If you normally read a single ebook or month or fewer, the $8.99 monthly subscription charge would not seem attractive. But if you read an ebook or two a month or more, the services will likely lose money on you.

Meanwhile, there are two players currently sitting on the sidelines that could really disrupt the subscription incumbents (which also include Spain-based 24Symbols, which has been around much longer than Scribd and Oyster but which hasn’t succeeded so far at bringing in the big publishers and the big books.)

There are rumors that Amazon is already canvassing for participants to deliver a subscription service of their own. Of course, they really already have one. Their PRIME subscription offer, for which the headline attraction is free shipping of hard goods, also includes access to the “Kindle Owners Lending Library”, which is effectively a broad-based ebook subscription service with some limitations and a far less robust title selection than Scribd and Oyster. Amazon could find ways to expand that. Will they match the implied compensation from Scribd and Oyster and pay more than the 70 percent which is the current standard for sales by agency publishers (which, therefore, becomes the basis for royalties to big authors)? One would suspect they would want something in return for that: exclusives, perhaps, or earlier access to the titles than Scribd and Oyster have.

Of course, Amazon (or Google or Kobo or Nook or Apple) would have an automatic advantage over the subscription incumbents if they decided to compete with them. Because they already sell all the books, they could sell you the books you wanted that weren’t in the service as part of a single offer.

The other future player of consequence is Penguin Random House, which by itself has well-known commercial titles that exceed in number what the services would have even if they signed up one more of the remaining big publishers. Hachette’s chief marketing and sales officer, Evan Schnittman, is quoted by the Wall Street Journal saying that this model is “not for us”. That leaves Macmillan, but even if Scribd and Oyster get them, PRH could have the most attractive title base on offer all by itself.

When I speculated some time ago about the opportunity PRH had to do this, one of their executives set me straight about why they wouldn’t. What I was told was that PRH was not thrilled by the idea of turning $500 and $1000 a year book customers into $100 a year book customers. Of course, that calculus changes for them if others are succeeding at doing that, and those new $100/year customers are then one step further removed from buying PRH books.

If PRH did this, they’d have one big decision to make: do they attempt to include the biggest titles from the rest of publishing in their offering or not. They’d already be starting with the most attractive title selection, but the Scribd and Oyster assortments would be competitive. If they went for some of the rest — even if only the top 10 percent of the rest — PRH could present a noticeably more attractive selection than Scribd or Oyster.

Would other publishers go in with them? I’d say, “probably”, because they can’t afford not to have their biggest books exposed to all possible substantial audiences, and PRH would almost certainly have the biggest subscription audience.

Would Penguin Random House want them? I’d say, “probably” again. It would stamp their offering as by far the best, and they’d still be advantaged dealing with authors because they’d be the only publisher not paying a third party to get the subscription revenue.

If “fear of Amazon” is the factor that made big agents relent in their opposition to subscription, would they also support joining an Amazon subscription service? That’s a trickier call, but as noted above, Amazon would have the capability to sweeten their offer to make it more compelling if that’s what they had to do.

But the main thing that works in favor of participation, now that the dam may have broken, is the psychology of trade publishing. Every big trade publisher has grown to be what they are today by selling their publications through intermediaries. Bookstores and then Amazon became the “gatekeepers”, owners of the customers. There was a symbiotic relationship: the retailers depended on publishers to deliver products to please their consumers and the publishers depended on the retailers to merchandise their offerings and manage the transactions. Access to a retailer’s customers first depended on getting your offerings into their store and then on having them be seen by the largest possible number of the store’s customers. That meant front tables and face-out display in the physical world; it means the right screen real estate, recommendations, and response to search terms in the virtual one.

That’s why the current hegemonies of Barnes & Noble and Amazon are so disconcerting to publishers. And that’s why the potential control of customer access by Scribd or Oyster might now look more like counterweight than threat.

Of course, it is also possible that the price-and-payment models Scribd and Oyster have begun with will prove unsustainable and that HarperCollins and Simon & Schuster — and their authors — will simply be the beneficiaries of a short-term bonanza financed by money that took a flyer that didn’t pay off. (And they’re not done taking those flyers.) That seems to me at least as likely as an outcome as these broad subscription offers becoming a permanent part of the bookselling landscape.

A lot going on around our place, so we haven’t had the time to switch away from what has become the horrendous service from Feedburner distributing The Shatzkin Files to its email subscribers. This one from last week on Amazon and Hachette (which is also linked to above) never was sent. (Of course, as I write this, who knows if this one will be or not?) It was written before the latest escalation where Amazon has removed pre-order buttons from Hachette book, a nasty blow that makes getting books on the bestseller list the week they come out very much harder. A lot has been written on this subject, but I think it still delivers some consideration of what it all means that hasn’t been picked up anywhere else.

The current very public battle over trading terms taking place between Hachette Book Group and Amazon has brought forth surprisingly few recollections by those reporting it (an exception here) of a similar fight last summer between Simon & Schuster and Barnes & Noble.

This is publishing’s near-term future. The two most powerful channels that deliver books to consumers — one dominant in online transactions and one dominant in physical store presence — are determined to wrest more margin, which ultimately also means more pricing control, from their publisher trading partners.

The B&N dispute becoming public was a first for them. The only prior disputes between a publisher and a trading partner that had ever leaked beyond the buyer-and-seller that I can recall involved Amazon, and they were rare. The first was when Amazon took the buy buttons off Macmillan books in 2010. That was a vain attempt to stop the industry from going to agency pricing and it lasted only a few days. They pulled back so quickly from that effort that I concluded that their famous customer-centricity made punishing publishers in ways that were evident to their shoppers (which this one, which also became public, really was not) something they’d decided was not in their best interests.

Drawing that conclusion was apparently a mistake.

What B&N did with S&S, apparently, was simply to stock less of what the publisher was selling and to deny them promotional opportunities. That’s not obvious in a retail store. Books that aren’t there, or which aren’t there in quantity, are not apparent. Bookstores can be out of any particular book at any time without surprising anybody and it would take a uniquely aware book consumer to notice that something new and hot wasn’t displayed as prominently as would be expected.

But Amazon’s action against Hachette was much more visible. Marking Hachette books, which include titles from many very prominent authors, available only with substantial delivery delays, was bound to be noticed by customers and by the industry at large. And, on top of that, pushing customers to consider alternatives to Hachette authors based on price is particularly inflammatory. Authors have reacted publicly. One also has to believe that there must be a substantial overlap between Prime customers, Amazon’s best, and readers of the illustrious Hachette author list, led by James Patterson for fiction and Malcolm Gladwell for non-fiction. But Amazon felt the fight was worth whatever pain they inflicted on their best customers.

I had thought the immediate catalyst for this conflict was that Hachette was the first publisher negotiating a new deal to replace the court-imposed agreements following the agency collusion case. Apparently that is not the case. Nobody is telling me what Hachette is trying to achieve in these negotiations. One would expect that print book margin, ebook margin (often affected by various co-op fees), and ebook pricing flexibility are probably the key moving parts in the negotiation.

But the details don’t really matter. What is important to understand is how, with one exception, the power has passed from the publishers who control the distribution of copyrighted material to the retailers who control the customers. In the past, the pain for the retailer living without ready access to the most commercial books was much greater than the pain for the publisher without ready access to one retailer’s customers. Not any more.

But there is that one exception: Penguin Random House.

One former executive from a big house in a private conversation attributed the fact that PRH doesn’t ever seem to be subject to Amazon’s bullying to the fact that PRH’s second-ranking executive, Madeline McIntosh, had a brief interlude as an Amazon executive between her former and present tenures at PRH.

But I doubt that’s the answer. There’s a simpler one. PRH is too big to bully and nobody else is.

Roughly speaking, PRH has 40-50 percent of the commercial trade books (very few of which are not published by the Big Five). The other four houses divide the rest, with HarperCollins substantially bigger than the other three: Hachette, S&S, and Macmillan. The high-profile books that people would expect to find readily available break down along the same lines, so approximately 50% PRH, 20% HC, and 10% for each of the other three. That means that punishing HC the way Amazon is now doing with Hachette or that B&N did with S&S is about twice as painful in disappointed customers, and punishing PRH would be five times more painful. I suspect that will be the difference between doing it and not doing it.

In the ebook world, where the author royalty is normally a percentage of the publisher’s receipts, giving more margin to channel partners directly affects the authors’ cut. In the print world, most contracts with big publishers are still based on the publisher’s suggested retail price, so the impact is cushioned. But any change that reduces publisher margins is likely to have an impact on authors sooner or later, leaving less in the pot for advances or promotion. I thought a couple of years ago that perhaps it was unwise for publishers to keep so much margin rather than giving it to authors because it made them a fatter target.

Of course, both Amazon and B&N have plenty of reasons to feel justified in pressing for more margin. Amazon, with its low returns, has historically been many publishers’ most profitable account. B&N knows that their stores are “showrooms”, driving sales at Amazon as well as in their own stores. Amazon has no reason to want to be the most profitable account for publishers on the back of their own investments, efficiency, and customer loyalty. B&N wants the publishers to pay for the value they reap from being on B&N shelves that is not resulting in B&N sales.

And both companies have ample reasons to feel financial pressure of their own. Amazon is historically unprofitable and riding a stock price that depends on confidence in their future that they both must continue to justify and maintain a healthy fear of losing. B&N is dominating a shrinking sector and its own vaunted supply chain efficiencies are bound to diminish as both the number of stores and the sales per store continue to decline. Neither of them feel they can afford to subsidize publishers. Both are perfectly comfortable using their marketplace leverage.

So the squeeze on Penguin Random House’s most immediate competitors — the houses I call the Following Four — will continue to tighten. (As will, of course, the squeeze against their less-direct competitors among small and mid-sized publishers.) It seems inevitable that a margin gap between what PRH earns on sales to the industry’s biggest customers and what the others get will grow with every new round of negotiations on terms. I have thought for some time that PRH would create an advantage in proprietary distribution that, combined with its bigger-than-all-others checkbook, would enable them to pluck authors away one by one. Now we see the likelihood of another, more immediate advantage: better margin on every sale from what are already the industry’s biggest accounts.

Over the past decade, we have seen online sales consolidate in one big account and bookstore shelf space consolidate in another. Unless something changes the negotiating climate, the next ten years is going to see similar consolidation on the publishing side.

Amazon is a global company and the tactic of pushing for more margin is not confined to the US. And being the “Penguin Random House of Sweden”, which Bonniers is, apparently does not insulate them from facing the same tactics Hachette is currently coping with.

When you’re trying to figure out what will happen in the book publishing business in the years to come, any prediction depends on how things work out that are beyond the control of the business, and sometimes well outside it. This will be increasingly the case if the book business, in what has remained a fairly lonely expectation of mine, is increasingly the domain of people who aren’t publishing or selling books as a primary commercial activity, but as an adjunct or complement to some other principal objective.

This past Sunday’s New York Times tackled the question of disruptive change in the world in general with a graphic report created by Claire Cain Miller and Chi Birmingham, based on the predictions of a panel of expert technologists and futurists. They asked four questions:

What far-off technology will be commonplace in a decade? Among the suggestions were that we’d see thousands of drones, chips implantable in humans that would deliver access to all one’s devices, and personalized medicines crafted to your specific DNA.

What industry will tech put out of business next? Among those predicted to meet their demise were higher education, the auto industry from drivers to mechanics, airline pilots, and consumer banking.

What technology will seem antiquated in a decade? The nominees here included email, computer keyboards, chargers, keys, and cash!

What is the next issue to undergo a sea change in social acceptance? Future targets from currently acceptable endeavors include football, factory animal farming, and ubiquitous recording and surveillance.

That’s quite an agenda for the next ten years.

There is logic behind all these predictions and the list of those contributing thoughts is stellar, but I daresay few of them are based on data as much as on insight. There’s no data to predict the end of wired charging or banks, or even to predict that football will become massively scorned. But there are straws in the wind for all of them.

So it is when we think about the future of publishing. There are things we simply can’t know for sure, subjects about which a range of outcomes over the next ten years is certainly possible, that will have a profound effect on what book publishing will look like — as an industry and more broadly as an activity — in ten years.

Here are some of the key questions, to which I’m quite convinced nobody can be sure of the answers, that will affect what publishing will look like ten years from now.

How persistent an activity is immersive long-form reading? There are all sorts of threats to it. Perhaps it is needed more than ever as an escape from the ever-more-intrusive demands of connected daily life, but it is also undermined by the accelerating pace of everything else. It is hard to discern this because each person’s personal reading patterns change over a lifetime. We’ve always sold more books to older people than younger ones, with exceptions for cultural phenomena that sweep through the young (Harry Potter, Hunger Games, Twilight). Long-form reading has always been required in schools, but as humanities increasingly take a back seat to more “practical” education, can we count on that continuing? It seems hard to build a case that long-form reading won’t be reduced per capita because of the ready availability of so much else and an increasing societal tendency toward short attention spans. (And that last is my impression, not one I can defend with data.)

As my generation is replaced with digital natives, a decline in the market for novels would seem to be a very likely consequence. Or, at least, novels as we know them now.

How persistent is the demand for printed books for long-form reading? The ebook revolution is in its seventh year, if dated from the launch of the Kindle, which was when explosive growth began. Over the past year or two, the explosive growth has stopped and there is the belief in some quarters that many consumers are still expressing a preference for printed books for long-form reading over digital ones. That’s probably true. A recent Harris Survey of Internet-connected adults said that 46% exclusively read print books and only 6% only read ebooks. The remaining 48% are pretty evenly divided among those who read more print, those who read more ebooks, and those who read about the same number of each.

My hunch, again offered without the support of meaningful data (because there would be none), is that ebooks will continue to take share from print for long-form reading, in fits and starts, but inexorably. The logic behind that conjecture is simple and two-fold. One side of it is that the print book experience won’t improve and the ebook experience will. With the first blush of fascination with “enhancing” ebooks by the insertion of distractions passing and real enhancements (the static dictionaries improved into author-built glossaries, improved bookmarking and page-flipping navigation, excerpt-sharing enabled) bound to become more common, there will become more and more reasons to prefer the digital version. (Even the killer app of print — the ability to write notes or underline — will ultimately be digitally-enabled in a ubiquitous way.) The other reason is that the proliferation of (mostly ebook) titles in the marketplace, hand in hand with diminishing shelf space for (mostly printed) books in stores, will increasingly drive online purchasing, which favors ebooks over print.

It wouldn’t take a big change year-to-year for the numbers of exclusive print readers and exclusive ebook readers to be reversed over the next decade with half continuing to do some of each. Since each reader shifting her preference from print to digital further undercuts the support for shelf space, you have (depending on your point of view) a virtuous circle driving ebook growth or a vicious cycle working against print. And against stores.

How well do informational illustrated books compete with alternatives? The informational illustrated book business, largely instructional, has not fared well in digital form. While the share of ebooks for immersive reading has generally ranged from 20% to more than 60% depending on the subject or genre, the numbers are a sliver of that for illustrated books. This has put pressure on illustrated book publishers to make the most of stores, to find direct paths to their customers, and to make the most of the global opportunities for print sales. My candidate for a Black Swan here is some industrial-strength attempt to curate the vast amount of video and other Internet-based content into “packaged” competition for books that teach skills. Just as MOOCs are disruptive to colleges and educational publishing (note the prediction in the Times story that higher education would be “put out of business” in the next ten years), the dagger that will prove mortal to much illustrated publishing may already exist.

Visuals and illustrated books and doing the things people use illustrated books to do (knit, garden, decorate a room) are not my personal milieux, as everybody who knows me personally will attest. But I’d suggest there’s a business out there with which I personally promise never to compete — assembling the library and creating the directory of the publicly-available material that would substitute for these books. Somebody’s going to do that in the next ten years. Here’s an example of something that points in the right direction, but I don’t think can solve the problem in the way I’m describing. Other nods to this idea exist in many verticals, albeit most likely in less-cohesive forms — wikiHow, Google searches, YouTube playlists, internet discussion boards and forums — but they really only hint at the solution I’m imagining.

How much of the creation and selling of books spreads beyond the book business? One of the leading Anglo-American CEOs pointed out to me many years ago that the day had passed when he could just call the CEO of his biggest accounts to discuss a problem. Retailing of print books requires Amazon, for whom it might be 10% of their total business and Walmart (is it 1% of theirs?) in the US, supermarkets in the UK. Global retailing of ebooks, with everybody in the publishing business rooting for Barnes & Noble to crack this, is in the hands of four companies — Amazon, Apple, Kobo, and Google — all of which employ book retailing as a strategic component of a larger endeavor.

So far, the publisher side of the value chain has not been affected by the same phenomenon, but I think it will be, in a very different and more disparate way. The concept of “content marketing” hasn’t really discovered the book business yet, but it will. Athough there are a handful of exceptions, today they are just the straws in the wind that indicate the possibilities.

I’m sure that in less than five years every multi-million dollar marketing plan will have an ebook component: sometimes free, sometimes freemium, sometimes paid. Over time the businesses that do this work will learn, probably faster than many book publishers, how to use the online discovery mechanisms to drive the attention of relevant consumers. And part of what could be a tsunami of new competition is driven by another reality: anybody who creates content for any other (usually advertising-supported) audience can carve up or recombine or represent their content as a competitive book product. It takes an organization and much more sophisticated expertise around subscription management and advertising for a book publisher to do online magazines (although it is a reasonable thing to try).

Because of self-publishing authors and public domain title miners, the new titles currently flowing into the marketplace are already coming more from non-traditional publishers than from the establishment, creating an ever-growing challenge around discovery and branded authority. If an ebook publishing program becomes a standard component of branding and corporate and consumer marketing over the next ten years, the new competitors to publishing as we’ve known it will be coming from a flood of well-marketed content whose purveyors may not have to make a profit from it. Imagine what happens to fiction publishing if Hollywood figures out that ebooks and marketing them is a far better development tool for a motion picture or TV show than the fourth rewrite of a script!

Ten years is a long time and a long time allows for some pretty radical predictions. Last week I was on a subway platform with hundreds of people, noticing that virtually all of them were looking down at a device in their hands. I was thinking, “my Dad died in 2002, he never saw this. My Mom died in 2007, she never saw this.” Ten years ago, I think few would have predicted that the number of people on a subway platform looking at devices would outnumber those reading newspapers by 50-to-1 or more. Maybe ten years from now we won’t have keys or cash. And maybe there will be very few people reading paper books.

There’s little doubt that the digital (r)evolution, to the degree it is measured by the shift by consumers from reading on paper to reading on a screen, has plateaued, at least temporarily. The most recent article in PW on the subject spells out that some publishers have even seen their digital sales decline, although always with an explanation. (Houghton Harcourt had strong Hobbit sales the prior year they couldn’t match, just as Random House did with 50 Shades.)

Last week I spent a very pleasant hour reviewing the state of the industry with one of the big company CEOs. This executive seemed to be enjoying the opportunity to take a breath. For several years, s/he reported (no gender hints here; I’m preserving anonymity), there were regular “all hands on deck” conversations about policies that needed to be set. These were very large decisions as rapid shifts in sales took place from the well-understood economics of print to the developing economics of digital: the agency model was put in and then modified by court fiat, new methods of marketing needed to be employed, and the decisions about what to pay for new title acquisitions had to be made within a rapidly-changing revenue context.

I think the notion that the dizzying change we saw take place for several years, starting with the introduction of the Kindle and accelerated by the introduction of iPads and other tablets, is now behind us is probably accurate. Both the CEO I was talking with and PW are right. But that doesn’t mean change is over and it doesn’t mean all of today’s incumbents, many of which among the publishers and indie retailers seem to be riding a rising tide of profitability, can assume stability going forward.

Even though the biggest disruptor of the digital era — the shift of reading from paper to screens — has slowed down to a slow walk (at least temporarily), all of the players in the book business are still dealing with disruptive forces that won’t be as dramatic, but which will continue to be inexorable.

1. Even if the shift away from reading on paper has slowed down, the shift to buying print online probably has not. Since the number of titles continues to grow rapidly and bookstore shelf space has still declined (yes, there are reportedly some thriving independents but Barnes & Noble devotes less and less space to books in each store and closes stores slowly but steadily), the increase in the percentage of books purchased online will continue to rise. That undercuts the power of the big publishers relative to competitors, increases the clout of both Amazon and Barnes & Noble, and ratchets up the importance of digital marketing.

2. The margins for big publishers have appeared to improve in the past few years, probably because they retain a bigger share of their revenue from ebooks than they did for print books. Part of that is because the waste of books printed and not sold (and sometimes picked, packed, shipped, and processed as a return) has been drastically reduced. And some overheads, like warehouse space, have been reduced. But another part of is that author royalty of 25% of revenue is better for publishers than the list-based royalties they pay on print. However, the improved margins will be hard to retain. Amazon and Barnes & Noble hold high cards in their negotiations with publishers since they are dominant paths to the online and store-shopping markets, respectively. And even if the contractual 25 percent royalty is slow to change, the big authors will almost certainly be demanding (and getting) advances based on the total margin expectation, not the 25 percent. And the price of ebooks is going to continue to be driven down, also not a good thing for the publishing establishment.

3. Publishing will continue to favor scale. The Big Five houses will monopolize the big authors and the bestseller lists, as they have, and the lion’s share of authors who are predictably headed for the list will be signed with one of them. But this is not a battle among equals: Penguin Random House is as big as the other four combined. As each author becomes a “free agent” on the expiration of current contracts, PRH will be in a position to use its (already) deeper pockets and its (expected, by me) superior distribution capability to take authors away from the other four. This is a battle in which it is hard to see what weapons the other four have. One of their CEOs pins hopes on authors being more inclined to be number one or two with another house than number 20 with PRH. Another told me their belief is that PRH doesn’t want to wipe everybody else out. Certainly, agents will do what they can to maintain a competitive environment, but more money speaks very loudly and PRH is going to have the ability to offer it more frequently than anybody else. I believe we will start to see “takeovers” that occur one author at a time.

4. The verticalization of publishing will continue to separate the straight text books from all the rest. The Random House part of PRH had largely removed itself from the illustrated books sphere before the merger. One has to guess at the reasons for this, but it would seem logical that the failure of illustrated books to work commercially as ebooks was a factor. It is not clearly apparent whether the other big trade houses are doing the same. At the same time, we see two publishers who do primarily illustrated books — F+W Media and Quarto Publishing — growing and acquiring. What is interesting is that they appear to be pursuing diametrically opposite strategies. F+W is emphasizing community development and, in effect, using its print base as a platform to build a digital business. Quarto is emphasizing expanding its ability to distribute illustrated print books globally. Just as PRH will apply its scale to create competitive advantage against other publishers pursuing books primarily meant to be read, F+W and Quarto will have scale that will make it increasingly difficult for illustrated book publishers to compete with them in the areas where they publish. Since neither of them focuses on art and museum publishing, that also leaves room for Abrams to grow in that area. (It is quite possible that the strategies of both F+W and Quarto will “work”, setting up a mega-merger some years down the line.)

5. We have seen a sea change in author options. Most of the big houses have ridden that out very well. Although many authors in a position to do so reclaimed digital rights to their backlist and self-published those titles, authors by and large have not deserted major houses (and big advances) for alternative publishing means, even when Amazon hired a big publishing CEO to manage their checkbook. But we’re now on the verge of another revolution: entity self-publishing. That means newspapers and magazines and brands of all sorts will be using the infrastructure created for indie authors to make content available for sale. This could be more disruptive to publishers than the indie authors have been. Like indie authors, self-publishing brands will be inclined to drive down retail prices in the marketplace. And they’ll have marketing dollars behind them. As they grow their own little cottage publishing operations, they’ll also be a threat to “steal” a big author from time to time, especially when the print-in-store share drops to a small fraction of the total market, which it will.

6. Being a retailer in this space isn’t going to be a bed of roses either. Amazon already has the right answer: they have always used book retailing as a customer acquisition tool and they have a slew of other ways to boost the lifetime value of any customer they get. But they also have been the beneficiaries of an extremely patient investment community, and it is hard to tell how much it might crimp their style if their stock valuation became more “normal”. (I am not going so far as to say this is happening now, although the share price has taken a tumble in the week or so since their last report.) As readers progress away from dedicated devices for reading, it gets easier for the other major retailers to steal Kindle customers. (It also gets easier for Kindle to steal theirs.) Who knows how disruptive he can be, but Kieron Smith, who created the only previous serious global threat to Amazon as a print retailer (called The Book Depository, which Amazon then bought), is at it again with BestLittleBookshop.com. Barnes & Noble just has to manage decline. It will be no surprise if they have to abandon the digital publishing business (Nook) to save the investment for their stores. And they have to invent something they haven’t yet to give the stores something to become besides “smaller”. But the two of them will cushion whatever difficulties they have in the near term by taking more and more of the consumer’s dollar from the publishers and it will be very hard for the publishers to prevent that from happening.

7. There are definitely some expanding opportunities for publishers. Schools and colleges will be growth markets for trade books, once the roads to the customers for them are paved. They aren’t yet. Both publishers and 3rd party aggregators are building “platforms” that combine the content with teaching and assessment tools. Deals will develop, over time, for trade publishers to license their content through these platforms. Another opportunity for publishers in our world arises because the big global ebook retailers are English-language and North America based. The big publishers here have a natural advantage selling to them, which could suck revenue away from publishers all over the world — both by publishers here taking over distribution for publishers elsewhere and by the more direct route of English-language publishers starting to do their own other-language editions.

In the US, we already have one dominant brick-and-mortar retailer and one dominant online retailer. We may be on our way to one dominant global English-language publisher of books to be read with a competition between two others for dominance of books to be looked at. There will be no shortage of diversity of publishing “voices”, but many of them will be doing it as a function supporting another business, not as a stand-alone commercial proposition. Publishers and others are building vertical communities of interest of all sorts, with many of those likely to become part of the “book publishing” infrastructure of the future, as creators, as publishers, and as retailers. None of this will happen overnight but there is almost certainly more disruption of the 20th century publishing business facing us over the next decade.

As of this posting, there are still a few days left for readers of The Shatzkin Files to help us shape the program for Digital Book World 2015. Go to our survey and fill it out and your opinion will be included in our thinking as we map out the program for next January.